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“The nation has endured more than a year of a deadly pandemic and a punishing economic crisis. We must not lose sight of the dangers so many consumers still face,” CFPB acting Director Dave Uejio said. “Millions of families are at risk of losing their homes to foreclosure in the coming months, even as the country opens back up. Last week we warned that servicers need to be prepared for a high volume of borrowers exiting forbearance, and today we are proposing additional guardrails and tools for servicers as they navigate the coming months. We will do everything in our power to ensure servicers work with struggling families to find solutions that prevent avoidable foreclosures.”
The new proposed rule would bar services from initiating foreclosures until January 2022. The proposed rule would provide a “pre-foreclosure review period” to give services and borrowers time. The CFPB is seeking public comment on this part of the rule to determine if Dec. 31, 2021 is a reasonable end point for forbearance, and said that it would consider “whether to permit earlier foreclosures if the servicer has taken certain steps to evaluate the borrower for loss mitigation or made efforts to contact an unresponsive borrower.” This extended forbearance only applies to borrowers’ primary residence, so no vacation homes.
The proposed rules would also give lenders more options in streamlined loan modifications for borrowers who are underwater because of pandemic-related hardships. This would cut down on the amount of paperwork that has to be submitted by borrowers, and make the timeline between application and modification approval faster. Lenders or services could only offer modifications that don’t increase borrowers’ monthly payments and can’t extend a modification more than 40 years past the modification’s start date. The proposed rules also include a temporary provision that requires communications from services to “make sure that, during this crisis, borrowers receive key information about their options at the appropriate time.”
The administration wants to avoid a repeat of the foreclosure crisis of the Great Recession. Keeping people in their homes “helps homeowners and communities,” the CFPB said in its press release. “Foreclosures are expensive for homeowners, with an average cost to borrowers of at least $12,500. Neighboring homes also lose value, with sales prices dropping by 1 to 1.6 percent after nearby foreclosure sales.”
“We are at really an unusual point in history,” Diane Thompson, a senior adviser at the bureau, told The New York Times. “I don’t think anybody has ever before seen this many mortgages in forbearance at one time that are expected to exit at one time.” September is one of those cliffs often set up in crisis response legislation, and the Biden administration definitely wants to avoid falling off of it. Because of the urgency of this looming crisis, the public comment period for the new rules is just five weeks, ending on May 11, 2021.
The Mortgage Bankers Association didn’t comment specifically on the proposed rules to the Times, but said that it and the CFPB “share the same goal” of limiting foreclosures. “Servicers remain committed to ensuring borrowers affected by COVID-19 understand their options and keep their homes whenever that is possible,” the group said in a written statement.
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