CFPB issues temporary foreclosure rules as moratorium ends

The Consumer Financial Protection Bureau is issuing rules to ease the move from the foreclosure moratorium to resumption of normal business.

The Consumer Financial Protection Bureau is issuing rules to ease the move from the foreclosure moratorium to resumption of normal business. The changes “will support the housing market’s smooth and orderly transition to post-pandemic operation,” the bureau said in a press release.

The new rules will require servicers to give additional time and support to borrowers who are exiting forbearance. Servicers must meet temporary special procedural safeguards before initiating foreclosures on certain mortgages. They can offer streamlined loan modifications to borrowers with COVID-19-related hardships without requiring the full gamut of paperwork typically necessary. They must also increase their communications with struggling borrowers before initiating foreclosure to inform them of options. 

Three federal agencies that back mortgages – the Department of Housing and Urban Development, Department of Veterans Affairs, and Department of Agriculture – extended their respective foreclosure moratoria for one, final month, until July 31. The Federal Housing Finance Agency also extended the foreclosure moratorium for mortgages backed by Fannie Mae and Freddie Mac to July 31.

Over seven million homeowners took advantage of COVID-19 hardship forbearance, and just over two million are still in forbearance, with most of those projected to be in forbearance for more than a year, the bureau said. More than 3 percent of all borrowers are now four months or more behind on their mortgages —- the point at which a foreclosure may be initiated — and more than 900,000 are projected to exit forbearance by the end of the year.

The rules cover loans on principal residences, generally exclude small servicers, and will take effect on August 31, 2021. Options for borrowers include deferring missed payments, lowering monthly payments through loan modifications, or selling the home. Foreclosures may resume on abandoned properties; if borrowers were more than 120 days behind on payments by March 1, 2020; if they are 120 days behind and haven’t responded to specific communications for 90 days; and if alternatives to foreclosure have been exhausted.

“As the nation shifts from the COVID-19 emergency to the economic recovery, we cannot be complacent about the dangers we still face,” said CFPB Acting Director Dave Uejio, specifically citing the loss of wealth from Black and Hispanic communities not yet recovered from the effects of the Great Recession. “An unchecked wave of foreclosures would also risk destabilizing the housing market for all consumers. We are giving homeowners the time and opportunity to make informed decisions about the best course of action for them and their families.”

The CFPB will be “significantly” increasing its outreach to borrowers to inform them of options, the agency said.

Fredrikson & Byron Law