On 6/28/2021, the CFPB issued a final rule to amend g certain provisions in Regulation X regarding additional assistance for borrowers experiencing a COVID-19-related hardship. This rule becomes effective on August 31, 2021, though a servicer may voluntarily take certain actions discussed in the 2021 Rule before this date for certain provisions. Such pre-effective date actions can be used to establish compliance with the 2021 Rule after the effective date. Additionally, the Bureau does not intend to take supervisory or enforcement action against servicers that offer a borrower a streamlined loan modification based on an incomplete application prior to that date, so long as the modification meets the criteria outlined in the 2021 Rule.
As explained in the CFPB release, the rule will:
Give borrowers 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 temporary 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. With this flexibility, servicers can get borrowers into affordable mortgage payment plans faster, with less paperwork for both the servicer and the borrower.
Tell borrowers their options. Servicers will be required to increase their outreach to borrowers before initiating foreclosure and tell borrowers key information about their repayment or other options when they communicate with borrowers who are exiting forbearance or struggling to make mortgage payments.
With these rule changes in place, homeowners exiting forbearance will have the time and support to make the decision that best fits their individual and family needs. Generally, borrowers will have at least three options to bring their mortgages current and avoid foreclosure.
Borrowers may:
Resume regular mortgage payments. Servicers can move a borrower’s missed payments to the end of the mortgage, commonly called “deferral.”
Lower their monthly mortgage payments. Loan modifications can change the interest rate, principal balance, or length of the mortgage.
Sell their homes. For homeowners with sufficient equity, a sale may be a possibility. However, long-term forbearance may have significantly eroded borrowers’ equity, and home prices may dip if the market is inundated with home sales.
In some cases, foreclosures are not avoidable. Under the CFPB’s rule, foreclosures will be able to start if the borrower:
Has abandoned the property;
Was more than 120 days behind on their mortgage before March 1, 2020;
Is more than 120 days behind on their mortgage payments and has not responded to specific required outreach from the mortgage servicer for 90 days; or
Has been evaluated for all options other than foreclosure and there are no available options to avoid foreclosure.
The CFPB release can be found here.