The Consumer Financial Protection Bureau (CFPB) Thursday issued a warning to servicers to prepare for an onslaught of distressed homeowners come summertime, or as moratoria expire.
This is the second CFPB notice in a week to indicate the bureau is aggressively readying to wind down COVID-19-related temporary provisions and flexibilities. One day prior to Thursday's issuance, the CFPB rescinded pandemic-prompted flexibilities for financial institutions regarding regulatory filings, or compliance with consumer financial laws and regulations.
It is a "known unknown" industry specialists have been anticipating for some time now, that the current high rate of forbearance plans could prove problematic down the road.
The CFPB is warning services "to take all necessary steps now to prevent a wave of avoidable foreclosures" in the coming months.
Most recently, the Biden Administration on February 16 extended the moratorium on home foreclosures for federally backed mortgages through the end of June. (The foreclosure ban previously was slated to end March 31).
Millions of homeowners in forbearance plans today will need help from their servicers when the pandemic-related federal emergency mortgage protections expire this summer and fall. The CFPB says servicers should dedicate sufficient resources and staff now to ensure they are prepared for a surge in borrowers needing help.
The CFPB says it will closely monitor how servicers engage with borrowers, respond to borrower requests, and process applications for loss mitigation. The CFPB will consider a servicer’s overall effectiveness in helping consumers when using its discretion to address compliance issues that arise.
“There is a tidal wave of distressed homeowners who will need help from their mortgage servicers in the coming months. Responsible servicers should be preparing now. There is no time to waste, and no excuse for inaction. No one should be surprised by what is coming,” said CFPB Acting Director Dave Uejio. “Our first priority is ensuring struggling families get the assistance they need. Servicers who put struggling families first have nothing to fear from our oversight, but we will hold accountable those who cause harm to homeowners and families.”
Here are the CFPB's instructions for servicers:
- Be proactive. Servicers should contact borrowers in forbearance before the end of the forbearance period so they have time to apply for help.
- Work with borrowers. Servicers should work to ensure borrowers have all necessary information and should help borrowers in obtaining documents and other information needed to evaluate the borrowers for assistance.
- Address language access. The CFPB will look carefully at how servicers manage communications with borrowers with limited English proficiency and maintain compliance with the Equal Credit Opportunity Act and other laws.
- Evaluate income fairly. Where servicers use income in determining eligibility for loss mitigation options, servicers should evaluate borrowers’ income from public assistance, child-support, alimony or other sources in accordance with the Equal Credit Opportunity Act’s anti-discrimination protections.
- Handle inquiries promptly. The CFPB will closely examine servicer conduct where hold times are longer than industry averages.
- Prevent avoidable foreclosures. The CFPB will expect servicers to comply with foreclosure restrictions in Regulation X and other federal and state restrictions in order to ensure that all homeowners have an opportunity to save their homes before foreclosure is initiated.
The CFPB concludes that as long as servicers continue to demonstrate effectiveness in helping consumers, as outlined in Thursday's compliance bulletin the bureau will continue to evaluate servicer activity consistent with April 3, 2020's Joint Statement on Supervisory and Enforcement Practices Regarding the Mortgage Servicing Rules in Response to the COVID-19 Emergency and the CARES Act, which provides flexibility on certain timing requirements in the regulations.