The CFPB begins to gear up for COVID-19 foreclosures as temporary moratoriums begin to expire.
The Consumer Financial Protection Bureau has released a set of proposed rule changes intended to help prevent avoidable foreclosures as the emergency federal foreclosure protections expire. The CFPB’s proposal seeks to ensure that both servicers and borrowers have the tools and time they need to work together to prevent avoidable foreclosures, recognizing that the expected surge of borrowers exiting forbearance in the fall will put mortgage servicers under strain. Comments on the proposed rule are due by May 10, 2021. In a Fact Sheet, the CFPB anticipates the final rule to become effective Aug. 31, 2021.
Action to date. The proposal is the latest steps taken by the Bureau to address the surge of foreclosures that may ensue once federally-mandated forbearance requirements and foreclosure moratoria end in 2021. A March 2021 CFPB report warned of widespread evictions and foreclosures once federal, state, and local pandemic protections come to an end, without additional public and private action (see Banking and Finance Law Daily, March 2, 2021).
In addition, the Bureau issued an April 2021 Compliance Bulletin urging servicers to have sufficient resources and staff on hand to ensure clear communication with borrowers, effective management of borrower requests for assistance, and the mitigation of loss so that avoidable foreclosures and foreclosure-related costs are ultimately reduced. The CFPB further stated that "it intends to consider a servicer’s overall effectiveness at achieving such goals, along with other relevant factors, in using its discretion to address violations of Federal consumer financial law in supervisory and enforcement matters" (see Banking and Finance Law Daily, April 2, 2021).
Among other things, the proposed rule would:
- add a definition for "COVID-19-related hardship" to generally mean a financial hardship related to the COVID-19 emergency, as defined in the Coronavirus Aid, Relief, and Economic Security (CARES) Act;
- provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after Dec. 31, 2021;
- permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application, as long as, the modifications that do not increase a borrower’s monthly payment and that extend the loan’s term by no more than 40 years from the modification’s effective date; and
- provide temporary changes, ending on Aug. 31, 2022, to certain required servicer communications to make sure that, during this crisis, borrowers receive key information about their options at the appropriate time.
Proposal’s impact. The proposed rule, if finalized, would not change coverage of the Mortgage Servicing Rule for small servicers, as defined in Regulation Z. Additionally, the provisions in the proposal, if finalized, would still only be applicable to a mortgage loan that is secured by a property that is a borrower's principal residence.
Preventing avoidable foreclosures. Commenting on the proposal, Acting CFPB Director Dave Uejio said, "The nation has endured more than a year of a deadly pandemic and a punishing economic crisis. We must not lose sight of the dangers so many consumers still face." He added, "We will do everything in our power to ensure servicers work with struggling families to find solutions that prevent avoidable foreclosures."
Importance of communication. A CFPB blog post also noted that the proposed rule "emphasize[s] the importance of communication especially at a time when so many homeowners are distressed;" and that "getting the communication right, using technology and expanding resources in multiple languages, will be more important than ever for servicers to reach and engage with struggling homeowners."
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