Industry Responds as CFPB Rolls Back COVID-Era Mortgage Servicing Protections

The Consumer Financial Protection Bureau (CFPB) has officially rolled back a key pandemic-era regulation that was designed to protect mortgage borrowers affected by COVID-19. The rule, first implemented in June 2021, was intended to prevent unnecessary foreclosures by establishing additional steps mortgage servicers had to take before proceeding with legal action. The rescission is part of the CFPB’s broader shift toward pre-pandemic regulatory standards.

Published as Docket No. CFPB-2025-0014, the newly released interim final rule (IFR) eliminates temporary protections added under Regulation X, part of the Real Estate Settlement Procedures Act (RESPA). The Bureau cited the May 11, 2023 expiration of the COVID-19 Public Health Emergency and the natural expiration of the safeguards as the primary reasons for the change.

“The Bureau finds that it has good cause to remove, without prior notice and comment, language relating to the COVID-19 pandemic added by the 2021 COVID RESPA Rule,” the document states.

What the 2021 Rule Did

The now-rescinded rule temporarily amended Regulation X to require mortgage servicers to offer loss mitigation options before initiating foreclosure. It also allowed servicers to approve certain loan modifications based on incomplete applications, helping homeowners quickly access relief during times of financial stress.

With the rollback now in effect, mortgage servicers are adjusting their procedures to comply with the reinstated pre-pandemic regulations.

Legal Perspective: What This Means for Servicers

Nicholas Perciballi, foreclosure attorney and partner at Roach & Lin P.C., shared his insights with MortgagePoint about the implications of the CFPB’s action. His firm, which is part of the Legal League network, represents lenders and mortgage servicers in matters related to foreclosure, evictions, and real estate-owned (REO) sales.

When asked how servicers should respond to the rule change, Perciballi emphasized the need for continued vigilance.

“Servicers likely won’t need to make major changes, but they must remain compliant with state-specific rules and existing federal regulations like the 45-day written notice under Regulation X Section 39(b),” he said.

Impact on Borrowers Still Facing Financial Strain

While protections put in place during the pandemic helped many homeowners, their removal could leave some borrowers more vulnerable especially those still recovering financially.

“The end of streamlined modification options may be tough for struggling borrowers,” Perciballi noted. “However, servicers are still required to review loss mitigation applications, even at advanced stages of foreclosure. A properly submitted application could still delay legal proceedings.”

Conflicts with State-Level Protections?

One concern is whether the removal of federal protections will clash with state-level rules that adopted more stringent borrower safeguards during the pandemic.

“If a state has stronger rules in place, servicers should follow them as long as they don’t conflict with federal law,” Perciballi explained. “In a true conflict, federal law takes precedence.”

Could Borrowers Sue?

While some may worry about increased legal disputes stemming from the policy reversal, Perciballi believes litigation is unlikely—though not impossible.

“As long as servicers have documented their compliance with the previous rule through its expiration, the legal risk is minimal,” he said. “Still, thorough records are always key to avoiding disputes.”

What’s Next for Mortgage Servicing Regulation?

As the industry adjusts, questions remain about the future of federal oversight. Is the CFPB signaling a broader deregulatory approach or simply closing the chapter on pandemic-related exceptions?

“It’s hard to say if this marks a larger shift,” Perciballi said. “Much depends on the economy, future hardships, and borrower trends. There could be new regulations in the future or a return to stricter oversight if conditions warrant it.”

Bottom Line:

The CFPB has officially ended the special mortgage servicing rules introduced during the COVID-19 emergency. While this move simplifies compliance for servicers, it may challenge borrowers still recovering from financial setbacks. For now, industry professionals are watching closely to see if this rollback signals further regulatory changes ahead. For more information about finance contact Nadlan Capital Group.