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CFPB: Servicers Must Double Their Efforts to Protect At-Risk Borrowers

As forbearance plans begin to expire for millions of Americans, rules set forth by the Consumer Financial Protection Bureau (CFPB), the 2021 Mortgage Servicing COVID-19 Proposed Rule, were aimed to prevent avoidable foreclosures as protections expire. The Rule was drafted to allow mortgage servicers to provide viable opportunities for consumers to avoid foreclosure and remain in their home, provide other mortgage relief options, and protect mortgage borrowers from unwelcome surprises as they exit forbearance plans.

The CFPB notes that before January 1, 2022, most servicers cannot begin the foreclosure process—except in limited circumstances—without first reaching out to homeowners to evaluate their complete application for options to help avoid foreclosure.

According to the Mortgage Bankers Association’s latest Forbearance and Call Volume Survey, the total number of loans in forbearance plans nationwide is currently as 3.25%, with approximately 1.6 million homeowners currently in forbearance plans.

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.

Taking effect August 31, the goal of the CFPB’s rule is to:

  • Provide borrowers with 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.
  • Allow mortgage servicers to help borrowers faster: Under the new 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.
  • Disclose all options to borrowers: As homeowners near the end of their forbearance plans, mortgage servicers are required to connect with the homeowner and must inform the borrower the date their plan expires, offer options for repaying missed payments and avoiding foreclosure, and provide info on how to obtain free housing counseling services. If a servicer is unable to contact a homeowner after trying for three consecutive months, the servicer may be able to begin the foreclosure process before January 1, 2022.

“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.”

Click here to review an Executive Summary of the CFPB’s 2021 Mortgage Servicing COVID-19 Rule.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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