[Federal Register Volume 87, Number 186 (Tuesday, September 27, 2022)]
[Notices]
[Pages 58487-58492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20898]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

[Docket No. CFPB-2022-0059]


Request for Information Regarding Mortgage Refinances and 
Forbearances

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Request for information.

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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) is 
seeking comment from the public about (1) ways to facilitate mortgage 
refinances for consumers who would benefit from refinancing, especially 
consumers with smaller loan balances; and (2) ways to reduce risks for 
consumers who experience disruptions in their financial situation that 
could interfere with their ability to remain current on their mortgage 
payments.

DATES: Comments must be received by November 28, 2022.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2022-
0059, by any of the following methods:
     Electronic: Go to https://www.regulations.gov. Follow the 
instructions for submitting comments.
     Email: [email protected]. 
Include Docket No. CFPB-2022-0059 in the subject line of the message.
     Mail/Hand Delivery/Courier: Comment Intake Mortgage 
Refinances and Forbearances RFI, Consumer Financial Protection Bureau, 
1700 G Street NW, Washington, DC 20552.
    Instructions: The Bureau encourages the early submission of 
comments. All submissions must include the document title and docket 
number. Please note the number of the topic on which you are commenting 
at the top of each response (you do not need to address all topics). 
Because paper mail in the Washington, DC area and at the Bureau may be 
subject to delay, commenters are

[[Page 58488]]

encouraged to submit comments electronically. In general, all comments 
received will be posted without change to http://www.regulations.gov. 
In addition, comments will be available for public inspection and 
copying at 1700 G Street NW, Washington, DC 20552, on official business 
days between the hours of 10 a.m. and 5 p.m. eastern time. You can make 
an appointment to inspect the documents by telephoning 202-435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Proprietary information or sensitive personal information, such as 
account numbers or Social Security numbers, or names of other 
individuals, should not be included. Comments will not be edited to 
remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Daniel Tingley, Counsel, or Mark 
Morelli, Ruth Van Veldhuizen, or Priscilla Walton-Fein, Senior 
Counsels, Office of Regulations, at 202-435-7700. If you require this 
document in an alternative electronic format, please contact 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    America's housing finance system provides important opportunities 
for consumers to access credit for housing and strengthen their 
financial standing. When broader macroeconomic forces result in 
declining interest rates, transparent and competitive markets should 
allow borrowers to benefit from lower rates, including through 
refinancing opportunities.\1\ These lower interest rates may allow 
borrowers to improve their financial condition by reducing their 
monthly payments, allowing borrowers to save more or pay down their 
mortgages more rapidly, making it easier for them to build wealth and 
equity. In addition, when that equity is threatened by temporary 
disruptions in the economy or in consumers' lives, products and 
policies that offer repayment flexibility may help mitigate those 
risks. In this Request for Information (RFI), the Bureau is seeking 
information about ways to help ensure that consumers have access to 
these opportunities. In particular, the Bureau is requesting 
information about (1) ways to facilitate residential mortgage loan 
refinances for borrowers who would benefit from refinances, especially 
borrowers with smaller loan balances; \2\ and (2) ways to reduce risks 
for borrowers who experience disruptions that could interfere with 
their ability to remain current on their mortgage payments.
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    \1\ Although mortgage interest rates are higher than they were 
one year ago, they have fluctuated in recent months and remain 
sensitive to monetary policy changes and market forces. See https://www.freddiemac.com/pmms (last visited Sept. 15, 2022). Accordingly, 
even with higher current interest rates, short-term fluctuations or 
market developments may provide some consumers with opportunities to 
refinance.
    \2\ Smaller loan balances are generally defined as balances 
substantially lower than the national average. Policymakers and 
researchers have used a range of specific dollar thresholds for 
defining smaller loan balances, including mortgages below $114,847 
(current General QM threshold), below $150,000 (Kenneth P. Brevoort, 
Do Low Mortgage Balances Limit Refinancing Opportunities? (July 14, 
2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4163151, 
Pew Charitable Trusts Home Fin. Project, https://www.pewtrusts.org/en/projects/home-financing (last visited Sept. 15, 2022)), or below 
$70,000 (Bing Bai et al., Small-Dollar Mortgages for Single-Family 
Residential Properties, Policy Discussion Paper Series 93558, Fed. 
Reserve Bank of Chic. (2018), https://ideas.repec.org/p/fip/fedhpd/93558.html). See Bureau of Consumer Fin. Prot., Truth in Lending 
(Regulation Z) Annual Threshold Adjustments (Credit Cards, HOEPA, 
and Qualified Mortgages) (Nov. 2, 2021) https://www.consumerfinance.gov/rules-policy/final-rules/truth-lending-regulation-z-annual-threshold-adjustments-card-act-hoepa/; Brevoort, 
supra; Pew Charitable Trusts Home Fin. Project, supra; Bai et al., 
supra.
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A. Facilitating Beneficial Refinances

