With emergency federal foreclosure protections set to expire, the Consumer Financial Protection Bureau (CFPB) has proposed a set of rule changes aimed at preventing “avoidable foreclosures” — most notably a ban on servicers starting foreclosure proceedings until 2022.
The CFPB announced the new proposal via a press release, noting that nearly 3 million homeowners remain behind on their mortgages because of the economic upheaval caused by the COVID-19 pandemic. According to the CFPB, nearly 1.7 million borrowers — many of whom are now a year or more behind on mortgage payments — will exit forbearance programs in September and beyond, prompting the need for supportive action.
“The nation has endured more than a year of a deadly pandemic and a punishing economic crisis. We must not lose sight of the dangers so many consumers still face,” said Dave Uejio, acting director of the CFPB. “Millions of families are at risk of losing their homes to foreclosure in the coming months, even as the country opens back up.”
“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. We will do everything in our power to ensure servicers work with struggling families to find solutions that prevent avoidable foreclosures.”
Those guardrails include the aforementioned ban on foreclosures until after Dec. 31, 2021. The CFPB is now seeking public input on that date, as well as whether other, more limited options than a blanket foreclosure ban exist. For example, the bureau is also considering permitting foreclosures earlier than 2022 if the servicer has taken certain steps to assess the borrower for loss mitigation, or if the servicer has made efforts to contact an unresponsive borrower.
The proposed rule would also allow servicers to offer borrowers with COVID-19 related financial hardships certain streamlined loan modification options. Typically, servicers are required to review borrowers for all available options at once; this can often result in borrowers needing to submit more paperwork before a servicer can make a decision. Streamlining the process could get borrowers into manageable payment plans faster, while eliminating paperwork for servicers and borrowers alike. This provision would only be available for loan modifications that don’t increase borrowers’ monthly payments and that extend the loan term by no more than 40 years from the modification’s effective date.
Also in the proposal are temporary changes to required servicer communications to ensure that borrowers are made aware of their options in a timely fashion.
The CFPB is asking for stakeholder input on its new proposal, requesting comments be submitted before May 11.
