CFPB Unveils New Rules To Protect Against Foreclosures

The Consumer Financial Protection Bureau (CFPB) unveiled new protections for mortgage holders two days before the federal ban on foreclosures was set to expire.

While the CFPB is not banning foreclosures, it says its new rules, which go into effect Aug. 31, set up temporary safeguards to make sure borrowers have time to explore their options before foreclosure, including loan modifications or selling their homes.

“As the nation shifts from the COVID-19 emergency to the economic recovery, we cannot be complacent about the dangers we still face,” CFPB Acting Director Dave Uejio said in a news release Monday (June 28).

“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.”

In March, the CFPB reported that 11 million Americans — about 10 percent of households — were at risk of losing their homes, either due to foreclosure or eviction.

More than 7 million homeowners took advantage of the COVID hardship forbearance, which paused monthly mortgage payments. That number has dropped to a little more than 2 million, although most of those homeowners on that list will likely be in forbearance for more than a year.

The new rules require mortgage servicers to meet temporary safeguards before initiating foreclosures on some mortgages through the remainder of the year. Servicers can also offer streamlined loan modifications to borrowers with COVID-related difficulties.

Finally, the rules require mortgage servicers to increase their communication with borrowers before beginning foreclosure and tell them key information about repayment and other options when dealing with homeowners struggling to make payments.

The rules allow lenders to resume foreclosures if the borrower has abandoned their property, was more than 120 days delinquent prior to March 1, 2020, is 120 days behind and has not responded to outreach for 90 days or simply has no option to avoid foreclosure.

The CFPB in April said it was investigating mortgage lenders to see if they had complied with pandemic-era programs designed to prevent foreclosure following accusations that homeowners were discriminated against or did not get the help that was promised.