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The Consumer Financial Protection Bureau (CFPB) has proposed a new rule that would protect more than 1.7 million homeowners from facing foreclosure this September and October, which is when loan forbearance programs established early in the pandemic have been set to expire.
The federal consumer protection group proposed the rule on Monday to protect homeowners who are unable to pay their mortgages by preventing mortgage servicers from initiating a foreclosure until January 2022.
The rule would apply to both federal and private principal residences, CNBC reports.
The CFPB proposed rule, which is pending approval, comes in the midst of a housing crisis brought on by the COVID-19 pandemic. Millions of renters are behind on rent nationwide, and about 5% of homeowners are delinquent on their mortgages, the Mortgage Brokers Association recently found. Approximately 2.5 million homeowners are currently enrollment forbearance programs.
CFPB outlined that their proposed rule would install a “temporary COVID-19 emergency pre-foreclosure review period,” which would block foreclosure proceedings until after December 31, 2020. The rule would come on top of existing rules that forbid servicers from starting foreclosures until homeowners are more than 120 days delinquent on their loans.
These forbearance programs are part of the government’s moratorium on foreclosures in response to the coronavirus pandemic. They allow borrowers to suspend payments, but those payments must be paid back.
Currently, COVID-19 homeowner protections — including the forbearance programs — are set to expire starting September 2021, posing the threat of a foreclosure “cliff,” Boston College Law School professor and CFPB’s former assistant director for mortgage markets Patricia McCoy told CNBC.
“At some point, the cliff will happen. Forbearance will go away, the foreclosure moratorium will go away, and 1.7 million borrowers are at instant risk of foreclosure,” she said, adding that Black, Hispanic, Native American, rural, and low-income homeowners would be disproportionately affected by foreclosures.
President Joe Biden announced in February that federal housing regulators must extend forbearance programs for an additional six months and prolong foreclosure relief programs. It is estimated 70 percent of mortgage-holders for single-family homes in the U.S are involved in one of the programs.
Diane Thompson, senior advisor to the acting director at the CFPB, told CNBC the new rule would give servicers “breathing room” to evaluate whether to restructure borrowers mortgages for more affordable payments or initiate foreclosure. That process is called a “loss-mitigation evaluation.”
Thompson said adjusting payments could make sense if a homeowner had regained employment at a lower wage and could afford monthly mortgage payments at a lower price point.
“I don’t think anyone has ever before seen this many mortgages in forbearance at one time that are expected to exit forbearance all at one time,” Thompson said. “This could put an enormous strain on servicer capacity.”
CFPB Acting Director Dave Uejio said to CNBC on Monday that by fall, a flood of borrowers would need assistance from their servicers. “The CFPB is proposing changes to the mortgage servicing rules that 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,” Uejio said.
The CFPB is currently seeking public comment about potential exemptions to the proposed rule, including, for example, if a mortgage servicer has conducted a loss mitigation evaluation and determined that the borrower is not eligible for non-foreclosure repayment options. Another considered exemption includes if a mortgage servicer has made repeated attempts to contact a delinquent borrower, who has not responded to the servicer’s communication attempts.
Public comments must be submitted to the CFPB by May 1o, before it issues a final rule.
Have you or your loved ones faced the threat of foreclosure during this COVID-19 era? Share your experience in the comments below.
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5 thoughts onCFPB Proposes Rule to Prohibit Foreclosures, Extending Homeowner Protection During COVID-19
Be thankful for forclosure. I was evicted while awaiting foreclosure hearing as a renter behind on rent instead of homeowner who stopped payments due to breach of contract.
I never got notice of a hearing. Eviction was during CDC hault on all evictions. Home seller illegally destroyed every single possession me and my my family owned. I got home from business trip (vender hault was lifted) to everyone on curb. Sheriff told me to secure my things, then came and arrested me for trespassing on my own property.
The seller knew that Forclosure was required. Lied to courts on affidavit. Judge had contract in his hand which showed I was buying the house and simple math even barred on settlers calculations was proof I was legally home owner. Worth 6grand balance left onour home I was make homeless and my arrested and caught COVID while in jail. They found me hanging in my cell. I sold car which was last person I had to get out of jail.
The contract showed I was county and they mailed notice to an address that didn’t get mail services.
Legal aid had told .e foreclosure was what would happen and I could prove to judge contract breech by seller and my medical diagnosis prior and my business being haulted by COVID. I’d get gone to pay it off or possibly just make seller sign house off to me for cancelling insurance I had already paid for.
Been homeless nearly 2 yrs. Medically disabled can’t work. Lost everything.
My business of 13 yrs set outike trash. I’m busted flat and can’t physically work anywhere. Courts don’t care.
What a judicial system we have. It sure did great for me.
I am wanting to know if there is any lawsuits available for getting foreclosed on in the epidemic
I was foreclosed on in October 2020 and I have been homeless since
On March 21 Representatives from Wells Fargo changed my locks and removed everything I owed. The home I lived in for Nine years was sold in a Foreclosure sale. I never received any notice for Court.
No foreclosure