Millions of Americans have benefited from the payment suspension and mortgage interest deduction programs put in place by both lenders and the federal government because of the Covid-19 pandemic last year. But as these emergency programs begin to expire this year, the Consumer Financial Protection Bureau wants to take precautions to ensure millions of families aren’t forced into exclusion.
A year after the pandemic, about 2.5 million homeowners are still enrolled in some sort of forbearance program, according to the Mortgage Bankers Association data for the week of March 21, 2020. But even with these programs, about 5% of homeowners are currently past due on their mortgages, the MBA found in its latest report.
That could grow exponentially as forbearance programs begin to wind down this fall.
“Emergency protections for homeowners will expire later this year and by the fall, a flood of borrowers will need the help of their administrators,” CFPB acting director Dave Uejio said Monday. “The CFPB is proposing changes to the mortgage rules that will ensure that service providers and borrowers have the tools and time to work together to prevent avoidable foreclosure sales, which disrupt lives, uproot children and cause additional costs for those least able to bear them. “
To help homeowners who are behind on their mortgage, the CFPB is proposing a new rule that establishes a “ temporary Covid-19 foreclosure emergency evaluation period ” that would essentially prevent mortgage managers from starting the foreclosure process beyond December 31, 2021 .
This new review period would be in addition to the existing rules preventing loan managers from starting the foreclosure process until a homeowner is more than 120 days past due on their home loan.
Many of the current forbearance programs were set up in the CARES Act last year and apply to government-backed loans offered through Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Department of Housing and Urban Development, among others . Private lenders and service providers also set up their own forbearance programs. The CFPB’s proposed rule would apply to all homeowners, including those with mortgages through private lenders such as banks.
The CFPB’s plan released Monday is a proposal at this point. The agency is seeking public comments through May 11 before issuing a final rule.
In addition to requiring mortgage lenders to go through a review period, the CFPB also proposes a streamlined loan modification process, typically allowing homeowners to apply to lower their interest rate, extend the term of their loan and / or reduce their monthly payments. .
The streamlined process allows servicers to offer some loan modification options based on incomplete applications. Normally, borrowers must submit a large number of documents – including proof of income, such as paychecks, tax returns, and recent bank statements – before an administrator can make a decision.
By streamlining the process, servicers could make homeowners more onerous payments faster, says CFPB. The accelerated process would only be available for loan modification options that don’t increase homeowners’ monthly payments, extend the term of the mortgage by more than 40 years, or charge fees.
In February, President Joe Biden ordered federal housing regulators to extend the mortgage interest deduction programs for an additional six months and to extend the foreclosure programs in a move that covered an estimated 70% of single-family home mortgages in the US.
Mortgages 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 they would expand their forbearance programs for up to 18 months. For homeowners who signed up in March and April 2020, that means those programs will end in September and October.
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