CFPB Announces New Rule To Ease Transition Out Of Forbearance

The Consumer Financial Protection Bureau (CFPB) finalized amendments made to the federal mortgage servicing regulations that will support the housing market’s transition to post-pandemic operation. 

The CFPB established temporary special safeguards to ensure that borrowers have time before foreclosure to explore other options of repayment, including loan modifications and selling their home. The rule covers loans on a principal residence, excluding small servicers, and will take effect on August 31, 2021. 

Today’s new rules require servicers to redouble their efforts to avoid foreclosures. Generally, borrowers will have 3 options to bring their mortgages current and avoid foreclosure. One option is to resume regular mortgage payments and defer missed payments to be paid off at the end. The second option is to lower their monthly mortgage payment with loan modifications on interest rates, principal payments, or length of mortgage. The third option is to sell the house, although long-term forbearance may erode the borrower’s equity, and home prices may dip.  

CFPB acting director Dave Uejio, said, “As the nation shifts from the COVID-19 emergency to the economic recovery, we cannot be complacent about the dangers we still face. An unchecked wave of foreclosures would drain billions of dollars in wealth from the Black and Hispanic communities hardest hit by the pandemic and still recovering from the impact of the Great Recession just over a decade ago.”

Throughout the COVID-19 pandemic, over 7 million homeowners took advantage of the government forbearance, temporarily pausing mortgage payments while trying to resolve financial obligations caused by the pandemic and its effects. Today, over 2 million homeowners are still in forbearance with most projected to be in forbearance for more than a year. Even at the height of the Great Recession, there were not as many borrowers behind on payments as there are now. 

“An unchecked wave of foreclosures would also risk destabilizing the housing market for all consumers,” Uejio continued. “We are giving homeowners the time and opportunity to make informed decisions about the best course of action for them and their families, whether that is seeking a loan modification or selling their home. And we are giving mortgage servicers the flexibility they need to serve homeowners with dignity while managing an unprecedented volume of borrowers seeking assistance.”

More than 3% of borrowers are four months or more behind on their mortgage payments, which is the point at which forbearance can be initiated. Once the federal moratoria lifts, 900,000 of these borrowers are at risk of having foreclosure start immediately. 

Foreclosures cannot be delayed for certain properties, though. Those who have been delinquent on their mortgage for over 120 days and have not spoken to their mortgage servicer within 90 days will have to face foreclosure. The same applies to those who have abandoned their property or have no more available options to avoid foreclosure.

Read the CFPB final rule and executive summary that include more detail on pursuing loss mitigation.