Rules bolster protections for struggling borrowers as they exit forbearance
The Consumer Financial Protection Bureau has released new rules mandating how mortgage servicers must support financially distressed borrowers as part of the federal foreclosure moratoria phase out.
The consumer watchdog announced Monday that it had finalized amendments to its mortgage servicing regulations that will “establish 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, which will take effect on August 31, cover loans on principal residences and generally exclude small servicers. The goal is to prevent a wave of foreclosures as nearly 900,000 homeowners prepare to exit forbearance in the coming months.
“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.”
Among the amendments, servicers are required to:
- Allow borrowers to pursue loss mitigation options, and servicers must meet temporary special procedural safeguards before initiating foreclosures for certain mortgages through the end of the year.
- Offer affordable mortgage payment plans faster 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.
- Tell borrowers their options and increase their outreach to borrowers before initiating foreclosure. They also need to tell borrowers critical information about their repayment or other options when they communicate with borrowers who are exiting forbearance or struggling to make mortgage payments.
According to the CFPB, borrowers will have at least three options to bring their mortgages current and avoid foreclosure. Among these options: borrowers can resume their regular mortgage payments and move their missed payments to the end of the loan, also known as deferral. Borrowers can also ask their lenders to change the interest rate, principal balance, or length of their mortgage through loan modifications. Additionally, homeowners with sufficient equity may opt to sell their homes.
In cases where foreclosures are not avoidable, the new CFPB rule will allow foreclosures to start if the borrower has abandoned the property; was more than 120 days behind on their mortgage before March 01, 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; or has been evaluated for all options other than foreclosure and there are no available options to avoid foreclosure.
“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,” Uejio said. “And we are giving mortgage servicers the flexibility they need to serve homeowners with dignity while managing an unprecedented volume of borrowers seeking assistance.”