Mortgage lenders will soon have more leeway to initiate foreclosure proceedings against homeowners who are 120 days behind on their mortgage payments, but only in cases where borrowers have been given the chance to apply for assistance but don’t qualify, a home has been abandoned or the borrower can’t be reached.
In finalizing a new rule that phases out borrower protections put in place during the pandemic, the Consumer Financial Protection Bureau also said it’s giving loan servicers the ability to offer streamlined loan modifications to borrowers with COVID-related hardships.
Although the final rule doesn’t prohibit foreclosures altogether, as some had expected, it does provide enough protections through Jan. 1, 2022, to satisfy consumer groups like the Center for Responsible Lending.
The rule, which takes effect Aug. 31, “equips homeowners with key protections and helps to prevent unnecessary foreclosures,” Melissa Stegman, senior policy counsel for the Center for Responsible Lending, said in a statement. “The rule creates a pathway for homeowners and servicers to arrange loan modifications to help keep people in their homes.”
The rule requires servicers to follow temporary procedural safeguards before initiating a foreclosure, including:
- Conducting borrower outreach and providing loss mitigation notices
- Waiting at least 30 days after a forbearance plan ends before initiating foreclosure, and longer if the borrower is in active communication with the servicer
- Allowing escrow shortages to be included in workouts such as a deferral or loan modification
Last week, the Federal Housing Administration (FHA), Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA) announced that moratoriums on foreclosure are being extended by an additional month, to July 31, 2021. FHA, USDA, and VA borrowers can request COVID-related forbearance until September 30, 2021.
Fannie Mae and Freddie Mac’s regulator, Federal Housing Finance Agency (FHFA), has also told loan servicers that they should not initiate or continue foreclose actions before July 31. There is currently no deadline for borrowers whose loans are backed by Fannie or Freddie to request COVID-related forbearance.
The Mortgage Bankers Association estimates that 2 million homeowners are in forbearance plans. At 3.91 percent as of June 20, the percentage of mortgages in forbearance has declined for 17 weeks in a row.
The CFPB is urging homeowners who are having trouble making their mortgage payments to take action now to prevent foreclosure.
“While these rules should improve communication between you and your mortgage servicer, no one should wait to start the conversation,” the CFPB said in a blog post. “The longer you wait, or the further you fall behind on your payments, the harder it will be to find a solution. If your servicer is trying to reach you, it is important to make that connection—a servicer may be able to start the foreclosure process under these amendments if they are unable to reach you after trying for three consecutive months.”