The Consumer Financial Protection Bureau (CFPB) [1] has proposed changes intended to help prevent impending foreclosure actions as the emergency federal foreclosure protections are eventually set to expire. There are nearly 2.5 million homeowners currently in forbearance plans according to the Mortgage Bankers Association (MBA) [2], and in order to prevent a windfall of foreclosures that may overwhelm servicers, the CFPB’s has proposed a number of actions.
“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 CFPB Acting Director Dave Uejio [3]. “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 [4], 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.”
The number of homeowners behind on their mortgage has doubled since the beginning of the pandemic, as 6% of mortgages were delinquent as of December 2020. More homeowners are behind on their mortgages than at any time since 2010, the peak of the Great Recession. Industry data suggest that nearly 1.7 million borrowers will exit forbearance programs in September and the following months, with many of them a year or more behind on their mortgage payments. The CFPB’s proposal, “Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X [5]” looks to mitigate through the following actions:
- Grant borrowers time: To make sure borrowers aren’t rushed into foreclosure when an unprecedented number of borrowers exit forbearance, the proposed rule [5] would provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after December 31, 2021. The CFPB is seeking public input on that date, as well as whether there are more limited ways to achieve the same purpose.
- Provide servicers with options: The CFPB’s proposal [5] would permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application. Normally, with certain exceptions, Regulation X requires servicers to review a borrower for all available options at once, which can mean borrowers have to submit more documents before a servicer can make a decision. Allowing this flexibility could allow servicers to get borrowers into an affordable mortgage payment faster, with less paperwork for both the servicer and the borrower. This provision would only be available for modifications that do not increase a borrower’s monthly payment and that extend the loan’s term by no more than 40 years from the modification’s effective date.
- Keep borrowers informed of options: The CFPB is proposing temporary changes to certain required servicer communications to make sure that, during this crisis, borrowers receive key information about their options at the appropriate time.
The CFPB forecasts that if current trends continue, there may be nearly 1.7 million loans at least 90 days delinquent come September 2021. Foreclosures have an average cost to borrowers of at least $12,500, with neighboring homes also losing value, and sale prices dropping by 1%-1.6% after nearby foreclosure sales. And according to a March CFPB report, Black and Hispanic homeowners were more than two times as likely to be behind on housing payments as of December 2020.
Public comments [5] on the CFPB’s proposed rule are due Monday, May 10, 2021.