The Consumer Financial Protection Bureau (CFPB) wants to avoid a wave of home foreclosures later this year and is warning mortgage servicers to take steps to help these homeowners.
Around 2.7 millions American homeowners currently have their mortgages in forbearance, according to the Mortgage Bankers Association. Their payment pauses were made possible by provisions under the CARES Act, its extensions and various executive orders that made forbearance available to homeowners whose finances were affected by the coronavirus pandemic. Although the law only applied to mortgages held by Fannie Mae and Freddie Mac, many private lenders followed the spirit of the legislation and extended forbearance plans to their borrowers, too.
Now, with those protections set to expire in a matter of months, the CFPB is concerned that unprepared lenders could needlessly evict many homeowners, and the agency is prepared to punish those that do.
What is forbearance?
Forbearance allows homeowners to pause their mortgage payments, but it does not erase any of the debt. When forbearance protection ends, homeowners are still responsible for paying whatever balance remained on their loan before the pause, and in some cases lenders may require a lump-sum payment to catch up.
Other options for repayment include plans for higher monthly installments short-term until the mortgage is current, or extending the final payment date to allow borrowers to pay off the missed portion at the end of their loan term.
What is the CFPB saying?
The CFPB recognizes that COVID forbearance has left millions of homeowners behind on their mortgage, and it wants to ensure that the end of that protection does not result in a slew of foreclosures.
“There is a tidal wave of distressed homeowners who will need help,” Dave Uejio, the CFPB’s acting director, said in a statement released Thursday. “Servicers who put struggling families first have nothing to fear from our oversight, but we will hold accountable those who cause harm to homeowners and families.”
The agency is warning lenders that they need to start planning now to make sure an orderly process is in place for borrowers coming out of forbearance.
Here are the key criteria the CFPB said it will monitor when considering enforcement actions against lenders once forbearance ends:
- Being proactive. Servicers should contact borrowers in forbearance before the end of the forbearance period so they have time to apply for help.
- Working with borrowers. Servicers should work to ensure borrowers have all necessary information and should help borrowers in obtaining documents and other information needed to evaluate the borrowers for assistance.
- Addressing language access. The CFPB will look carefully at how servicers manage communications with borrowers with limited English proficiency and maintain compliance with the Equal Credit Opportunity Act and other laws.
- Evaluating income fairly. Where servicers use income in determining eligibility for loss mitigation options, servicers should evaluate borrowers’ income from public assistance, child-support, alimony or other sources in accordance with the Equal Credit Opportunity Act’s anti-discrimination protections.
- Handling inquiries promptly. The CFPB will closely examine servicer conduct where hold times are longer than industry averages.
- Preventing avoidable foreclosures. The CFPB will expect servicers to comply with foreclosure restrictions in Regulation X and other federal and state restrictions in order to ensure that all homeowners have an opportunity to save their homes before foreclosure is initiated.
What should I do if my forbearance period is ending?
Above all, the most important thing is to be in touch with your lender as soon as possible. Whether or not you can afford to resume your regular payments, it’s crucial to keep the lines of communication open to avoid foreclosure.
As mentioned previously, there are a few different ways to get your loan back on track, but there are also options to avoid foreclosure even if you can no longer afford to stay in your home.
Check out Bankrate’s guide on what to do if your forbearance period is ending for more info.
The CFPB was created in the aftermath of the 2008 financial crisis that saw a huge increase in foreclosures. The agency is clearly keen to prevent that from happening in the current financial downturn and is encouraging lenders to be proactive about working with and protecting their borrowers from being forced out of their homes.
As a borrower, it’s a good idea for you to stay in touch with your lender and figure out the best way to wrap up your forbearance based on your own personal financial situation.