FHFA addresses regulatory gap as servicers prep for foreclosure return

The Federal Housing Finance Agency on Tuesday closed a gap between the end of the federal foreclosure moratorium and the beginning of a new Consumer Financial Protection Bureau directive as mortgage and consumer groups responded to both with cautious optimism.

While industry groups had not vetted the entirety of the CFPB’s 200-plus page temporary final rule at deadline, they were relieved that the directive allows them restart of a broader range of foreclosures after the federal ban ends.

The FHFA’s announcement that it will immediately align its policies with the CFPB’s after the federal ban ends July 31, even though the bureau’s rule doesn’t technically go into effect until the end of August, partially appeased some consumer groups nettled by the loophole.

“I think ..this type of a ‘split the baby’ decision, for lack of a better description, is really what a lot of people thought could be a good resolution,” said Richard Kruse, principal at distressed asset manager Gryphon USA, referring to the need to find a middle ground for difficult-to-reconcile consumer and industry aims.

The CFPB directive, which allows foreclosures to proceed only when certain steps have been taken to ensure consumers have been given streamlined home retention options between the end of August and Dec. 31, appears to be close to striking that balance.

“If a servicer is trying to reach a borrower by phone, text, email, or written letters, there are some specific measures that they have to meet to demonstrate that they've been trying to reach the consumer,” said Meg Burns, executive vice president at the Housing Policy Council.

The home retention options the CFPB’s directives call for appear practical and efficient, according to the Mortgage Bankers Association.

“MBA appreciates that the CFPB incorporated the common-sense exceptions to rule for situations when a further delay of the process is not in the interest of the borrower, the lender, or the community,” said Pete Mills, senior vice president of residential policy, in an email. “The rule also facilitates servicers’ ability to provide streamlined assistance to borrowers by eliminating the requirement to review borrowers for every possible option, including those that borrower does not qualify for or is not interested in.”

While consumer groups welcomed the FHFA’s announcement Tuesday pertinent to the large number of loans purchased by government-sponsored enterprises Fannie Mae and Freddie Mac, they remain concerned that the CFPB’s protections will end before the backlog of distress from the pandemic has been cleared.

“That's really encouraging in terms of the gap, at least for Fannie and Freddie,” said Sarah Mancini, an attorney at the National Consumer Law Center, but she added that she hoped that the end date for the regulation and the loophole wouldn’t be an issue, particularly for loans in the market outside of the GSEs’, which are exposed to higher levels of distress and may lack government home retention protocols.

If the regulation works as intended, the CFPB’s timeframe may be sufficient to process loans without too much of a delay, said Kruse.

“I think it is a good way to get things moving along and start clearing up the backlog without negatively impacting folks who either are unfamiliar with the opportunities available to them or have been afraid to reach out to their mortgage companies to date,” said Kruse.