CFPB Proposes Rules To Stem Foreclosure Wave This Fall

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The Consumer Financial Protection Bureau (CFPB) on Monday proposed new protections for homeowners in hopes of preventing a “wave” of foreclosures this fall when special pandemic mortgage forbearance begins expiring.

The new rules, if finalized, would forbid many federal and private mortgage servicers from starting foreclosure until after December 31, buying time for homeowners to figure out how to resume making payments and avoid foreclosure. They would also give lenders more flexibility to move borrowers into affordable alternative repayment plans faster and with less paperwork. 

Homeowners with mortgages through federal programs or with loans backed by Fannie Mae and Freddie Mac are currently eligible for special pandemic protections from foreclosure through June. And those in a COVID-19 forbearance plan Feb. 28 were already allowed an additional three months of forbearance, for a total of up to 18 months of forbearance. (Those who skip payments can make them up when the home is sold or the mortgage ends.) 

Many private lenders have also offered forbearance programs during the pandemic, the CFPB noted. There may be nearly 1.7 million homeowners exiting forbearance starting in September, the CFPB said, citing industry data. 

The new rules would ensure servicers and borrowers have time to “work together to prevent avoidable foreclosures, which disrupt life, uproot children, and inflict further costs on those least able to bear them,” said David Uejio, acting director of the CFPB, in a press conference. 

The rules would create a special “pre-foreclosure review” period, lasting until the end of the year, so that homeowners whose forbearance plans expire would have extra time to get back on their feet. If no new rule is put in place, they could be immediately foreclosed upon, the CFPB said. It’s estimated that 2.1 million homeowners are 90 or more days delinquent on their mortgages. 

One factor that could mitigate the foreclosure wave—assuming the government does not extend foreclosure protections and forbearance again—is that home prices, and therefore, home equity, have been rising, giving some homeowners behind on their payments the option to sell instead of face foreclosure. However, this remedy is not available equally: African-American and Hispanic families have less equity than White ones, said Diane Thompson, senior advisor to Uejio. For homeowners who choose this option, the extra time provided by the new rule would help prevent “panic selling,” she said.

Not every mortgage would be covered by the new rules, which would exclude servicers that have 5,000 or fewer loans. The rules are not yet finalized, and the CFPB is accepting public comments until May 10.