Regulation X Updates and The Role of AI and Real-Time Data For Mortgage Servicers

On July 10, the Consumer Financial Protection Bureau (CFPB) released its first significant update to Regulation X in nearly ten years. The CFPB’s proposed updates seek to streamline mortgage servicing for borrowers by making substantial changes to the loss mitigation application, appeals and early intervention rules. Ahead of the CFPB’s September 9, 2024, comment deadline and expected implementation in 2026, the incorporation of AI and real-time data will be vital tools for mortgage servicers updating their platforms to stay compliant and best serve homeowners.

Following the passage of the Dodd-Frank Act, which created the CFPB, Regulation X was released in 2013 in response to lessons learned during the 2008 financial crisis. Regulation X dates back to the Real Estate Settlement Procedures Act (RESPA) of 1974 and contains regulations for both loan originators and servicers. 

In 2022, the CFPB began the process of proposed Regulation X changes by issuing an industry-wide request for information regarding refinance programs, products and long-term loss mitigation assistance. One of the most significant changes are updates to the existing application-based framework for loss mitigation.

Currently, Regulation X requires servicers to collect a complete application before deciding on loss mitigation options available to the consumer. Under the proposed rule, a servicer would not have to collect a complete application before making a loss mitigation determination. This is a significant change for servicers who will have the opportunity to advise homeowners earlier in the process and implement AI tools to guide decision making and increase efficiency.

Additionally, the proposed updates create a newly defined “loss mitigation review cycle” which includes an effective timeframe for foreclosure safeguards. This review cycle begins when a borrower requests assistance and ends when the loan is brought current, or all loss mitigation options are exhausted. For servicers, real-time, end-to-end data will be key in helping consumers through the review cycle.

The updates to Regulation X will also require servicers to provide additional information to borrowers in all early intervention notices. This will include the name of the owner of the loan, descriptions of the loss mitigation options available from the loan’s owner, and a website where these options can be accessed. Indeed, ahead of the expected 2026 implementation of the Regulation X updates, servicers must evaluate their tech stack’s ability to carry out these changes.

Mortgage servicers will also be responsible for providing loss mitigation appeal rights and determination notices for every type of loss mitigation. Previously, Regulation X only required notices when an application for loss mitigation was denied. Going forward, it will be mandatory that these notices detail the evaluation characteristics that were the basis for the loss mitigation determination, a list of loss mitigation options still available to the borrower, and information about prior loss mitigation options that were not accepted by the borrower.

The loss mitigation process will be completely transformed for both homeowners and their servicers. With new disclosure requirements, loss mitigation review timelines, and application notices required of servicers, AI and other technology tools will be vital to servicers’ success in

implementing broad changes to their platforms while maintaining seamless customer service operations.

Sagent, and our one-of-a-kind servicing system – Dara – is uniquely equipped to help our homeowners with lost mitigation as required with the new Regulation X updates. Dara is the first mortgage software platform to unify all data and user experiences for servicers and homeowners across the entire servicing lifecycle. Its six core tenets include: Core, Data, AI, Default, Movement, and Consumer (Loss Mitigation).

Automation and real-time data are at the heart of Dara Loss Mitigation, increasing efficiencies for both servicers and homeowners. Dara delivers an end-to-end digital experience, collecting all necessary information needed to complete a claim within a single, straightforward question-and-answer application. Dara’s application of AI and real-time data updates will be crucial to seamlessly integrating Regulation X updates.

Increased transparency for borrowers is a key theme of the CFPB’s Regulation X updates. Fortunately, Dara Loss Mitigation has already been working to provide homeowners with real-time updates and visibility into the status of their claims and submitted documents. This provides peace of mind to homeowners facing hardship and an opportunity for servicers to afford personalized customer service.

Technology, including AI and real-time data integration, will be essential to servicers looking to flawlessly implement Regulation X loss mitigation updates ahead of the expected 2026 effective date. By leveraging technology to improve the consumer experience, mortgage servicers will be able to set themselves apart in America’s $14 trillion mortgage servicing industry.

Matt Tully serves as the Chief Compliance Officer at Sagent.