Rules described as designed to help prevent a surge of foreclosures as federal protections expire were finalized Monday – to become effective Aug. 31 – by the federal consumer financial protection agency.
The Consumer Financial Protection Bureau (CFPB) said its amendments to federal mortgage servicing regulations would help protect mortgage borrowers from “unwelcome surprises” as they exit forbearance following the end of the federal eviction moratorium, set to end July 31 (and not June 30, as reported previously). The rules cover loans on principal residences and generally exclude small servicers.
(UPDATE: On Tuesday, the U.S. Supreme Court ruled, 5-4, to leave the eviction end date in place, turning back a challenge to end it immediately. The challenge had been brought by a group of landlords, real estate companies and trade associations. Neither side of the court in the ruling gave reasons for their votes. However, Justice Brett Kavanaugh, who voted to keep the moratorium in place, indicated he had done so because of the impending expiration of the moratorium.)
The agency said Monday’s rules will establish “temporary special safeguards to help ensure that borrowers have time before foreclosure to explore their options, including loan modifications and selling their homes.”
According to the bureau, the rules will:
- Give borrowers a meaningful opportunity to pursue loss mitigation options. “As borrowers exit forbearance, they need time to process their current options and consider next steps,” the agency stated. “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,” the agency stated. “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,” the CFPB said.
The bureau noted that, under the new rules, borrowers will have at least three options to bring mortgages current and avoid foreclosure: resume regular mortgage payments; lower their monthly mortgage payments or; sell their homes.
Not all foreclosures are avoidable, the CFPB said, noting such action can 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.