Preventing ‘avoidable foreclosures’ is focus of proposed rules issued by bureau

Preventing “avoidable foreclosures” as the emergency federal foreclosure protections expire is the aim of a set of rules proposed Monday by the federal consumer financial protection agency.

In a release, t he Consumer Financial Protection Bureau (CFPB) asserted that 3 million homeowners are behind on their mortgages due to the financial impact of the coronavirus crisis (with an estimated 2.1 million mortgages in forbearance and at least 90 days delinquent). The agency said the delinquent mortgage total has doubled since the beginning of the pandemic and that, as of December 2020, 6% of mortgages nationwide were delinquent.

Further, the bureau stated, industry data suggest that nearly 1.7 million borrowers will exit forbearance programs in September and the following months, “with many of them a year or more behind on their mortgage payments.”

CFPB said its proposals seek 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.”

Specifics of the proposals include:

  • A special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after Dec. 31, 2021. The bureau said it is seeking comment 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.” The provision would only apply to loans secured by a borrower’s principal residence.
  • A provision permitting 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,” CFPB said. The agency said the provision would allow servicers to get borrowers into an affordable mortgage payment faster, with less paperwork for both the servicer and the borrower. It 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.
  • Temporary changes to certain required servicer communications to ensure that borrowers receive key information about their options at the appropriate time during the pandemic.

Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X