Homeowners in Covid forbearance could get a stay of foreclosure
Millions of Americans have taken advantage of mortgage suspension and forbearance programs put in place by lenders and the federal government due to the Covid-19 pandemic last year. But as these emergency programs begin to wind down this year, the The Consumer Financial Protection Bureau wants to put in place safeguards to ensure that millions of families are not forced into foreclosure.
A year after the start of the pandemic, around 2.5 million homeowners are still enrolled in some type of forbearance program, according to the Mortgage Bankers Association data for the week of March 21, 2020. Yet even with these programs in place, about 5% of homeowners are currently behind on their mortgage, the MBA found in his last report.
This could increase exponentially as forbearance programs begin to end this fall.
“Emergency protections for homeowners will begin to expire later this year and by the fall a flood of borrowers will need the help of their agents,” the acting director of CFPB said on Monday, Dave Uejio. “The CFPB is proposing changes to mortgage management rules that will ensure administrators and borrowers have the tools and time to work together to avoid preventable foreclosures, which disrupt lives, uproot children and inflict additional costs on those who are least able to endure them.
To help homeowners who are behind on their mortgages, the CFPB proposes a new rule this would establish an “emergency interim review period before Covid-19 foreclosure” that would essentially prevent mortgage managers from starting the foreclosure process until December 31, 2021.
This new review period would be in addition to existing rules that prohibit loan managers from starting the foreclosure process until a homeowner is more than 120 days past due on their home loan.
Much of the current abstention programs were put in place in the CARES law last year and apply to federally guaranteed loans offered by agencies such as Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Department of Housing and Urban Development. Lenders and private managers also have their own forbearance programs.. The rule proposed by the CFPB would cover all homeowners, including those with mortgages from private lenders such as banks.
The CFPB plan released on Monday is a proposal for now. The agency is seeking public comment until May 11 before issuing a final rule.
In addition to requiring mortgage managers to undertake a review period, the CFPB also offers a simplified loan modification process, which typically allows homeowners to apply for a reduction in the interest rate on their loan, extend the term of their loan and / or reduce their monthly payments. .
The streamlined process would allow managers to offer certain loan modification options based on incomplete applications. Normally, borrowers must submit a myriad of documents – including proof of income, like pay stubs, tax returns, and recent bank statements – before a managing agent can make a decision.
Streamlining the process would allow service providers to charge owners for cheaper payments faster, according to the CFPB. The expedited process would only be available for loan modification options that don’t increase homeowners’ monthly payments, extend the mortgage term by more than 40 years, or charge a fee.
In February, President Joe Biden led federal housing regulators to extend mortgage forbearance programs for an additional six months and extend foreclosure relief programs to an extent that has covered approximately 70% of single-family home mortgages in the United States
Morgages supported by Fannie Mae or Freddie Mac, as well as the Department of Veterans Affairs (VA), Department of Agriculture (USDA) and FHA announced that they were expanding their abstention programs up to 18 months. For owners who applied for registration in March and April 2020, that means these programs will expire in September and October.