By Natalie DeCoste
People struggling to pay their mortgage after the economic downturn brought on by the pandemic are set to get a little help from the Consumer Financial Protection Bureau (CFPB) as the agency prepares to implement a new mortgage forbearance rule.
In the coming weeks, the CFPB will adopt a rule that requires mortgage servicers to give homeowners struggling to pay their mortgages until next year to resume repayments. The rule was proposed on April 5 and is known as “Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X.”
The impending rule will establish a temporary COVID-19 emergency pre-foreclosure review period for principal residences until December 31, 2021. The CFPB will also make it so that mortgage servicers can offer certain loan modifications available to borrowers experiencing a COVID-19-related hardship based on the evaluation of an incomplete application.
“The Bureau is taking this action to help ensure that borrowers affected by the COVID-19 pandemic have an opportunity to be evaluated for loss mitigation before the initiation of foreclosure… Overall, the proposed amendments aim to encourage borrowers and servicers to work together to facilitate review for foreclosure avoidance options, including to ensure that borrowers have the opportunity to be reviewed for loss mitigation options before a servicer makes the first notice or filing required for foreclosure,” read part of the rule.
Mortgage servicers receive the payments from the borrower and, in turn, pass them on to investors, tax authorities, and insurers.
The rule is expected to go into effect before the end of August. With its implementation, hundreds of thousands of struggling homeowners will be extended a lifeline. Even though the rule could help many people, the CFPB made exceptions to the impending program. Following a request for comment on the rule, some individuals in the mortgage industry said it was too broad and beyond the CFPB’s legal authority, leading the agency to create carve-outs.
The people expected to be excluded from the new rule are borrowers not previously reported, including those in the process of negotiating an arrangement with their servicer to avoid foreclosure but who have not yet applied to be put into forbearance. Also included in the exceptions are borrowers who may have abandoned their homes without attempting to notify their mortgage servicers and borrowers who do not respond to multiple inquiries from their servicers about if they wish to remain in their homes.
These exceptions will help the CFPB limit the compliance burden the new rule may place on servicers and allow them to have more flexibility. It has also been reported that the rule will not apply to small mortgage servicers with a more limited market share that are less able to absorb the costs associated with compliance.
“We remain committed to working with both servicers and homeowners to prevent avoidable foreclosures to the maximum extent possible,” said a spokesperson for the CFPB.