    Most borrowers seeking to lower their interest rate must refinance 
their mortgage. But recent research has shown that many consumers do 
not take advantage of falling market interest rates by refinancing. 
Some borrowers may find it challenging to determine whether they are 
likely to benefit from refinancing. In general, for refinancing to be 
beneficial for consumers, the costs of refinancing must be offset by 
the benefits of lower interest rates. While these benefits are greater 
for borrowers with large loan balances and those who stay in their 
homes longer, other borrowers may also benefit from refinancing to a 
lower interest rate. If these consumers do not refinance, they can 
experience adverse long-term financial consequences. In particular, 
they are likely to continue paying higher interest rates, leading them 
to accumulate less wealth over time and potentially face a higher risk 
of default than they would have if they had refinanced.\3\
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    \3\ Several studies have leveraged policy-induced variation in 
the availability of refinances to estimate causal declines in 
mortgage default for borrowers who refinance. See Joshua Abel & 
Andreas Fuster (2021), How Do Mortgage Refinances Affect Debt, 
Default, and Spending? Evidence from HARP, Am. Econ. Journal: 
Macroeconomics, https://www.aeaweb.org/articles?id=10.1257/mac.20180116; Kadiri Karamon, Douglas McManus & Jun Zhu (2017), 
Refinance and Mortgage Default: A Regression Discontinuity Analysis 
of HARP's Impact on Default Rates, Journal of Real Estate Fin. & 
Econ., https://ideas.repec.org/a/kap/jrefec/v55y2017i4d10.1007_s11146-016-9566-z.html.
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    One particular area of concern is the availability of refinance 
opportunities for consumers with smaller loan balances. Larger 
mortgages make up a growing share of the mortgage market, with smaller 
mortgages comprising a steady or declining share.\4\ If the market 
provides limited opportunities for consumers to refinance smaller 
mortgages, Black and Hispanic consumers and consumers with low to 
moderate incomes would be disproportionately affected, as they are more 
likely to own homes with lower market values.\5\ These patterns may 
have contributed to the much lower rate of refinancing by Black and 
Hispanic consumers during recent periods of low interest rates.\6\ The 
Bureau is also concerned about the relative availability of refinance 
opportunities for consumers in rural areas, whose property might 
similarly have lower market values than in higher-priced geographic 
regions.
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    \4\ Bai et al., supra.
    \5\ Id.
    \6\ Kristopher Gerardi, Laurie Lambie-Hanson & Paul Willen 
(2021), Racial Differences in Mortgage Refinancing, Distress, and 
Housing Wealth Accumulation during COVID-19, Fed. Reserve Bank of 
Boston Current Policy Perspectives, https://www.bostonfed.org/publications/current-policy-perspectives/2021/racial-differences-in-mortgage-refinancing-distress-and-housing-wealth-accumulation-during-covid-19.aspx.
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    Several factors may help explain the differences in rates of 
refinancing. The large fixed costs of mortgage origination may limit 
the availability of mortgages for consumers with smaller loan balances, 
including beneficial refinances. The benefits of refinancing a smaller 
loan may be insufficient to offset the costs of refinancing. In 
addition, creditor capacity constraints and lower profitability on 
refinances of smaller loan balances may limit access to beneficial 
refinances for some borrowers. Research has shown that some--but not 
all--of the differences in refinancing rates across the population can 
be explained by common risk-based underwriting factors like credit 
scores and loan-to-value ratios.\7\ In addition, for consumers who 
primarily shop for credit in their local neighborhoods, a geographic 
concentration of higher cost lenders may lead to higher costs or 
reduced availability of refinancing

