The Consumer Financial Protection Bureau (CFPB) today released extensive mortgage servicing regulations it hopes will prevent “unwelcome surprises” for borrowers exiting forbearance.
According to today’s final rule, servicers can initiate a foreclosure action only after the borrower has submitted a loss mitigation application, and either isn’t eligible for, breaks or rejects a loss mitigation agreement. Servicers can skip those caveats if the borrower was already six months past-due by March 2020 or if the property is abandoned.
The CFPB rule also clarifies that escrow shortages — which servicers are keen to recover — can be included in a loss mitigation option. The rule also places a limit on how much servicers can require borrowers to deposit in an escrow account over the next year.
Servicers can offer streamlined loan modifications to borrowers, as long as the modification does not increase the monthly payments, or stretch the mortgage term out beyond 40 years. Servicers can’t charge any extra fees for the loan modifications, and if a borrower accepts a loan modification, the servicer must waive any late charges.
The CFPB wants servicers to be proactive in communicating with borrowers about their options, especially if they are not in a forbearance plan.
If borrowers are still delinquent, servicers must contact them well ahead of the end of their forbearance period to give them the option to complete a loss mitigation application.
Lastly, the rule adds clarity to the definition of financial hardship to mean any hardship that the pandemic brought on, either indirectly or directly, from March 2020 to February 2021.
The rule will take effect at the end of August.
Dave Uejio, the CFPB’s acting director, said “We are giving homeowners the time and opportunity to make informed decisions about the best course of action for them and their families, whether that is seeking a loan modification or short selling their home,” Uejio said.
As economic restrictions lessen and federal and state-level protections expire, the housing market is entering a critical period for the 900,000 people the CFPB estimated will leave forbearance before the end of the year.
The bureau is by no means trying to prevent every foreclosure. Borrowers who were already more than six months behind before the pandemic started will no longer be spared, and the CFPB noted that “some foreclosures are unavoidable.”
The regulatory measures are meant to ease the transition for borrowers, said Diane Thompson, senior advisor to the CFPB’s acting director, during a call with reporters.
“This work is done in concert by work with other federal agencies, all actively in the process of figuring out what better options there are for people as they exit forbearance plans,” Thompson said. “This gives people a bridge to get into those loan modifications and figure out what the best path forward for them and their families is.”
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