“Foreclosures cause real estate values to drop and cause harm to the homeowners as well. “A flood of foreclosures is the last thing anyone wants to see,” she continues. “We have seen the extension of forbearance several times now, and it is clearly prudent that an exit program gets created to keep as many people as possible in their homes,” Cohn says. The CFPB is still requesting comments on the proposal through May 11.īut Melissa Cohn, an executive mortgage banker at William Raveis Mortgage, says “there is a very good chance” that it – or at least something like it – does go through. To be clear: The new rule hasn’t passed yet. Will the CFPB foreclosure moratorium pass? So borrowers who are behind on their second home or vacation property payments? They won’t qualify. One quick note here: Though loan type won’t matter under the CFPB’s foreclosure rule, the mortgage must be secured by the borrower’s primary residence. Previously, actions by the CFPB and Federal Housing Finance Agency only applied to borrowers with federally–guaranteed loans (FHA, VA, or USDA) and conforming mortgages owned by Fannie Mae and Freddie Mac. Under current guidelines, the CFPB’s foreclosure ban would apply to all borrowers – including those with private loans, which account for about 30% of the market. “Every one of the nearly 3 million borrowers behind on their mortgages should have a chance to explore ways to resume making payments and avoid foreclosure,” the CFPB’s announcement states.
Under current guidelines, the CFPB’s new rule would apply to all borrowers – including those with private loans.
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Data show that by September, about 1.7 million of these borrowers will exit forbearance, many a full year or more behind on their loans.įor those facing financial hardship, getting current on a home loan may be next to impossible.īorrowers who are still employed may qualify for a loan modification, but those who have lost their sources of income may need other options. Who would the foreclosure rule apply to?ĬFPB’s proposal aims to help homeowners who have been financially impacted by the COVID–19 pandemic – primarily those who have lost their jobs or seen their income drastically cut during this time.Īs of February, about 3 million homeowners were behind on their mortgages, and 2.1 million were on a forbearance plan due to COVID–related hardships. That means servicers wouldn’t be able to start foreclosure proceedings against a homeowner until at least January 1, 2022. It would last through December 31, 2021, starting from the rule’s effective date. There would also be certain situations when servicers could not charge fees, interest, or even past late fees during these modifications.įinally – and this is the big one – the rule would institute a “temporary COVID–19 pre–foreclosure review period,” during which servicers could not initiate foreclosure notices or filings. The rule would also allow servicers to offer loan modifications – including term extensions and payment deferrals – with less documentation for borrowers exiting forbearance. The goal is to help homeowners exit forbearance smoothly and resume mortgage payments in a way they can afford. This means mortgage loan servicers need to make ‘live contact’ (a phone call, for example) and provide borrowers with loss mitigation options before their forbearance period ends. The CFPB’s proposed rule would impose a number of new protections for homeowners, the first being what it calls “early intervention live contact.” What the new foreclosure rule means for homeowners
Here’s what you need to know about the proposal in its current state – and what it might mean for borrowers. It would also allow for streamlined loan modifications to help post–forbearance homeowners get back on their feet.įor now, the rule is still in the works, so things could change. The rule – which the CFPB says would benefit both underwater homeowners and mortgage servicers – would prohibit servicers from initiating the foreclosure process until after December 31 of this year. Ap4 min read Foreclosure moratoriums could be extendedįoreclosures may be banned until 2022 if a new rule from the Consumer Financial Protection Bureau goes through.
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