[[Page 58489]]

options.\8\ Finally, researchers have noted more difficult-to-quantify 
potential barriers, including consumers' shopping behavior,\9\ trust of 
financial institutions,\10\ or the complexity and documentation 
involved in the refinancing process.\11\
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    \7\ Kristopher Gerardi, Paul Willen & David Hao Zhang (2020), 
Mortgage Prepayment, Race, and Monetary Policy, Fed. Reserve Bank of 
Atl. Working Paper Series, https://www.bostonfed.org/publications/research-department-working-paper/2020/mortgage-prepayment-race-and-monetary-policy.aspx (Gerardi et al.).
    \8\ Gerardi et al., supra, find a role for neighborhood in 
disparities, but Bhutta & Hizmo (2021) find no price disparities 
within creditor: Combining these two findings suggests that the 
composition of creditors serving different neighborhoods may play a 
role. Frame, Huang, Mayer & Sunderam (2022) also find that minority 
underrepresentation among mortgage loan officers has adverse effects 
on credit access for minority consumers. See Neil Bhutta & Aurel 
Hizmo, Do Minorities Pay More for Mortgages?, Review of Fin. 
Studies, Vol. 34, Issue 2 (Feb. 2021), https://doi.org/10.1093/rfs/hhaa047; and W. Scott Frame, Ruidi Huang, Erik J. Mayer & Adi 
Sunderam (2022), The Impact of Minority Representation at Mortgage 
Lenders, NBER Working Paper No. 30125, https://www.nber.org/papers/w30125.
    \9\ Alexei Alexandrov & Sergei Koulayev (2017), No Shopping in 
the U.S. Mortgage Market: Direct and Strategic Effects of Providing 
Information, Consumer Fin. Prot. Bureau Office of Research Working 
Paper No. 2017-01, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2948491; Neil Bhutta, Andreas Fuster & Aurel 
Hizmo (2020), Paying Too Much? Price Dispersion in the U.S. Mortgage 
Market, FEDS Working Paper, Bd. of Governors of the Fed. Reserve 
Sys., https://www.federalreserve.gov/econres/feds/paying-too-much-price-dispersion-in-the-us-mortgage-market.htm.
    \10\ Eric J. Johnson, Stephan Meier & Olivier Toubia (Feb. 
2019), What's the Catch? Suspicion of Bank Motives and Sluggish 
Refinancing, Rev. of Fin. Studies, Vol. 32, Issue 2, https://doi.org/10.1093/rfs/hhy061.
    \11\ Anthony A. DeFusco & John Mondragon (2020), No Job, No 
Money, No Refi: Frictions to Refinancing in a Recession, Journal of 
Fin., https://onlinelibrary.wiley.com/doi/10.1111/jofi.12952; Thomas 
Piskorski & Amit Seru (2018), Mortgage Market Design: Lessons from 
the Great Recession, Brookings Papers on Econ. Activity, https://www.brookings.edu/wp-content/uploads/2018/03/PiskorskiSeru_Text.pdf.
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    The Bureau is requesting information to better understand what 
barriers may prevent consumers from accessing falling interest rates 
and what interventions could lower those barriers, particularly for 
borrowers with smaller loan balances. Several potential policies and 
mortgage products are discussed below, and the Bureau requests 
information on the benefits and limitations of these ideas, as well as 
on alternative options to help consumers access lower interest rates.
1. Targeted and Streamlined Refinances
    As described above, mortgage refinancing has the potential to 
provide important benefits to consumers through reductions in interest 
rates and monthly payments. During periods of falling interest rates, 
widely available refinancing allows homeowners to benefit from lower 
borrowing costs. In some circumstances, refinances can help borrowers 
at risk of delinquency and default. Targeted and ``streamlined'' 
refinance programs have been used to facilitate refinancing through 
reduced underwriting and documentation requirements, typically with 
lower transaction costs than traditional refinances. These programs, 
which may have specific eligibility requirements, are largely aimed at 
lowering interest rates and monthly payments for consumers who may 
otherwise be unlikely or unable to refinance.
    Despite its potential benefits, refinancing also can pose risks to 
consumers. Serial refinancing \12\ can be costly and reduce borrowers' 
equity in their property. Many targeted and streamlined refinance 
