Foreclosures are now among the aspects of pre-pandemic life set to stage a comeback, as the government set rules Monday that will let them resume as early as September.
- The Consumer Financial Protection Bureau has set new rules for foreclosures, allowing them to proceed as long as lenders make special efforts to help borrowers get back on track.
- The temporary regulations give borrowers who are exiting pandemic-era forbearance programs time to work out arrangements to avoid foreclosure, such as loan modification, resuming payments, or selling the home.
- The CFPB scrapped a proposed rule that would have prohibited most foreclosures through the end of the year.
The Consumer Financial Protection Bureau (CFPB), the government’s consumer watchdog agency, set new rules for how mortgage servicers must deal with homeowners who are behind on their payments and who run out the clock on pandemic-era forbearance programs that have allowed them to skip payments for up to 18 months without penalty. Regulators scrapped a proposal from April that would have generally prohibited foreclosures through the end of the year. Instead, the new rules, which take effect Aug. 31, permit foreclosures to begin in certain cases including abandoned properties, loans that were four months or more behind already when the pandemic hit, and in cases where the borrower doesn’t respond to outreach.
“If you haven’t been making payments on your mortgage since March of 2020, it’s important to understand that you’re going to need to figure out a plan for how to address that some time in the not-too-distant future,” Diane Thompson, senior assistant to CFPB Acting Director David Uejio, said in a remote press conference Monday.
Foreclosures have been extraordinarily rare during the pandemic, thanks to pandemic relief measures from both the government and lenders. In total, more than 7 million borrowers took advantage of pandemic forbearance at some point, the CFPB said. But time will run out in September for homeowners who entered forbearance at the first opportunity in March and never left, and a moratorium on federally backed mortgages is set to expire at the end of July. As of June 20, about 2 million home loans were in forbearance, according to an estimate by the Mortgage Bankers Association, and the CFPB estimates that most in forbearance have been in it for more than a year. With at least 900,000 people set to leave forbearance by the end of the year according to CFPB estimates, officials worry that a surge of foreclosures all at once would overwhelm courts and sweep vulnerable families up in a rush to foreclose.
“As the nation shifts from the COVID-19 emergency to the economic recovery, we cannot be complacent about the dangers we still face,” Uejio said in a statement. “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. An unchecked wave of foreclosures would also risk destabilizing the housing market for all consumers.”
The new rules are meant to give those at risk of foreclosure time to make arrangements to resume payments with missed payments being added at the end of the loan; have their lenders modify their mortgages to have lower payments; or sell their homes instead of having them foreclosed, the CFPB said. Lenders are not allowed to go ahead with foreclosure without first attempting to get the borrower into a loss mitigation program instead, and must take extra steps to contact them and inform them of their options. In addition to these safeguards, the new rules allow lenders to streamline the process for loan modification. The rules expire at the end of the year.
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