CFPB Finalizes Foreclosure Rules
CUNA says the agency responded to concerns about its earlier proposal.
The CFPB has finalized rules designed to protect homeowners in arrears on their mortgages from “unwelcome surprises” as federal moratoriums on foreclosures expire.
The rules were finalized Monday and will take effect Aug. 31. They establish temporary special safeguards to help ensure that borrowers have time before foreclosure to explore their options, including loan modifications and selling their homes. The rules cover loans on principal residences and generally exclude small servicers.
“As the nation shifts from the COVID-19 emergency to the economic recovery, we cannot be complacent about the dangers we still face,” CFPB Acting Director Dave Uejio said.
“An unchecked wave of foreclosures would drain billions of dollars in wealth from the Black and Hispanic communities hardest hit by the pandemic and still recovering from the impact of the Great Recession just over a decade ago,” Uejio said. “An unchecked wave of foreclosures would also risk destabilizing the housing market for all consumers.”
More than seven million homeowners took advantage of COVID-19 hardship forbearances. This allowed them to pause the obligation to make their mortgage payments while they resolved financial insecurity caused by the pandemic and its effects.
More than 3% of all borrowers are now four months or more behind on their mortgages, which is the point when a foreclosure may be initiated. “Not even during the worst of the Great Recession have so many borrowers been so far behind,” the CFPB reported.
Once the federal foreclosure moratoria lift, these homeowners are at risk of having foreclosure started as soon as they exit forbearance.
The Mortgage Bankers Association reported Monday that about two million homeowners are now in forbearance, representing 3.91% of mortgages as of June 20. The percentage has dropped in each of the past 17 weeks.
MBA Senior Economist Mike Fratantoni said the pace of new forbearance requests remained at a very low level of 4 basis points.
“The steady improvement in the aggregate forbearance numbers is heartening, as it is evidence that improving economic conditions are allowing more homeowners to get back on their feet,” Fratantoni said. “However, we continue to closely monitor the number of forbearance re-entries, reflecting borrowers who exited forbearance but had to re-enter due to hardships. These re-entries accounted for 6.2% of loans in forbearance this week.”
The CFPB said it expects 900,000 homeowners to exit forbearance by year’s end, and the remainder in 2022.
“We are giving homeowners the time and opportunity to make informed decisions about the best course of action for them and their families,” Uejio said. “And we are giving mortgage servicers the flexibility they need to serve homeowners with dignity, while managing an unprecedented volume of borrowers seeking assistance.”
CUNA expressed several concerns about the CFPB’s original proposal, which included a foreclosure moratorium, and the final rule acknowledged CUNA’s comments about the proposal’s insufficient tailoring and its potential to do more harm than good.
“We thank the CFPB for listening to CUNA and other concerns about the overbroad and potentially-harmful proposed moratorium,” CUNA President/CEO Jim Nussle said. “We share the bureau’s goal of getting consumers through the pandemic and its effects, and credit unions will continue their efforts to work with credit union members.”
Under the CFPB’s rule, credit unions will retain the discretion and ability to initiate foreclosure if the borrower:
- Has abandoned the property.
- Is more than 120 days behind on their mortgage payments and has not responded to specific required outreach from the mortgage servicer for 90 days.
- Has submitted a complete loss mitigation application and been evaluated for options other than foreclosure and there are none available.
These provisions only apply to loans that became more than 120 days delinquent after March 1, 2020 and where the statute of limitations expires on or after Jan. 1, 2022.
These procedural protections only apply to first notice or first filings to initiate foreclosures between Aug. 31 and the sunset date of Jan. 1, 2022.