programs include protections against potential harms associated with 
refinances, such as requirements that the new loan reduce the 
consumer's monthly payment and interest rate by certain threshold 
amounts and seasoning requirements. Some programs either prohibit or 
limit cash-out payments from the refinance.
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    \12\ Serial refinancing is used herein to mean repeat refinances 
over a short period of time. In some cases, serial refinancing, 
which was a common practice in the period leading up to the 2008 
financial crisis, is the result of lenders engaging in loan churning 
to extract fees from a consumer.
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    Targeted and streamlined refinance programs played a significant 
role in facilitating beneficial refinances during the period that 
followed the financial crisis, particularly for borrowers who were 
otherwise unable to refinance due to declines in their home value. 
During this period, the Federal Housing Administration (FHA), U.S. 
Department of Veterans Affairs (VA), and U.S. Department of Agriculture 
(USDA), which have historically offered streamlined refinance programs 
with reduced underwriting requirements, expanded their programs to 
facilitate refinancing for consumers at risk of delinquency and 
default.\13\ Similarly, after the Federal National Mortgage Association 
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie 
Mac) (collectively, the GSEs) were placed into Federal conservatorship 
in late 2008, the Federal Housing Finance Agency (FHFA) created new 
refinance programs with the aim of mitigating foreclosures for 
consumers with existing GSE loans. FHFA announced the Home Affordable 
Refinance Program (HARP) in March 2009, which allowed consumers with 
high loan-to-value (LTV) ratios to refinance into lower interest rates 
with reduced documentation and underwriting requirements and relatively 
few eligibility criteria.\14\ HARP was expanded and renewed multiple 
times before expiring on December 31, 2018.\15\ FHFA and the GSEs 
implemented other high LTV refinance programs and provided some 
refinance options to borrowers with existing GSE loans who were not 
eligible for HARP.\16\ More recently, FHFA and the GSEs implemented 
targeted programs aimed at encouraging refinances for low- and 
moderate-income consumers, who have been less likely than higher-income 
consumers to take advantage of a low interest rate environment.
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    \13\ For a discussion of these programs, see 78 FR 35430, 35436 
(June 12, 2013).
    \14\ See Press Release, U.S. Dep't of Treas., Relief for 
Responsible Homeowners (Mar. 4, 2009), http://www.treasury.gov/press-center/press-releases/Pages/200934145912322.aspx.
    \15\ See Press Release, Fed. Hous. Fin. Agency (Aug. 17, 2017), 
https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Modifications-to-High-LTV-Streamlined-Refi-Program-and-Extension-of-HARP-Thru-12-2018.aspx. The HARP program was originally set to 
expire in June 2010 and was limited to consumers with an LTV ratio 
that did not exceed 105 percent. However, HARP was modified over 
time and the GSEs and FHFA eventually removed the LTV ratio cap, 
facilitating refinances for all underwater consumers who otherwise 
fit HARP's criteria. See Fed. Hous. Fin. Agency Refinance Report 
(June 2012).
    \16\ For example, Fannie Mae's Refi Plus program and Freddie 
Mac's Relief Refinance program provided streamline refinancing 
opportunities to consumers with LTV ratios of less than 80 percent.
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    As part of the Bureau's monitoring of the mortgage market, some 
stakeholders suggested that changes to the Bureau's ability-to-repay/
qualified mortgage rule (ATR-QM rule) could play a role in facilitating 
beneficial refinances through targeted and streamlined programs, citing 
the current rule as contributing to some existing frictions to 
refinancing. While refinances originated pursuant to Federal agency 
programs are not subject to the Bureau's ATR-QM rule,\17\ most other 
refinance transactions are subject to the rule.\18\ Under the ATR-QM 
rule,

