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The Consumer Financial Protection Bureau (CFPB) has released a new rule to help homeowners end mortgage forbearance programs in the event of a pandemic.
The new rule gives borrowers with federally guaranteed mortgages options to correct their account status before foreclosure becomes a reality. It also slows down the mortgage appraisal process for foreclosure when the federal foreclosure ban ends on July 31.
More than 3% of all mortgages owe so much that, without the rule, some foreclosures could begin immediately after the ban ends, CFPB interim director Dave Uejio said on a call with reporters Monday.
“We have never seen so many borrowers so behind on their mortgages,” Uejio said, noting that the “wave” of borrowers at risk of foreclosure this fall and winter is unprecedented.
By making loan modifications easier and making foreclosure an option of last resort for all but the most serious defaults, the new rule can give homeowners some breathing space as they regain their financial balance in the future. post-Covid economy.
How the new Covid-19 mortgage management rule works
Under the new rule, mortgage agents must take a few key steps between August 31 and December 31 before they can return an account that is more than four months past due for foreclosure.
They should offer borrowers at least three options for discounting their loans, including:
- Resume regular payments while moving missed payments until the end of the mortgage;
- Change the term or interest rate of a loan; or
- Sell the house.
Borrowers who wish to modify their loans will be able to use a streamlined process that involves less paperwork, the CFPB noted.
Read more: Foreclosure Basics: How It Works and What to Do to Keep Your Home
Agents will be able to move the foreclosure process forward immediately if the property in question is abandoned or if the owner was more than four months behind on their mortgage payments by March 1, 2020, just before the pandemic.
If the borrower is more than four months late and has not responded to any action for more than 90 days, officers may also move forward.
Only primary residences are covered by the rule, which means second homes and investment properties are at risk if you are behind on your payments. In addition, mortgages granted by certain small service providers may be excluded.
The office noted that the new rule is in line with what many mortgage agents are already doing to work with forborne clients during the pandemic.
The CFPB previously announced a plan to completely delay foreclosures until 2022, but the mortgage and banking sectors feared the measure would go too far. Instead, the bureau hopes the new rule will encourage borrowers to make a plan to stay on top of their payments, while helping the mortgage industry and homeowners avoid a bigger wave of foreclosures afterwards.
That’s why it’s critical that those with late payments contact their agent as soon as possible to start figuring out next steps, even if they fear facing bad news.
“This rule… gives people a bridge to go into those loan modification options and to determine what is the best course to go,” said Diane Thompson, senior advisor to the acting director. “But it only works if people take advantage of it and do the hard work of assessing what is the best way forward for them and their families.”