CFPB Shields At-Risk Homeowners From Foreclosure Moratoria Expiration

The Consumer Financial Protection Bureau (CFPB) has finalized amendments to federal servicing regulations to reinforce the ongoing economic recovery as the federal foreclosure moratoria are phased out. The amendments will also help protect mortgage borrowers from unwelcome surprises as they exit forbearance plans.

The amendments were drafted to support the housing market’s smooth and orderly transition to post-pandemic operation, temporarily establishing safeguards to help ensure that borrowers have time before foreclosure to explore their options, including loan modifications and selling their homes. The rules cover loans on principal residences, generally exclude small servicers, and will take effect on August 31, 2021.

“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. 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. And we are giving mortgage servicers the flexibility they need to serve homeowners with dignity, while managing an unprecedented volume of borrowers seeking assistance.”

Since the outset of the pandemic last March, nearly seven million homeowners took advantage of COVID-19 hardship forbearance, temporarily pausing the obligation to make their mortgage payments, while they resolved financial insecurity caused by the pandemic and its effects.

According to the latest findings from Black Knight, as of June 22, 2.06 million, or 3.9% of all mortgage holders remain in COVID-19 related forbearance plans. Not even during the worst of the Great Recession have so many borrowers been so far behind. More than 3% of all borrowers are now four months or more behind on their mortgages, marking the point at which a foreclosure may be initiated. Once the federal foreclosure moratoria lift, these homeowners are at risk of having foreclosure started as soon as they exit forbearance, with at least 900,000 homeowners projected to exit forbearance between now and the end of the year.

The CFPB’s new rules will require servicers to redouble their efforts to work to prevent avoidable foreclosures, by:

• Giving borrowers a meaningful opportunity to pursue loss mitigation options. As borrowers exit forbearance, they need time to process their current options and consider next steps. As such, to ensure that borrowers can pursue foreclosure avoidance options, servicers must meet temporary special procedural safeguards before initiating foreclosures for certain mortgages through the end of the year.
• Allowing mortgage servicers to help borrowers faster. Under the new temporary rule, servicers can offer streamlined loan modifications to borrowers with COVID-19-related hardships 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.
• Explaining to borrowers their options. Servicers will be required to increase their outreach to borrowers before initiating foreclosure and tell borrowers key information about their repayment or other options when they communicate with borrowers who are exiting forbearance or struggling to make mortgage payments.

With these rule changes in place, homeowners exiting forbearance will have the time and support to make the decision that best fits their individual and family needs. Generally, borrowers will have at least three options to bring their mortgages current and avoid foreclosure. Borrowers may resume regular mortgage payments; lower their monthly mortgage payments via loan modifications; or sell their homes.

In some cases, foreclosures are not unavoidable, and under the CFPB’s new rule, foreclosures will be able to start if the borrower:

• Has abandoned the property;
• Was more than 120 days behind on their mortgage before March 1, 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.

Click here to view the CFPB's new rules, “Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X.”