Mortgage servicers can resume foreclosures on some borrowers under a set of rule changes by the Consumer Financial Protection Bureau designed to help millions of struggling homeowners exiting mortgage forbearance plans.
The CFPB issued a temporary final rule Monday that provides added borrower protections such as required outreach and loss mitigation reviews by servicers. But the agency essentially abandoned a proposal
"Let me be clear: Our final rule does not impose a foreclosure moratorium," acting CFPB Director Dave Uejio said on a conference call with reporters.
The amendments, which go into effect Aug. 31, allow servicers to resume foreclosures on abandoned properties and on borrowers who were more than 120 days behind on their mortgage before March 1, 2020. Servicers also can start forclosing on borrowers more than 120 days behind on their mortgage who have not responded to specific outreach from their servicer for 90 days. Foreclosures for some borrowers are likely to begin as early as August, CFPB officials said.
Still, Uejio has been warning servicers to prepare for a high volume of borrowers — estimated at 900,000 — who will be exiting forbearance plans from September through year-end. The CFPB recognizes that servicers' capacity to respond to borrowers exiting forebearance will be constrained this fall is seeking to reduce the impact on the housing market.
"A measured return to foreclosures will allow mortgage companies and foreclosure lawyers to staff back up gradually," Uejio said on the conference call. "A measured return to foreclosures will prevent vacant houses from being caught in a jammed foreclosure pipeline and lingering for years."
Uejio stressed the urgency of the situation. The CFPB said that more than 3% of all borrowers are four months or more behind on their mortgages, which is the point when a foreclosure may be initiated.
The new
Requirements about extra outreach to borrowers and streamlined loan modification protections will stay in place at least until September 2022.
Diane Thompson, a senior advisor to Uejio, said feedback from housing counselors and servicers led the CFPB to abandon the tougher restrictions on foreclosures proposed in April out of concern that there would be a massive ramp-up of foreclosures next year that could have a big impact on the booming housing market.
"We spent a lot of time trying to think about how we framed the intervention, because framing it as a foreclosure moratorium is actively harmful to the goal we were trying to achieve, which is an orderly transition to a more normal housing market," Thompson said.
More than 2.1 million homeowners currently are in mortgage forbearance plans that allow them to temporarily pause mortgage payments for up to 18 months. Borrowers with federally backed loans can still qualify to enter forbearance through Sept. 30, including multifamily apartment landlords whose tenants are protected by eviction moratoriums that expire soon. Still, many servicers have offered forbearance plans to a range of borrowers, not just those with federal loans.
The servicing requirements would give borrowers time to pursue loss mitigation options and allow servicers to help borrowers faster, the CFPB said.
"We want servicers to be actively engaged in loss mitigation in the summer and fall," Thompson said. "If you haven't been making payments on your mortgage since March 2020, it's important to understand that you need to figure out a plan to address that in the near future."
Uejio urged borrowers to contact their mortgage servicers and to reach out to housing counselors. The rule changes are part of the Biden administration's response to the pandemic, with several agencies working together to ensure a smooth transition to normalcy.
