By Kerry Smith
After warning mortgage servicers not to repeat their Great Recession mistakes, the consumer bureau proposed actual rules to prohibit starting foreclosures before Dec. 31, 2021, with a few possible exceptions – such as proof that they’ve unsuccessfully tried to contact unresponsive owners.
WASHINGTON, D.C. – The U.S. Consumer Financial Protection Bureau (CFPB) proposed a set of rule changes on Monday designed to “help prevent avoidable foreclosures as the emergency federal foreclosure protections expire.”
CFPB says it created the proposed rules to make sure servicers and borrowers have “the tools and time” to “work together to prevent avoidable foreclosures.” It says it created the rules anticipating that a surge of borrowers will reach the end of forbearance options this fall.
“Last week we warned that servicers need to be prepared for a high volume of borrowers exiting forbearance, and today we are proposing additional guardrails and tools for servicers as they navigate the coming months,” says CFPB Acting Director Dave Uejio. “We will do everything in our power to ensure servicers work with struggling families to find solutions that prevent avoidable foreclosures.”
About 6% of mortgages were delinquent as of December 2020, and data suggests that nearly 1.7 million borrowers will exit forbearance programs starting in September – more than half of the nearly 3 million estimated borrowers in foreclosure.
CFPB has also posted a shorter document, called Fast Facts: 2021 Mortgage Servicing COVID-19 Proposed Rule, on its website.
CFPB rules proposed
- Give borrowers time: Give every borrower behind on their mortgage a chance to explore ways to resume making payments and avoid foreclosure. The proposed rule would create a special pre-foreclosure review period that generally prohibits servicers from starting foreclosures until after Dec. 31, 2021. During the rule comment period, the CFPB says it wants to hear from the public on whether there are “more limited ways to achieve the same purpose.” Should it, for example, allow earlier foreclosures if the servicer has taken certain steps to evaluate the borrower for loss mitigation or tried to contact an unresponsive borrower? This provision only applies to loans secured by a borrower’s principal residence.
- Give servicers options: The proposed rule would allow servicers to offer approved streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application. In most cases, Regulation X requires servicers to review all available options at once, forcing borrowers to submit more documents before a servicer can make a decision. CFPB says this change would allow servicers to get borrowers into an affordable mortgage payments faster with less paperwork. However, the provision would only work if the borrower’s monthly payment doesn’t go up, and the loan isn’t extended for more than 40 months from the modification’s effective date.
- Keep borrowers informed of their options: The CFPB also proposes temporary changes to some required servicer communications to make sure borrowers receive key information about their options.
In the compliance bulletin issued last week, CFPB warned mortgage servicers to dedicate resources and staff to prepare for a surge in assistance requests and said it will be closely monitoring servicers for compliance.
