CFPB protects at-risk homeowners from expiration of foreclosure moratorium
The Consumer Financial Protection Bureau (CFPB) has finalized changes to federal services regulations to bolster the ongoing economic recovery as federal moratoria on lockdowns are phased out. The changes will also help protect mortgage borrowers from unpleasant surprises when they exit forbearance plans.
The Amendments were drafted to support the housing market’s smooth and orderly transition to post-pandemic operation, by temporarily establishing guarantees to help borrowers have time before foreclosure to explore their options, including the changes. loan and sale of their home. The rules cover loans on primary residences, generally exclude small services, and will come into effect on August 31, 2021.
“As the country shifts from the COVID-19 emergency to economic recovery, we cannot be content with the dangers we still face,” said Dave Uejio, acting director of CFPB. “An uncontrolled wave of foreclosures would drain billions of dollars in wealth from black and Hispanic communities hardest hit by the pandemic and still recovering from the impact of the Great Recession just over a decade ago. An uncontrolled wave of foreclosures would also risk destabilizing the housing market for all consumers. We give homeowners the time and opportunity to make informed decisions about the best course of action for them and their families, whether it’s applying for a loan modification or selling their home. And we’re giving mortgage agents the flexibility they need to serve homeowners with dignity, while managing an unprecedented volume of borrowers seeking help.
Since the start of the pandemic last March, nearly seven million homeowners have taken advantage of the COVID-19 forbearance, temporarily suspending the obligation to make their mortgage payments, while they resolve the financial insecurity caused by the pandemic and its effects.
According to Black Knight’s latest findings, as of June 22, 2.06 million, or 3.9% of all mortgage holders remain on COVID-19-related forbearance plans. Even during the worst of the Great Recession, so many borrowers weren’t so far behind. Over 3% of all borrowers are now four months or more behind on their mortgage, marking the point at which a foreclosure can be initiated. Once the federal moratorium on foreclosures is lifted, these homeowners risk seeing foreclosure begin as soon as they exit forbearance, with at least 900,000 homeowners expected to exit forbearance by year-end .
The new CFPB rules will force repairers to redouble their efforts to prevent avoidable seizures, by:
- Give borrowers a meaningful opportunity to research loss mitigation options. When borrowers come out of forbearance, they need time to process their current options and consider next steps. Thus, to ensure that borrowers can pursue foreclosure avoidance options, agents must adhere to temporary special procedural guarantees before initiating foreclosures for certain mortgages until the end of the year.
- Enable mortgage agents to help borrowers faster. Under the new temporary rule, service agents can offer simplified loan modifications to borrowers facing difficulties with COVID-19 without requiring borrowers to submit all documents for every possible option. These simplified loan modifications cannot increase borrower payments and come with other protections.
- Explain to borrowers their options. Service agents will be required to increase their outreach to borrowers before initiating foreclosure and communicate key repayment information or other options to borrowers when communicating with borrowers exiting forbearance or who are having trouble making their mortgage payments.
With these rule changes in place, homeowners coming out of forbearance will have the time and support to make the decision that best suits their individual and family needs. Typically, borrowers will have at least three options to discount their mortgage and avoid foreclosure. Borrowers can resume regular mortgage payments; reduce their monthly mortgage payments through loan modifications; or sell their house.
In some cases, foreclosures are not inevitable, and under the new CFPB rule, foreclosures may begin if the borrower:
- Relinquished ownership;
- was more than 120 days late on their mortgage before March 1, 2020;
- is over 120 days late on mortgage payments and has not responded to the specific communication required from the mortgage manager for 90 days; or
- Has been assessed for all options other than foreclosure and there are no options available to avoid foreclosure.
Click here to view CFPB’s new rules, “Protections for borrowers affected by the COVID-19 emergency under the Real Estate Settlement Procedures Act (RESPA), Regulation X”.