And is the CFPB doing enough to prevent it?
Sherrod Brown doesn’t seem to have a lot of faith in Kathy Kraninger.
The Ohio Democrat and ranking member of the Senate Banking Committee has repeatedly accused the director of the Consumer Financial Protection Bureau of putting corporations’ interests ahead of consumers and dropping the ball on mortgage relief awareness. He has also chastised her for reorganizing CFPB departments. Now Brown is calling on Kraninger to make sure the CFPB does more to prevent wrongful foreclosures in the wake of the COVID-19 pandemic.
In June, the Mortgage Bankers Association estimated that 4.3 million homeowners were in forbearance programs as a result of the economic impacts of the pandemic. Many of those homeowners have begun to exit forbearance or are nearing the end of the first 180-day forbearance period provided for borrowers with federally backed mortgages under the CARES Act. In a letter to Kraninger, Brown said that the end of forbearance could result in a wave of improper foreclosures.
“Some borrowers will be able to resume their regular payments by using the deferral or partial claim processes set up by Fannie Mae, Freddie Mac, FHA, or their private lender, in part because the [CFPB’s] June 2020 Interim Final Rule made changes in the servicing process to facilitate deferrals,” Brown wrote. “But other borrowers will be unable to resume their prior payments and will need more time to enter a modification with their servicer to make their payments more affordable.”
However, the mortgage modification process can take time, and Brown worried that during that time, servicers “may already be putting borrowers on track for foreclosure.”
“Under current rules, servicers can begin the foreclosure process when a borrower becomes 120 days delinquent,” Brown wrote. “While the CARES Act provides that servicers are not to report borrowers as delinquent to credit reporting agencies if the loan was current before entering forbearance, servicers and agencies backing federally-backed loans still consider borrowers delinquent for servicing purposes during forbearance under the CFPB’s servicing rules. As a result, at the end of the first 180-day forbearance period, a borrower could immediately be considered eligible for and a servicer could pursue foreclosure if the forbearance is not renewed.”
While servicers are required to reach out to borrowers prior to initiating foreclosure proceedings, “those timelines may be shorter than the 120-day period that typically precedes a foreclosure,” Brown wrote. “In addition, if a servicer begins foreclosure prior to satisfying those requirements, a homeowner cannot rely on those rules to delay the foreclosure and seek assistance.”
In addition, Brown said, the large number of borrowers servicers will need to contact within a short time frame may make it “difficult to ensure that outreach is timely, successful, and meets program requirements.”
“It is unlikely that borrowers will understand how quickly foreclosure could begin,” Brown said. “If servicers begin the foreclosure process before the borrower has an opportunity to either extend their forbearance or be evaluated for an appropriate modification, it could add unnecessary costs for borrowers, make it harder to complete a request for assistance, and risk triggering foreclosures that could threaten families’ and neighborhoods’ recovery from the pandemic.”
Brown asked Kraninger to arrange a staff briefing “to better understand what steps the CFPB will take to ensure that no borrower who is able to remain in their homes is improperly foreclosed upon or further financially burdened during this pandemic.”