(Reuters) -The top U.S. watchdog agency for consumer financial protection announced on Wednesday proposed regulations it said would require mortgage servicers to offer help to borrowers in difficulty before resorting to foreclosure.
The new draft rules would also help protect investors from losses incurred when borrowers are unable to pay, according to the U.S. Consumer Financial Protection Bureau (CFPB), which said temporary changes during the COVID-19 pandemic for borrowers facing sudden hardship helped inspire the proposal.
"When struggling homeowners can get the help they need without unnecessary obstacles, it is better for borrowers, servicers, and the economy as a whole," Rohit Chopra, director of the CFPB, said in a statement.
If finalized, the rules would require that servicers only proceed with foreclosure after exhausting all possibilities for assistance or if the borrower has stopped communicating with the servicer.
In a statement released by the CFPB, Vice President Kamala Harris, who has been the subject of political speculation that she might replace President Joe Biden as the Democratic nominee in November's elections, endorsed the policy, saying it would help homeowners "stay in their homes, grow their equity, and keep their families safe."
The changes, which follow the agency's request for public comments in 2022, would also reduce the amount of paperwork required in seeking assistance, which would begin when a borrower asks for assistance, and would require that borrowers receive important information in languages they understand best.
Ahead of the announcement, CFPB officials told reporters they would wait to see public reactions before deciding when a final rule might take effect.
Agency officials also said the proposed changes would not apply to small mortgage servicers, or those handling fewer than 5,000 loans, a category comprising 95% of all servicers.