The Consumer Financial Protection Bureau is moving to strengthen protections for struggling mortgage borrowers, including those with non-federally backed loans who have so far been excluded from nationwide COVID-related relief.
Proposed rule changes announced by the CFPB on Monday would generally block servicers from initiating foreclosures until after the end of this year, allow servicers to offer certain streamlined load modification options to borrowers with pandemic-related hardships and help ensure borrowers get timely information about forbearance and loss-mitigation options.
The proposed changes “will ensure servicers and borrowers have the tools and time to work together to prevent avoidable foreclosures, which disrupt lives, uproot children and inflict further costs on those least able to bear them,” CFPB acting director Dave Uejio said on a call with reporters Monday.
Nearly 3 million homeowners have fallen behind on mortgage payments, according to the CFPB. As of February, serious mortgage delinquencies — those 90 days or more past due — were at five times their pre-pandemic levels, according to mortgage data provider Black Knight.
If finalized, the rule changes could hold particular significance for the roughly 14.5 million single-family mortgages that are not backed by the federally chartered Fannie Mae
or Freddie Mac
or by the federal government. While homeowners with federally backed mortgages can qualify for up to 18 months of COVID-related forbearance and are currently protected from foreclosure until after June 30, homeowners whose loans are privately held and have no federal backing aren’t guaranteed such relief.
Although some servicers say they’re trying to offer the same relief options to all borrowers, regardless of whether their loans are federally backed, MarketWatch reported last month that some homeowners with privately held loans have received little or no relief and faced foreclosure during the pandemic.
One reason the CFPB took action is that the Coronavirus Aid, Relief and Economic Security (CARES) Act protections applied only to federally backed loans, but about 30% of loans are privately held, Diane Thompson, a senior adviser at the CFPB, said on the press call Monday. The proposed rules would generally apply across the mortgage market, she said.
Monday’s announcement comes on the heels of the CFPB’s warning last week that mortgage servicers should be prepared for a “tidal wave” of distressed homeowners who will need help when federal emergency mortgage protections expire later this year. Nearly 1.7 million homeowners will exit forbearance in September and the following months, and servicers should make sure they have sufficient staff and resources to help them, the bureau said.
To help ensure that those borrowers aren’t rushed into forbearance, the CFPB proposal includes a “special pre-foreclosure review period” that would generally bar servicers from initiating foreclosures until after Dec. 31, 2021. The bureau says it is seeking public input on that date and considering whether to allow earlier foreclosures if servicers take certain steps to weigh loss-mitigation options or communicate with unresponsive borrowers.