the Consumer Financial Protection Bureau (CFPB) has proposed changes intended to help prevent impending foreclosure measures as emergency federal foreclosure protections are about to expire. There are currently nearly 2.5 million homeowners in forbearance plans according to the Mortgage Bankers Association (MBA), and in order to avoid a windfall of seizures which could overwhelm the service agents, the CFPB proposed a certain number of measures.
“The nation has endured more than a year of a deadly pandemic and appalling economic crisis. We must not lose sight of the dangers that many consumers still face, ”said Interim Director of CFPB Dave Uejio. “Millions of families risk losing their homes due to foreclosure in the coming months, even as the country reopens. Last week we warned that the waiters must be prepared for a high number of borrowers exiting forbearance, and today we are offering additional guardrails and tools for repairers as they navigate in the months to come. We will do everything in our power to make sure the military work with struggling families to find solutions that prevent preventable foreclosures. ”
The number of homeowners behind on their mortgages has doubled since the start of the pandemic, with 6% of mortgages in arrears in December 2020. More homeowners are behind on their mortgages than at any time since 2010, the peak of the Great Recession. Industry data suggests 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 proposal, “Protections for borrowers affected by the COVID-19 emergency under the Real Estate Settlement Procedures Act (RESPA), Rule X»Seeks to mitigate through the following actions:
- Give borrowers time to: To ensure borrowers are not rushed into foreclosure when an unprecedented number of borrowers come out of forbearance, the proposed rule would provide for a special pre-foreclosure review period that would generally prohibit directors from commencing foreclosure before December 31, 2021. The CFPB seeks public input on that date, as well as whether there are more limited means of achieve the same goal.
- Provide options for repairers: the CFPB proposal would allow managers to offer certain streamlined loan modification options to borrowers with COVID-19 hardship based on the assessment of an incomplete application. Normally, with a few exceptions, Regulation X requires managers to review a borrower for all available options at once, which can mean borrowers must submit more documents before a manager can make a decision. Allowing this flexibility could allow managers to get borrowers to pay off an affordable mortgage faster, with less paperwork for the manager and the borrower. This provision would only be available for amendments that do not increase a borrower’s monthly payment and extend the loan term by up to 40 years from the effective date of the amendment.
- Keep borrowers informed of options: The CFPB is proposing temporary changes to some of the service agent communications needed to ensure that during this crisis borrowers receive key information about their options in a timely manner.
The CFPB predicts that if current trends continue, there could be nearly 1.7 million loans past due at least 90 days by September 2021. Foreclosures have an average cost to borrowers of at least 12,500 $, with neighboring homes also losing value and selling prices dropping 1% -1.6% after close foreclosure sales. And according to a March CFPB report, black and Hispanic homeowners were more than twice as likely to be behind on housing payments in December 2020.
Public comments on the rule proposed by the CFPB are expected on Monday, May 10, 2021.