CFPB May Propose to Rescind the LO Comp Rule and Loss Mitigation Requirements - What Would Happen?

On June 4, 2025, the CFPB submitted to the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget (OMB) five rulemakings for OMB review. These rulemakings appear to propose amendments to the Loan Originator Compensation (LO Comp) and mortgage servicing rules. The actual draft rulemakings are not available because they are considered deliberative at this “prerule” stage. But it appears from the official titles of these rulemakings that the CFPB may propose to rescind the LO Comp rule, as well as the loss mitigation provisions in the CFPB’s mortgage servicing rules.

The official titles of the submitted rulemakings are:

• Loan Originator Compensation Requirements Under the Truth in Lending Act (Regulation Z); Rescission

• Discretionary Servicing Rules under the Real Estate Settlement Procedures Act (Regulation X)

• Discretionary Mortgage Servicing Rules Under the Truth in Lending Act (Regulation Z)

• Defining Larger Participants of the Consumer Debt Collection Market

• Defining Larger Participants of the Consumer Reporting Market 2025

I will address the mortgage rulemakings below.

LO Comp

Note that the LO Comp rulemaking states “rescission” in the title. Obviously, this signals that the CFPB is considering rescinding the LO Comp rule. Does this mean that the CFPB will propose to rescind the LO Comp rule in its entirety, or only partially? That is unclear, because we do not have access to the draft rulemakings. But if the CFPB proposes to rescind the LO Comp rule in its entirety, note that such a rescission could have some unfavorable impacts on the industry.

Recall that when the Dodd-Frank Act was enacted, it amended TILA to codify the former FRB’s LO Comp rule. This means that, even if the CFPB rescinds the LO Comp rule, the statutory provisions will remain in effect. Being subject to broadly stated prohibitions in the statute without formal guidance with safe harbors in the regulation may actually create more compliance headaches for the industry.

In addition, the Dodd-Frank Act also added a curious provision that prohibited consumers from paying upfront discount points, origination points, or any other fees to the creditor if the creditor paid the mortgage originator. This statutory provision is self-effective, but it was exempted by the CFPB’s LO Comp rule. This means that if the CFPB’s LO Comp rule is rescinded, this unclear, burdensome, anti-consumer choice, and bonkers statutory provision could go into effect. Yikes.

When the LO Comp rule was first issued in 2013, the CFPB stated that “section 1403 of the Dodd-Frank Act contains a section that would generally have prohibited consumers from paying upfront points or fees on transactions in which the loan originator compensation is paid by a person other than the consumer (either to the creditor's own employee or to a mortgage broker).” The CFPB stated that it “decided instead to issue a complete exemption to the prohibition on upfront points and fees pursuant to its exemption authority under section 1403 and other authority while it scrutinizes several crucial issues….” It will be important to see if the CFPB will address this exemption in its proposal.

Finally, other CFPB rules point to the LO Comp rule’s definitions for different purposes. How these connecting wires are rewired by the CFPB in the proposal, if at all, will need to be reviewed by the industry.

Mortgage Servicing

This list also contains two rulemakings relating to the CFPB’s mortgage servicing rules. Note the word “discretionary” in the official titles. I think this could indicate that the CFPB is also planning to propose a rescission of the discretionary provisions of the mortgage rules. Why else call out the “discretionary” aspects of these rules? As I’ve talked about before, the loss mitigation provisions were completely discretionary, as the CFPB relied only on discretionary authority under RESPA and Dodd-Frank Act to add those requirements to Regulation X. Those requirements were completely made up by the CFPB, not Congress. There were no statutory mandates for the loss mitigation requirements. For this reason, these rulemakings could propose to rescind the loss mitigation requirements in the servicing rules.

As there are no statutory mandates for these aspects of the servicing rules, there wouldn’t be the same problem as the industry would face with the LO Comp rule. But, there could be other unintended consequences, such as states or state regulators trying to fill the gap by creating their own versions of these requirements, which would vary by state. This could end up creating a bigger compliance headache for the industry in the long run.

OIRA reviews these prerule rulemakings, in part, to ensure they align with the administration’s priorities. In this administration, I would expect that OIRA concludes its review and approves them quickly. Also, if the CFPB’s Spring 2025 regulatory agenda is published anytime soon, we can learn more about the CFPB’s plans with these rulemakings through that process. They will likely come out as proposed or advanced notice of proposed rulemakings. We will keep a look out for the agenda and the eventual issuance of these proposals. Once the proposals are out, the industry will need to comment on them.

Please email me at rich@garrishorn.com if you would like to discuss any of the issues in this blog post.