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a creditor is prohibited from originating a covered mortgage without 
making a reasonable and good faith determination, based on verified and 
documented information, that the consumer will have a reasonable 
ability to repay the loan.\19\ To satisfy the ability-to-repay 
provisions of the rule, the creditor must, at a minimum, consider and 
verify eight underwriting factors, including the consumer's current or 
reasonably expected income or assets and current employment status. 
Loans that satisfy the requirements to be a QM are presumed to comply 
with the ability-to-repay requirement.\20\ The ATR-QM rule defines 
several categories of QMs, all of which require the creditor to 
consider and verify the consumer's income or assets relied on in making 
the loan.\21\
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    \17\ TILA section 129C(a)(5) gave authority to FHA, VA, and USDA 
to exempt from the income verification requirement of the ATR-QM 
rule certain streamlined refinances made, guaranteed, or insured by 
those agencies if certain conditions are met. In addition, TILA 
section 129C(b)(3)(B)(ii) requires those Federal agencies to 
prescribe rules related to the definition of qualified mortgage (QM) 
for their loan programs. Those agencies have defined categories of 
loans made pursuant to streamlined refinance programs that are QMs 
and therefore presumed to comply with the ability to repay 
requirement. See 78 FR 75215 (Dec. 11, 2013) (providing the QM 
definition for FHA loans); 79 FR 26620 (May 9, 2014) (providing the 
ability to repay standards and QM definition for VA loans); 81 FR 
26461 (May 3, 2016) (providing the QM definition for RHS loans).
    \18\ 12 CFR 1026.43(a) and comment 43(a)-1. Regulation Z 
provides a special rule for creditors refinancing a non-standard 
mortgage--defined as an adjustable-rate mortgage with an 
introductory fixed interest rate for a period of one year or longer, 
an interest-only loan, or a negative amortization loan--into a 
standard mortgage. Under this option, a creditor refinancing a non-
standard mortgage into a standard mortgage does not have to consider 
the specific underwriting criteria required by the ATR-QM rule, if 
certain conditions are met. These conditions include a requirement 
that the monthly payment for the standard mortgage be ``materially 
lower'' than the monthly payment for the non-standard mortgage and 
payment history requirements. This option is available only for 
refinances where the creditor for the standard mortgage is the 
current holder or servicer of the non-standard mortgage. 12 CFR 
1026.43(d).
    \19\ 12 CFR 1026.43(c).
    \20\ 12 CFR 1026.43(e).
    \21\ Until recently, loans made pursuant to GSE refinance 
programs were generally eligible for QM status under the Temporary 
GSE QM loan definition. Under that definition, loans were presumed 
to comply with the ATR-QM rule as long as the loans (1) met the 
rule's prohibitions on certain loan features and limits points and 
fees; and (2) were eligible to be purchased or guaranteed by the 
GSEs while under FHFA conservatorship. Under this definition, GSE-
backed refinances could obtain QM status even if the loan did not 
meet the requirements applicable under other QM definitions (for 
example, verification of income and employment). In 2013, the Bureau 
proposed to temporarily exempt from the ATR-QM rule certain 
streamlined refinances made pursuant to GSE refinance programs 
because of concerns that the ATR requirements could restrict credit 
access for consumers seeking to refinance through HARP and other GSE 
programs aimed at assisting at-risk consumers. See 78 FR 6621, 6650-
51 (Jan. 30, 2013). However, the Bureau later withdrew that 
proposal. In withdrawing the proposal, the Bureau noted that loans 
that would have been eligible for the proposed exemption were 
eligible for QM status under the Temporary GSE QM loan definition, 
which the Bureau determined struck the appropriate balance between 
preserving consumers' rights to seek redress for violations of TILA 
and ensuring access to responsible, affordable credit. See 78 FR 
35430, 35473-74 (June 12, 2013).
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    Research has suggested that frictions in the refinance process, 
including potentially documentation requirements under the ATR-QM rule, 
may limit some refinancing opportunities that could benefit consumers. 
In the course of the Bureau's market monitoring, some stakeholders have 
asserted that it may be appropriate to address those frictions in some 
circumstances in which borrowers would receive a demonstrated benefit 
from refinancing, such as lower interest rates or lower monthly 
payments, and where other protections are in place, such as protections 
against serial refinances.
    Consistent with the Bureau's overall goal of ensuring that 
consumers have access to the financial opportunities presented by the 
housing finance system, the Bureau is requesting information about 
whether and how the Bureau can facilitate beneficial refinances through 
targeted and streamlined refinance programs. The Bureau is also 
requesting information about whether and how the Bureau's existing 
rules, including the ATR-QM rule, could be amended to facilitate 
beneficial refinances while preserving important protections for 
consumers.
2. New Products To Facilitate Beneficial Refinances
    Some creditors have introduced mortgage products designed generally 
to promote beneficial refinances by, for example, offering reduced 
closing costs for future refinances with that same creditor.\22\ 
Another potential option that could allow more consumers to take 
advantage of lower interest rates is through the introduction of other 
new mortgage products that would further facilitate refinances or allow 
more borrowers to obtain the benefits of lower interest rates without 
refinancing. Examples of these products include loans that would 
automatically trigger an offer to refinance or would reduce the loan's 
interest rate in certain circumstances, which might benefit homeowners 
by allowing them to make lower monthly payments or pay less total 
interest over the duration of the loan. The Bureau is seeking 
information about the risks and benefits if creditors were to develop 
and offer new mortgage products with these or similar features.
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    \22\ See, e.g., Brandon Ivey, Lenders Getting Innovative as Refi 
Business Dwindles, Inside Mortg. Fin. (Aug. 4, 2022), https://www.insidemortgagefinance.com/articles/225298-lenders-getting-innovative-as-refi-business-dwindles.
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    In particular, some researchers and stakeholders have proposed that 
creditors should offer an ``auto-refi'' mortgage.\23\ An ``auto-refi'' 
mortgage is a mortgage loan that provides for automatic or streamlined 
refinancing in the future when certain market conditions are met, with 
little or no affirmative action by the consumer. This product might 
decrease borrowing costs for consumers who would otherwise not 
refinance their loans for a variety of reasons, including the 
complexity of the refinancing process, documentation requirements, lack 
of knowledge or time, or creditor marketing practices. It might also 
simplify the refinancing process for consumers who anticipate mortgage 
interest rates are likely to decrease over the life of the loan. On the 
other hand, the Bureau notes that there may be impediments or risks 
associated with the auto-refi mortgage if consumers lack comfort with 
the concept or creditors find it difficult to price, competitively 
market, and sell these products on the secondary market. In addition, 
depending on how the product is structured, an auto-refi mortgage that 
repeatedly refinances might result in extended indebtedness for some 
borrowers.
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    \23\ See, e.g., Kanav Bhagat, Extending the Benefits of Mortgage 
Refinancing: The Case for the Auto-Refi Mortgage (Oct. 6, 2021), 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3927174.
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    An alternative product that might provide benefits similar to an 
auto-refi is a ``one-way adjustable rate'' mortgage (or one-way ARM). A 
one-way ARM loan, which involves only a rate change, not a refinancing, 
could have an adjustable interest rate that automatically decreases 
with market rates but never increases. A variation of this product 
could have an interest rate that automatically fluctuates with the 
market but never rises above its original rate. Like the auto-refi 
mortgage, a one-way ARM might allow more consumers to obtain the 
benefits of lower interest rates without undergoing the full, 
traditional refinancing process. Similarly, however, this product might 
be difficult for consumers to understand or challenging for creditors 
to competitively market, price, and sell on the secondary market.

