The Consumer Financial Protection Bureau (CFPB), a consumer protection advocacy group, has suggested that a rule be put in place to prevent mortgage foreclosures against borrowers until at least December 31, 2021. CFPB wants the rule to apply to both private and federal mortgages.
According to Dave Uejio, Acting Director for CFPB, a record 1.7 million delinquent borrowers could be at foreclosure risk in September as that’s when the government’s forbearance program will expire. CFPB said the foreclosures would like disproportionately impact minorities and people of color, as well as lower-income Americans and rural homeowners.
The proposal for the rule will need to have final approval. The rule would prohibit mortgage loan servicers from beginning foreclosure action against borrowers late on their payments until the end of the year.
Since the global pandemic began, housing insecurity has been rising as more Americans became unemployed, losing the vital income needed to make ends meet and stay up-to-date on mortgage payments.
The U.S. government action allowed borrowers to enter forbearance programs to suspend loan payments. The action put a moratorium on foreclosures. However, a forbearance only defers payments, not forgives them, and eventually, borrowers must meet their mortgage obligations.
Professor Patricia McCoy of Boston College Law School said, “The CFPB is worried about a prospective cliff in the future. 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.” McCoy worked previously for CFPB as its mortgage markets assistant director.
The new rule would further strengthen existing protection orders to ban foreclosure filings or notices until mortgage borrowers are at least 120 days late on payments.
Acknowledging that record numbers of homeowners who are in forbearance are more than 120 days behind on their mortgage payments, Diane Thompson, CFPB’s senior advisor to the group’s director, said: “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.”
If the proposal goes through, it will allow borrowers and mortgage servicers a chance to take a step back and reevaluate matters. According to McCoy, loan servicers could also complete a “loss mitigation” review for their borrowers. The review would consist of mortgage servicers assessing each borrower’s financial situation to determine if a mortgage loan restructuring would help make payments more affordable for them. They would also evaluate whether or not it still makes sense to foreclose.
Delinquent mortgage borrowers who had previously lost their jobs at the beginning of the pandemic but later found lower-paying employment could benefit from a modified mortgage with lower payments to avoid foreclosure, McCoy pointed out.
But loss-mitigation reviews take a while to complete. Some loan servicers might not have the ability to finalize their evaluations within the suggested three-month period, Thompson hinted, saying that it “could put an enormous strain on servicer capacity.”