The Consumer Financial Protection Bureau (CFPB) has proposed a set of consumer protection principles to guide mortgage servicers, investors, government housing agencies, and policymakers as they develop new foreclosure relief solutions, now that the federal Home Affordable Modification Program (HAMP) is coming to its end.
HAMP is set to expire in January with the Obama administration that created it, but the CFPB wants to set in place some “guardrails” meant to inform the discussion of potential options to help prevent avoidable foreclosures.
Specifically, the bureau has outlined four areas‒‒accessibility, affordability, sustainability, and transparency‒‒ that “span the spectrum of home-retention options such as forbearance, repayment plans and modifications, and home-disposition options such as short sales and deeds-in-lieu,” according to the bureau’s announcement of the plan Tuesday.
“We aim to help consumers avoid foreclosures, which upset their personal and financial lives,” said CFPB director Richard Cordray. “The modification program was put in place to provide alternatives to foreclosure. Our principles will serve as helpful guardrails for servicers, investors, and regulators to consider as we continue to protect consumers who are struggling to pay their mortgages.”
According to the CFPB, its protection principles will ensure that consumers will easily be able to obtain and use information about loss mitigation options, and how to apply for those options. The principle are also designed to compel lenders to produce an affordable payment and loan structure for repayment plans and mortgage loan modifications and to ensure that loss mitigation options used for home retention be designed to provide affordability throughout the loan term.
Consumers should also get clear, concise information about the decisions servicers make, the bureau stated.
“The future environment of mortgage default is expected to look very different than it did during the crisis, the report stated. “Underwriting based on the ability to repay rule is already resulting in fewer defaults. Mortgage investors have recognized the value of resolving delinquencies early when defaults do occur. Mortgage servicers have developed systems and processes for working with borrowers in default.”
But further action post-HAMP, the report stated, will need to be in place to keep the mass defaults that triggered the recession from happening again.