B. Forbearances and Other Loss Mitigation

    In the early months of the COVID-19 pandemic, economic activity 
contracted, and millions of workers lost their jobs. In response, 
Congress passed, and the President signed into law, the Coronavirus 
Aid, Relief, and Economic Security Act (CARES Act).\24\ One key 
provision of the CARES Act required servicers of federally backed 
mortgages to grant a borrower's request for up to 180 days of 
forbearance if the consumer attested to a COVID-19-related financial 
hardship, with the option to extend the forbearance period for an 
additional 180 days at the request of the borrower. Guidance from 
Fannie Mae and Freddie Mac, the FHA, the VA, and the USDA extended the 
length of their COVID-19 forbearance programs an additional six months 
for a maximum forbearance

[[Page 58491]]

period of 18 months.\25\ Privately owned mortgages were not covered by 
the CARES Act, but many servicers and investors offered similar 
forbearance programs for those borrowers.
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    \24\ Public Law 116-136, 134 Stat. 281 (2020).
    \25\ See, e.g., Fed. Hous. Fin. Agency, FHFA Extends COVID-19 
Forbearance Period and Foreclosure and REO Eviction Moratoriums 
(Feb. 25, 2021), https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Extends-COVID-19-Forbearance-Period-and-Foreclosure-and-REO-Eviction-Moratoriums.aspx; Press Release, The White House, Fact 
Sheet: Biden Administration Announces Extension of COVID-19 
Forbearance and Foreclosure Protections for Homeowners (Feb. 16, 
2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/16/fact-sheet-biden-administration-announces-extension-of-covid-19-forbearance-and-foreclosure-protections-for-homeowners/. 
Insurers and guarantors of mortgages typically provide detailed 
servicing guidelines, including guidelines related to loss 
mitigation, that servicers must follow.
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    These forbearance programs are an example of streamlined short-term 
loss mitigation solutions that have helped maintain the stability of 
the mortgage market during the pandemic, providing benefits to 
consumers, as well as investors. Over the course of the pandemic, 8.2 
million borrowers have entered a forbearance program, and as of July 
2022, 93 percent have exited.\26\ Most forbearance exits have been 
successful--52 percent of consumers who took forbearance have resumed 
making regular mortgage payments and 32 percent have paid off their 
mortgage in full. As of July 2022, just 4 percent are delinquent on 
their mortgage and 1 percent are in active foreclosure.\27\ Of the 
post-forbearance consumers who are in active foreclosure, about 65 
percent were behind on their mortgage payments going into the 
pandemic.\28\ As of July 2022, mortgage delinquency and foreclosure 
levels were below pre-pandemic levels.\29\
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    \26\ Black Knight Mortg. Monitor, July 2022 Report at 24 (July 
2022), https://www.blackknightinc.com/wp-content/uploads/2022/09/BKI_MM_July2022_Report.pdf (Black Knight July 2022 Report).
    \27\ Id.
    \28\ Black Knight Mortg. Monitor, April 2022 Report at 7 (Apr. 
2022), https://www.blackknightinc.com/wp-content/uploads/2022/06/BKI_MM_Apr2022_Report.pdf.
    \29\ Black Knight July 2022 Report at 4.
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    Given the apparent overall success of forbearance programs and 
other streamlined loss mitigation solutions in connection with the 
COVID-19 pandemic, the Bureau is requesting comment on the actions it 
or others can take or should consider taking to spur automatic and 
streamlined short and long-term loss mitigation offers for borrowers 
with mortgages impacted by temporary financial hardship more generally 
(i.e., not just as a result of the financial impacts of the pandemic). 
The Bureau is particularly interested in receiving information about 
what features of these COVID-era short and long-term loss mitigation 
programs should be made more generally available to borrowers, and in 
particular, if there are ways to automate and streamline the offering 
of short and long-term loss mitigation solutions. The Bureau is 
interested in ensuring that homeowners who are economically affected by 
events such as natural disasters are able to receive timely payment 
relief that could help them avoid foreclosure.

