On 4/5/21, the CFPB proposed a set of rule changes that would help prevent avoidable foreclosures as the emergency federal foreclosure protections expire. In their release, the CFPB explains that millions of families nationwide have suffered the loss of income and nearly 3 million homeowners are behind on their mortgages due to the COVID-19 pandemic and ensuing economic crisis. The CFPB further explains that the proposal seeks to ensure that both servicers and borrowers have the tools and time they need to work together to prevent avoidable foreclosures, recognizing that the expected surge of borrowers exiting forbearance in the fall will put mortgage servicers under strain.
If finalized, the proposal would:
Give borrowers time: Every one of the nearly 3 million borrowers behind on their mortgages should have a chance to explore ways to resume making payments and avoid foreclosure. To make sure borrowers aren’t rushed into foreclosure when a potentially unprecedented number of borrowers exit forbearance at around the same time this fall, the proposed rule would provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after December 31, 2021. The CFPB is seeking public input on that date, as well as whether there are more limited ways to achieve the same purpose. For example, the CFPB is considering whether to permit earlier foreclosures if the servicer has taken certain steps to evaluate the borrower for loss mitigation or made efforts to contact an unresponsive borrower. This provision, like the rest of the proposal, would only apply to loans secured by a borrower’s principal residence.
Give servicers options: The proposed rule would permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application. Normally, with certain exceptions, Regulation X requires servicers to review a borrower for all available options at once, which can mean borrowers have to submit more documents before a servicer can make a decision. Allowing this flexibility could allow servicers to get borrowers into an affordable mortgage payment faster, with less paperwork for both the servicer and the borrower. This provision would only be available for modifications that do not increase a borrower’s monthly payment and that extend the loan’s term by no more than 40 years from the modification’s effective date.
Keep borrowers informed of their options: The CFPB also proposes temporary changes to certain required servicer communications to make sure that, during this crisis, borrowers receive key information about their options at the appropriate time.
The proposed rule can be found here.
A “fast facts” summary of the rule can be found here.