CFPB proposed rule changes to prevent foreclosures – RISMedia |
The Consumer Financial Protection Bureau (CFPB) recently proposed a set of rule changes intended to help prevent avoidable foreclosures as emergency federal foreclosure protections expire.
Due to the COVID-19 pandemic and the ensuing economic crisis, millions of families across the country have suffered loss of income and nearly 3 million homeowners are behind on their mortgages. The CFPB’s proposal aims to ensure that service providers and borrowers have the tools and time they need to work together to avoid avoidable foreclosures, recognizing that the expected wave of borrowers exiting forbearance fall will put a strain on mortgage service providers.
“The nation has endured more than a year of a deadly pandemic and a punitive economic crisis. We must not lose sight of the dangers that many consumers still face, ”said Dave Uejio, Acting Director of CFPB. “Millions of families risk losing their homes to foreclosure in the coming months, even as the country reopens. Last week we warned that servers need to be prepared for a high volume of borrowers coming out of forbearance, and today we’re offering additional safeguards and tools for servers as they navigate through the coming months. We will do everything in our power to ensure that duty officers work with struggling families to find solutions that prevent preventable foreclosures. “
The COVID-19 pandemic and the resulting economic crisis have contributed to widespread housing insecurity across the country, and many families are at risk of foreclosure when emergency federal protections expire. The number of homeowners behind on their mortgages has doubled since the start of the pandemic – 6% of mortgages were in arrears as of December 2020. More homeowners are behind on their mortgages than at any time since 2010, which was the peak of the Great Recession. Industry data suggests nearly 1.7 million borrowers will exit forbearance programs in September and beyond, with many of them a year or more behind on their mortgage payments. The CFPB proposal, if finalized:
Give borrowers time to: Each of the nearly 3 million borrowers behind on their mortgages should have the opportunity to explore ways to resume payments and avoid foreclosure. To ensure borrowers aren’t rushed into foreclosure when a potentially unprecedented number of borrowers leave forbearance at around the same time this fall, the proposed rule would provide for a special review period before the foreclosure. which would generally ban service providers from starting the lockdown until after December. 31 2021. The CFPB is seeking public comments on that date, as well as whether there are more limited means to achieve the same goal. For example, the CFPB is considering allowing early foreclosures if the serving agent has taken certain steps to assess the borrower to mitigate losses or has made efforts to contact a borrower who does not respond. This provision, like the rest of the proposal, would only apply to loans secured by the principal residence of a borrower.
Give options to repairers: The proposed rule would allow service agents to offer certain simplified loan modification options to borrowers facing difficulties related to COVID-19 based on the assessment of an incomplete application. Normally, with a few exceptions, Regulation X requires service agents to review a borrower for all available options at once, which can mean borrowers must submit more documents before a service agent can take a loan. decision. Allowing this flexibility could allow service providers to get borrowers to an affordable mortgage payment faster, with less paperwork for the provider and the borrower. This provision would only be available for amendments that do not increase a borrower’s monthly payment and extend the term of the loan by up to 40 years from the effective date of the amendment.
Keep borrowers informed of their options: The CFPB is also proposing temporary changes to some required communications with services to ensure that during this crisis borrowers receive key information about their options at the right time.
The economic crisis threatens families and communities across the country.
According to CFPB analysis and other data:
Millions of families risk losing their homes: As of February 2021, there were nearly 3 million homeowners behind on their mortgages, with around 2.1 million mortgages in forbearance and at least 90 days past due. If current trends continue, there could be 1.7 million of these loans in September 2021.
Preventing foreclosures helps homeowners and communities to: Foreclosures are expensive for homeowners, with an average cost to borrowers of at least $ 12,500. Neighboring homes are also losing value, with sale prices dropping 1% to 1.6% after nearby foreclosure sales. Families who experience foreclosure are likely to experience other harms as well, including broader financial distress and housing instability.
The housing crisis worsens racial inequalities: Black and Hispanic homeowners were more than twice as likely to be behind on housing payments in December 2020, according to a March CFPB Report.
In a compliance bulletin Released last week, the CFPB warned mortgage agents to devote resources and staff to prepare for an increase in requests for help. The CFPB will closely monitor how providers engage with borrowers, respond to borrower requests, and process loss mitigation requests. The CFPB will take into account a manager’s demonstrated effectiveness in helping borrowers resolve any compliance issues that arise.
Given the urgency of the crisis, the CFPB requests the submission of comments before May 11, 2021.