WASHINGTON—With more than two-million homeowners still in forbearance, the Consumer Financial Protection Bureau is reporting it has finalized amendments to the federal mortgage servicing regulations.
The CFPB said it made the move to “reinforce the ongoing economic recovery as the federal foreclosure moratoria are phased out and which will help protect mortgage borrowers from unwelcome surprises as they exit forbearance.”
According to the Bureau, the amendments will support the housing market’s smooth and orderly transition to post-pandemic operation.
The new rules are aimed at establishing temporary special safeguards to help ensure that borrowers have time before foreclosure to explore their options, including loan modifications and selling their homes. The rules cover loans on principal residences, generally exclude small servicers, and will take effect on August 31, 2021, the agency said.
“As the nation shifts from the COVID-19 emergency to the economic recovery, we cannot be complacent about the dangers we still face,” said CFPB Acting Director Dave Uejio. “An unchecked wave of foreclosures would drain billions of dollars in wealth from the 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 unchecked wave of foreclosures would also risk destabilizing the housing market for all consumers. We are giving homeowners the time and opportunity to make informed decisions about the best course of action for them and their families, whether that is seeking a loan modification or selling their home. And we are giving mortgage servicers the flexibility they need to serve homeowners with dignity, while managing an unprecedented volume of borrowers seeking assistance.”
Two-Million Still in Forbearance
The CFPB said more than seven-million homeowners took advantage of COVID-19 hardship forbearance, temporarily pausing the obligation to make their mortgage payments, while they resolved financial insecurity caused by the pandemic and its effects.
“Today, just over two-million homeowners are still in forbearance, but most of those are projected to be in forbearance for more than a year. Not even during the worst of the Great Recession have so many borrowers been so far behind,” the CFPB said. “Over 3% of all borrowers are now four months or more behind on their mortgages, which is the point when a foreclosure may be initiated. Once the federal foreclosure moratoria lift, these homeowners are at risk of having foreclosure started as soon as they exit forbearance, with at least 900,000 homeowners projected to exit forbearance between now and the end of the year.
What’s Required
The new rules will require servicers to redouble their efforts to work to prevent avoidable foreclosures. According to the CFPB, the rules will:
- Give borrowers a meaningful opportunity to pursue loss mitigation options. As borrowers exit forbearance, they need time to process their current options and consider next steps. As such, to ensure that borrowers can pursue foreclosure avoidance options, servicers must meet temporary special procedural safeguards before initiating foreclosures for certain mortgages through the end of the year.
- Allow mortgage servicers to help borrowers faster. Under the new temporary rule, servicers can offer streamlined loan modifications to borrowers with COVID-19-related hardships without making borrowers submit all the paperwork for every possible option. These streamlined loan modifications cannot increase borrowers’ payments and have other protections built into them. With this flexibility, servicers can get borrowers into affordable mortgage payment plans faster, with less paperwork for both the servicer and the borrower.
- Tell borrowers their options. Servicers will be required to increase their outreach to borrowers before initiating foreclosure and tell borrowers key information about their repayment or other options when they communicate with borrowers who are exiting forbearance or struggling to make mortgage payments.
“With these rule changes in place, homeowners exiting forbearance will have the time and support to make the decision that best fits their individual and family needs. Generally, borrowers will have at least three options to bring their mortgages current and avoid foreclosure,” the agency said.
Authorities for Borrowers
Borrowers may:
- Resume regular mortgage payments. Servicers can move a borrower’s missed payments to the end of the mortgage.
- Lower their monthly mortgage payments. Loan modifications can change the interest rate, principal balance, or length of the mortgage.
- Sell their homes. For homeowners with sufficient equity, a sale may be a possibility. However, long-term forbearance may have significantly eroded borrowers’ equity, and home prices may dip if the market is inundated with home sales.
How to Begin Foreclosures
In some cases, foreclosures are not avoidable. Under the CFPB’s rule, foreclosures will be able to start if the borrower:
- Has abandoned the property
- Was more than 120 days behind on their mortgage before March 1, 2020
- Is more than 120 days behind on their mortgage payments and has not responded to specific required outreach from the mortgage servicer for 90 days
- Has been evaluated for all options other than foreclosure and there are no available options to avoid foreclosure