The Office of Consumer Financial Protection proposed a rule Monday to prevent a wave of foreclosures this fall, when certain Covid-era protections for homeowners will have to be extinguished.
The proposal, which would need final approval, generally prohibits mortgage administrators from initiating foreclosure proceedings against delinquent borrowers until after December 31, 2021.
The rule would apply to all mortgages, both federal and private, in a primary residence, CFPB officials said Monday.
The Covid pandemic has led to a sharp rise in housing insecurity amid massive unemployment and loss of income, emphasizing homeowners ’ability to pay monthly mortgages.
More information on personal finance:
The new $ 1,400 stimulus check package includes “additional” payments
The pandemic has increased personal finance education in schools
What you need to know about American Rescue Plan tax credits
The federal government allowed borrowers to suspend payments as part of tolerance programs and established a moratorium on foreclosures. Tolerance does not forgive lost mortgage payments; it only differentiates them.
Loans placed in the tolerance program at the beginning of the pandemic will reach the end of their tolerance period in September or October, the CFPB said.
As many as 1.7 million borrowers are expected to abandon tolerance programs at that time and be at risk of foreclosure, a figure that surpasses anything mortgage administrators have seen, Dave Uejio said Monday acting director of the CFPB.
This foreclosure cliff would disproportionately impact black, Hispanic, Native American, rural, and low-income homeowners, the CFPB said.
“The CFPB is concerned about a future cliff in the future,” said Patricia McCoy, a professor at Boston College Law School and former CFPB deputy director for mortgage markets.
“At some point, the cliff will pass,” he added. “Tolerance will disappear, the foreclosure moratorium will disappear and 1.7 million borrowers have an instant foreclosure risk.”
The consumer agency proposed establishing a “temporary emergency review period prior to the exclusion of Covid-19” during which mortgage administrators cannot make an initial foreclosure notice. This period would last until 2021.
This is in addition to existing protections that override such notification or filing until a borrower’s loan obligation is later than 120 days in arrears. Diane Thompson, senior adviser to the CFPB’s acting director, said many tolerant homeowners are behind more than 120 days.
I don’t think anyone has ever seen so many mortgages in suspension at the same time that they are expected to come out at once.
Diane Thompson
senior adviser to the acting director of the CFPB
The proposal would give three months of respite for technicians to complete a “loss mitigation” review for borrowers, McCoy said.
In this review, mortgage administrators assess the financial situation of borrowers and whether it makes sense to restructure their mortgage for more affordable payments or, ultimately, to foreclose.
Modifying a mortgage could make sense if a delinquent homeowner who had lost his job has regained employment on a lower wage scale and could pay monthly mortgage payments at a lower price, McCoy said.
This may apply to more and more homeowners if the job market continues to improve in the coming months, he said.
Leak mitigation assessments are time consuming and technicians may not be able to respond properly without the proposed three-month review period, Thompson said.
“I don’t think anyone has ever seen so many mortgages in suspension at the same time that they are expected to come out at once,” he said. “That could put a huge strain on service capacity.”
The proposal would also give some concessions to service administrators. It would give managers flexibility to offer some simplified loan modification options with less borrowers formalities if the restructuring meets certain conditions.
The CFPB is also “seriously considering” and requesting comments on some exceptions to the pre-foreclosure review period proposed if an administrator has completed a loss mitigation review and the borrower is not eligible for any non-foreclosure option. .
Exemption is also being considered if the technician has made certain efforts to contact the borrower and the borrower has not responded to the disclosure.
Public comments on the standard must be submitted by May 10th.