Homeowners on Covid Forbearance Could Get a Foreclosure Pardon

Millions of Americans took advantage of the default and mortgage 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 Consumer Financial Protection Office wants to implement safeguards to ensure millions of families are not forced into foreclosure.

One year after the pandemic, about 2.5 million homeowners are still enrolled in some type of forbearance program, according to Mortgage Bankers Association data for the week of March 21, 2020. Yet even with these programs implemented, about 5% currently delinquent on their mortgages, the MBA found in its latest report.

That could increase exponentially as leniency programs begin to wane 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 servicers,” CFPB Acting Director Dave Uejio said Monday. “The CFPB is proposing changes to mortgage servicing rules that will ensure servicers and borrowers have the tools and time to work together to prevent avoidable, life-altering, uprooting children and inflicting more costs on foreclosures. able to bear them. “

To help homeowners who are behind on their mortgages, the CFPB proposes a new rule that would establish a “Covid-19 emergency pre-foreclosure temporary review period” that would essentially block mortgage servicers from start the foreclosure process until after December 31, 2021..

This new review period would be in addition to existing rules that prohibit loan servicers from initiating the foreclosure process until the homeowner is more than 120 days past due on their home loan.

Many of the current forbearance programs were established in the CARES Act last year and apply to federally backed loans offered through agencies such as Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Department of Housing and Development. Urban. Private lenders and servicers also establish their own forbearance programs. The CFPB’s proposed rule would cover all homeowners, including those with mortgages through private lenders like banks.

The CFPB plan issued Monday is a proposal at this time. The agency is seeking public comment until May 11 before issuing a final rule.

In addition to requiring mortgage servicers to go through a review period, the CFPB also proposes a simplified loan modification process, which generally allows homeowners to request that their loan interest rate be lowered, extend the term of their loan. and / or reduce your monthly payments. .

The streamlined process would allow servicers to offer some loan modification options based on incomplete applications. Typically, borrowers must submit a large number of documents, including proof of income such as recent pay stubs, tax returns, and bank statements, before a servicer can make a decision.

Streamlining the process would allow managers to make homeowners make less onerous payments faster, says CFPB. The expedited process would only be available for loan modification options that do not increase homeowners’ monthly payments, extend the term of the mortgage more than 40 years, or charge fees.

In February, President Joe Biden directed federal housing regulators to extend mortgage forbearance programs for an additional six months and extend foreclosure relief programs in a measure that covered approximately 70% of single-family home mortgages in The USA.

Morgages backed by Fannie Mae or Freddie Mac, as well as the Department of Veterans Affairs (VA), the Department of Agriculture (USDA) and the FHA announced that they were expanding their leniency programs for up to 18 months. For homeowners who applied for enrollment in March and April 2020, it means those programs will expire in September and October.

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