II. Request for Comment

    This request seeks information from the public on: (1) ways to 
facilitate refinances for consumers that would benefit from refinances, 
especially consumers with smaller loan balances; and (2) ways to reduce 
risks for consumers that experience disruptions that could interfere 
with their ability to remain current on their mortgage payments. The 
CFPB welcomes comments from consumers, creditors, and other 
stakeholders, including the submission of descriptive information about 
experiences of people participating in the mortgage market, as well as 
research and other evidence. Commenters need not answer all or any of 
the specific questions posed. These questions are not meant to be 
exhaustive; the Bureau welcomes additional relevant comments on these 
important topics. For answers to specific questions, please note the 
number associated with any question to which you are responding at the 
top of each response.
Barriers to Refinancing
    1. What barriers may prevent consumers from accessing falling 
interest rates through refinancing and what solutions could lower those 
barriers, particularly for consumers with smaller loan balances? Are 
there particular issues in obtaining refinances or would any particular 
approaches be more effective for certain types of homeowners, such as 
servicemembers, older adults, and first-time homeowners?
    2. To what extent do large fixed costs of refinancing and limited 
profitability for smaller loan balances limit beneficial refinances? 
What potential policies could lower costs for beneficial refinances?
    3. How much do common risk-based underwriting factors like credit 
scores and loan-to-value ratios account for the differences in 
refinancing rates across the population?
    4. To what extent do the types of creditors offering refinance 
products in particular geographic areas affect refinancing rates in 
some areas and for some consumers?
    5. To what extent are refinancing rates affected by potential 
barriers that may be more difficult to quantify, including borrowers' 
shopping behavior, trust of financial institutions, or the complexity 
and documentation involved in the refinancing process?
    6. To what extent do consumers in rural areas face limited 
opportunities for refinances and what are the factors, including 
smaller loan balances, that may limit refinance opportunities for those 
consumers?
Targeted and Streamlined Refinances
    1. How can the Bureau support industry efforts to facilitate 
beneficial refinances through targeted and streamlined refinance 
programs?
    2. What are the current barriers to widespread use or promotion of 
existing refinance programs and, relatedly, what features of refinance 
programs are important to promoting widespread use?
    3. What protections should be included in refinance programs to 
ensure consumer benefit, such as requirements for a lower interest rate 
and monthly payments, loan term limits, limits on serial refinancing, 
and requirements to refinance the consumer into a more stable mortgage 
product?
    4. Should the Bureau's rules, including the ATR-QM rule, be amended 
to encourage beneficial refinances while preserving important 
protections for consumers? If so, how? What are the risks and benefits 
of doing so?
    5. What are the risks and benefits of removing or modifying the 
current ATR-QM requirement that a creditor must consider and verify a 
consumer's income or assets relied on in making the loan in the context 
of a refinance program?
Potential New Products To Facilitate Refinances
    1. What products or programs have lenders introduced to attempt to 
facilitate refinances for borrowers who would benefit from refinancing? 
What are the advantages and disadvantages of these products and 
programs?
    2. What are the potential benefits and drawbacks of auto-refi 
mortgages and one-way ARMs?
    3. Could creditors feasibly market and price auto-refi mortgages 
and one-way ARMs?
    4. How could creditors most effectively structure auto-refi 
mortgages?
    5. How could creditors most effectively structure one-way ARMs?
    6. How could these products be designed to minimize risks to 
consumers?

