Consumer Financial Protection Bureau proposes mortgage servicing changes to prevent wave of COVID-19 foreclosures

The Consumer Financial Protection Bureau proposed a set of rule changes Monday intended to help prevent avoidable foreclosures as the emergency federal foreclosure protections expire.

Due to the COVID-19 pandemic and ensuing economic crisis, millions of families nationwide have suffered the loss of income and nearly 3 million homeowners are behind on their mortgages. The bureau’s proposal seeks to ensure that servicers and borrowers have the tools and time they need to prevent avoidable foreclosures, recognizing that the expected surge of borrowers exiting forbearance in the fall will put mortgage servicers under strain.

“Last week we warned that servicers need to be prepared for a high volume of borrowers exiting forbearance, and today we are proposing additional guardrails and tools for servicers as they navigate the coming months,” said the bureau’s acting director Dave Uejio. “We will do everything in our power to ensure servicers work with struggling families to find solutions that prevent avoidable foreclosures.”

The COVID-19 pandemic and ensuing economic crisis have contributed to widespread housing insecurity across the nation, and many families are at risk of foreclosure when federal emergency protections expire.

The number of homeowners behind on their mortgage has doubled since the beginning of the pandemic — 6% of mortgages were delinquent as of December. More homeowners are behind on their mortgages than at any time since 2010, which was the peak of the Great Recession. 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.

The proposal, if finalized, would:

Give borrowers time: To make sure borrowers aren’t rushed into foreclosure when a potentially unprecedented number of borrowers exit forbearance at around the same time this fall, the proposed rule would provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after Dec. 31, 2021. The bureau is seeking public input on that date, as well as whether there are more limited ways to achieve the same purpose. For example, the bureau 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. This provision, like the rest of the proposal, would only apply to loans secured by a borrower’s principal residence.

Give servicers options: The proposed rule would permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application. Allowing this flexibility could allow servicers to get borrowers into an affordable mortgage payment faster, with less paperwork for the servicer and the borrower. This provision 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.

Keep borrowers informed of their options: The bureau also proposes temporary changes to certain required servicer communications to make sure borrowers receive key information about their options at the appropriate time.

In a compliance bulletin issued April 1, the bureau warned mortgage servicers to dedicate resources and staff to prepare for a surge in requests for assistance. The organization will closely monitor how servicers engage with borrowers, respond to borrower requests and process applications for loss mitigation. The bureau said it will consider a servicer’s demonstrated effectiveness in helping borrowers in addressing compliance issues that arise.

The Consumer Financial Protection Bureau requests that public comments on the rule changes be submitted before May 11.

You may submit comments, identified by Docket No. CFPB-2021-0006, by the following methods:

• Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the instructions for
  submitting comments.
• Email: [email protected]. Include Docket No.
  CFPB-2021-0006 in the subject line of the message.
• Hand Delivery/Mail/Courier: Comment Intake, Bureau of Consumer Financial
  Protection, 1700 G Street, NW, Washington, DC 20552. Note that due to
  circumstances associated with the COVID-19 pandemic, the bureau discourages the
  submission of comments by hand delivery, mail or courier.