The CFPB finalized rules designed to protect homeowners behind on their mortgages from “unwanted surprises” as federal moratoriums on foreclosures expire.

The rules were finalized on Monday and will go into effect on August 31. They set up special temporary guarantees to help borrowers have time before foreclosure to explore their options, including loan modifications and the sale of their home. The rules cover loans on primary residences and generally exclude small services.

“As the nation shifts from the COVID-19 emergency to economic recovery, we cannot be content with the dangers we still face,” CFPB Acting Director Dave Uejio said.

“An uncontrolled wave of foreclosures would drain billions of dollars in wealth to black and Hispanic communities hardest hit by the pandemic and who are still recovering from the impact of the Great Recession just over ten years ago,” said declared Uejio. “An uncontrolled wave of foreclosures would also risk destabilizing the housing market for all consumers.”

More than seven million homeowners have taken advantage of COVID-19 tolerances. This allowed them to suspend the obligation to make their mortgage payments while they addressed the financial insecurity caused by the pandemic and its effects.

Over 3% of all borrowers are now four months or more behind on their mortgage, which is when a foreclosure can be initiated. “Even during the worst of the Great Recession, so many borrowers weren’t so far behind,” CFPB reported.

Once the federal moratorium on foreclosure is lifted, these homeowners risk having foreclosure started as soon as they come out of forbearance.

The Mortgage Bankers Association reported Monday that about two million homeowners are now forborne, representing 3.91% of mortgages as of June 20. The percentage has fallen in each of the past 17 weeks.

MBA Senior Economist Mike Fratantoni said the pace of new forbearance requests has remained at a very low 4 basis points.

“The steady improvement in overall abstention figures is encouraging, as it proves that improving economic conditions are allowing more homeowners to get back on their feet,” said Fratantoni. “However, we continue to closely monitor the number of forbearance inflows, reflecting borrowers who left forbearance but had to re-enter due to difficulties. These inflows represented 6.2% of loans in forbearance this week.

The CFPB has said it expects 900,000 homeowners to come out of forbearance by the end of the year, with the remainder in 2022.

“We give owners the time and the ability to make informed decisions about the best course of action for them and their families,” said Uejio. “And we’re giving mortgage agents the flexibility they need to serve homeowners with dignity, while managing an unprecedented volume of borrowers seeking help.”

CUNA expressed several concerns about the CFPB’s original proposal, which included a moratorium on foreclosure, and the final rule acknowledged CUNA’s comments on the proposal’s inadequate adaptation and its potential to do more harm. only good.

“We thank CFPB for listening to CUNA and other concerns about the overly broad and potentially damaging proposed moratorium,” CUNA President / CEO Jim Nussle said. “We share the bureau’s goal of helping consumers navigate the pandemic and its effects, and credit unions will continue their efforts to work with members of credit unions. “

Under the CFPB rule, credit unions will retain discretion and the ability to initiate foreclosure if the borrower:

• Relinquished ownership.
• Over 120 days overdue on mortgage payments and has not responded to specific communication required from mortgage manager for 90 days.
• Has submitted a full loss mitigation application and has been assessed for options other than foreclosure and there are none available.

These provisions only apply to loans that have become unpaid for more than 120 days after March 1, 2020 and whose limitation period expires on January 1, 2022.

These procedural protections only apply to the first notice or to the first filings to initiate foreclosures between August 31 and the expiration date of January 1, 2022.