CFPB Strengthens Homeowner Protection, But Doesn’t Prohibit Foreclosures

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ABOUT 2 Million Homeowners Still Deferred On Any Mortgage amid the negative health and financial implications of the Covid-19 pandemic. While the US government has extended the foreclosure moratorium until July 31, the Consumer Financial Protection Bureau has no plans to impose any further foreclosure bans.

Instead, to help homeowners who are not paying their mortgages and who are at risk of the end of their tolerance programs, CFPB on Monday completed work on a new rule this will establish three basic safeguards that loan officers will need to take before embarking on any foreclosure process. The new rule will take effect on August 31, 2021.

The CFPB will introduce the following safeguards for borrowers who delay mortgage payments by more than 120 days, so that they have the opportunity and time to avoid foreclosure:

  1. Before any foreclosure can begin, loss reduction application must be completed and submitted by the borrower and carefully checked by the service personnel. If borrowers are still unable to make payments after the foreclosure prevention options have been exhausted, the foreclosure process will continue.
  2. Lenders must certify that the property has been retained in accordance with local and state laws prior to commencement of foreclosure proceedings.
  3. Lenders should use reasonable efforts to contact borrowers before initiating any foreclosure procedures. If the landlord is more than four months late with paying rent and not responding for more than 90 days, then the process can continue.

For those with mortgage arrears, the CFPB stipulates that servicing loans must provide homeowners with at least three options to avoid losing their home: resume recurring payments and reschedule any missed or suspended payments to the end of the mortgage, and change the loan term. or interest rate or sell the house.

These new protections, to be applied prior to foreclosure proceedings, will be in effect from August 31, 2021 to January 1, 2022 and complement existing rules that prohibit lending institutions from initiating foreclosure proceedings until a homeowner is larger. overdue on a home loan for more than 120 days.

As long as loan service providers comply with these new protocols, the CFPB rule will not prevent service providers from initiating the foreclosure process. “Let me be clear: our final rule does not impose a moratorium on foreclosures,” CFPB Acting Director Dave Weggio said during a telephone call on Monday.

Foreclosures can be resumed after federal mortgages expire and will likely start with abandoned homes and mortgages that were already 120 days late with a delay as of March 1, 2020.

“A moderate return to foreclosures will allow those families that can resume payments to do so without being involved in a mindless rush to foreclosures,” says Uejio.

Many of the current tolerance programs were created in the CARES Act last year and apply for federally backed loans offered through agencies including Fannie Mae, Freddie Mac, the Federal Housing Authority, and the Department of Housing and Urban Development. Private lenders and service companies also create their own abstinence programs.… The proposed CFPB rule would cover all major homeowners’ residences, including those holding mortgages through private lenders such as banks.

Fannie Mae, Freddie Mac, Department of Veterans Affairs (VA), Department of Agriculture (USDA) and FHA announced that they are expanding their abstinence programs for up to 18 months. For homeowners who requested registration in March and April 2020, these programs will expire in September and October 2021.

In addition to the new guarantees, the CFPB also offers a streamlined loan modification process that typically allows homeowners to apply for a lower interest rate on a loan, extend the term of the loan, and / or reduce monthly payments.

The streamlined process will allow service providers to offer some loan modification options based on incomplete applications. Borrowers usually need to submit a variety of documents, including proof of income, such as payroll receipts, tax returns, and recent bank statements, before the support staff can make a decision. Streamlining the process will allow service providers to receive less onerous payments from homeowners faster, CFPB said.

“During this financially challenging time, the Consumer Bureau Rule provides homeowners with key protections and helps prevent unnecessary foreclosures. This rule gives homeowners and service providers the ability to make loan changes to help people stay in their homes, ”Melissa Stegman, senior policy advisor at the Center for Responsible Lending said Monday.

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