The Consumer Financial Protection Bureau (CFPB) has finalized amendments to the federal mortgage servicing regulations to establish temporary special safeguards to help ensure that borrowers have time before foreclosure to explore their options, including loan modifications and selling their homes.
The rules cover loans on principal residences, generally exclude small servicers, and will take effect on August 31.
“As the nation shifts from the COVID-19 emergency to the economic recovery, we cannot be complacent about the dangers we still face,” says CFPB Acting Director Dave Uejio. “An unchecked wave of foreclosures would drain billions of dollars in wealth from the Black and Hispanic communities hardest hit by the pandemic and still recovering from the impact of the Great Recession just over a decade ago.
“An unchecked wave of foreclosures would also risk destabilizing the housing market for all consumers. We are giving homeowners the time and opportunity to make informed decisions about the best course of action for them and their families, whether that is seeking a loan modification or selling their home. And we are giving mortgage servicers the flexibility they need to serve homeowners with dignity, while managing an unprecedented volume of borrowers seeking assistance.”
The rules will:
Give borrowers an 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.
Generally, borrowers will have at least three options to bring their mortgages current and avoid foreclosure:
Resume regular mortgage payments. Servicers can move a borrower’s missed payments to the end of the mortgage.
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.
Click here for more details about the rule changes.
