Homeowners can be online for additional relief during the pandemic.
Millions of Americans have struggled with unemployment and lost income over the past year. This includes the owners. The good news is that there has been some relief for mortgage borrowers since the start of the pandemic.
On the one hand, forbearance helped put a break on monthly mortgage payments. Lenders have also been prevented from going ahead with foreclosure proceedings against borrowers who are behind on their payments. And now the Consumer Financial Protection Bureau (CFPB) is proposing a new rule in an effort to prevent a wave of foreclosures later this year.
No seizures in 2021
During the forbearance period, mortgage borrowers are not accused of being behind on their mortgage payments and, as such, they are protected against foreclosure. But mortgage abstention peaks at 18 months. And it is estimated that as many as 1.7 million borrowers will reach the end of their forbearance period by September or October of this year. This means that homeowners who adopted a forbearance at the start of the pandemic will be at risk of foreclosure if they cannot repay their mortgage payments from then on.
It is for this reason that the CFPB is proposing a rule that would prohibit seizures for the rest of the year. It could help prevent many people from losing their homes.
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Now, to be clear, mortgage lenders cannot trigger a foreclosure when a mortgage payment is missed. Rather, borrowers must be more than 120 days past due for foreclosure to come into play. But by prohibiting foreclosures, the CFPB hopes to give mortgage lenders time to help borrowers get out of forbearance and determine their next steps.
This could mean a loan modification, where the terms of a mortgage loan are changed to make it more affordable. However, these arrangements take time to come into being. So the idea is to give lenders and borrowers a time frame after forbearance to sync up and work on a solution.
Of course, some mortgage borrowers whose finances do not improve later this year may choose to leave their homes. Home values have skyrocketed nationwide. So right now there is less risk that borrowers will be underwater on their mortgages – a scenario that occurs when a home’s outstanding mortgage balance exceeds its market value.
But not everyone who continues to struggle financially will not want to leave their home. This is why the CFPB rule could give borrowers more leeway in determining their next steps. It could also give borrowers more time to return to gainful employment.
At present, the unemployment rate is still quite high compared to what it was before the start of the pandemic. The hope is that as 2021 progresses more jobs will be added so that the unemployment rate continues to decline. If the economy opens up, more homeowners could find themselves in a position where they could resume mortgage payments after forbearance. But clearly, the CFPB is not counting on this and wants a backup plan.