[[Page 58492]]

    7. Under what market conditions should an auto-refi mortgage 
automatically refinance? \30\
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    \30\ For example, one researcher's proposed auto-refi mortgage 
product would automatically refinance when a 0.50 percent interest 
rate reduction and 7.5 percent payment reduction can be achieved. 
See Bhagat, supra, at 14.
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    8. Under what market conditions should the rate of a one-way ARM 
change?
    9. Should these conditions be regulated or left to market forces?
    10. Do any market factors or practical difficulties, including 
secondary market liquidity and mortgage-backed securities (MBS) 
investor interest, preclude the development of auto-refi mortgages or 
one-way ARMs? How would these or similar products impact the MBS 
market?
    11. Should the Bureau amend the ATR-QM rule or other regulations to 
permit or encourage creditors to offer auto-refi mortgages or one-way 
ARMs? If so, how?
    12. Are there any other new products that creditors could feasibly 
develop that would allow more borrowers to receive the benefits of 
reduced mortgage interest rates?
    13. Would these products be prohibited or discouraged by existing 
regulations promulgated by the Bureau?
    14. Should the Bureau (or other Federal regulators) amend 
regulations to permit or encourage the development of these products?
    15. Are there other legal impediments or policies that may deter 
the introduction of auto-refi mortgages, one-way ARMs, or other new 
products that could facilitate beneficial refinances?
Forbearances and Other Loss Mitigation
    1. What are the benefits and drawbacks of automating and 
streamlining short and long-term loss mitigation offers?
    2. If such automation and streamlining of loss mitigation offers is 
incorporated within new mortgage products:
    a. How should such products be structured?
    b. How and where should such features be established (e.g., the 
note, contracts between investors and servicers, or regulations created 
or amended by the Bureau or other Federal regulators)?
    3. Under what circumstances should short or long term loss 
mitigation solutions be offered automatically? For example, should 
forbearance be offered automatically upon the declaration of a national 
emergency or presidentially declared disaster, when unemployment rates 
in the consumer's locality reach a certain level, when a borrower loses 
their job, when a co-borrower on the loan dies, or under other 
circumstances? What factors should be considered regarding these 
circumstances? Should any documentation from the consumer be required 
in any of these circumstances?
    4. For short-term loss mitigation solutions, such as forbearance, 
to what extent is there tension between the goal of offering meaningful 
immediate payment relief and the goal of ensuring that the balance owed 
does not grow so large as to make long-term loss mitigation solutions 
difficult to achieve? Should there be a maximum length of a short-term 
loss mitigation solution and, if so, what is the appropriate maximum 
length?
    5. What impact would the Bureau's mortgage servicing regulations, 
such as those relating to communications with delinquent borrowers, the 
Bureau's regulatory definition of delinquency, and the loss mitigation 
process in general, have on automating and streamlining short and long-
term loss mitigation offers?
    6. What changes, if any, should be considered relating to the 
impact that forbearances and other short-term loss mitigation solutions 
would have on a consumer's credit reporting?
    7. Should standards be set to ensure affordability of long-term 
loss mitigation solutions? If so, what features of a long-term loss 
mitigation solution would best help ensure long-term affordability? For 
example, would term extension, limits on monthly payment increases, or 
principal forgiveness assist with the goal of long-term affordability?
    8. When considering the potential automation and streamlining of 
short and long-term loss mitigation offers, would there be advantages 
or drawbacks if more creditors retained servicing of the mortgage loans 
they originate? Do payment relief advantages exist when an original 
creditor retains servicing of a mortgage loan? If so, should the Bureau 
consider ways to encourage originators to retain the servicing of 
mortgage loans?
    9. When considering the potential automation and streamlining of 
short and long-term loss mitigation offers, are there particular issues 
or would any particular approaches be more effective for certain types 
of homeowners, such as servicemembers, older adults, and first-time 
homeowners?
    10. Other than the mortgage products already mentioned in this RFI, 
are there other mortgage products or features of mortgage products that 
could help borrowers weather various financial shocks? What are the 
advantages or drawbacks of these mortgage products or features of 
mortgage products?
    11. Are there other options not mentioned in this RFI that could 
help achieve the goal of reducing risk for homeowners who are facing 
financial hardship? If so, what are those options?

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-20898 Filed 9-26-22; 8:45 am]
BILLING CODE 4810-AM-P