WASHINGTON, June 22 (Reuters). In the coming weeks, the U.S. Consumer Supervision Authority will pass a rule requiring mortgage servicing companies to allow needy homeowners to resume payments before next year, but they are expected to cut out some groups of borrowers following an industry failure, four people told Reuters.
The Consumer Financial Protection Bureau (CFPB) in April proposed, among other things, a new verification process that generally prohibits mortgage servicing organizations from starting foreclosure before December 31, 2021. This rule will be a lifeline for hundreds of thousands of homeowners. in connection with the exit from the mortgage leave program or “abstinence” from COVID-19 in the coming months.
Mortgage services receive payments from borrowers and pass them on to investors, tax authorities and insurers.
The CFPB plans to finalize the rule and put it into effect by the end of August, but agreed to single out certain groups of borrowers after the industry said the proposal was too broad and beyond the CFPB’s legal mandate, three sources said.
A CFPB spokesman said the agency is working on finalizing the proposal, but did not comment on which exceptions were agreed.
“We remain committed to working with both service companies and homeowners to prevent foreclosures as much as possible,” the spokesperson added.
Borrowers expected to be excluded, which were not previously reported, include those who are in negotiations with their service provider to avoid foreclosures, but who have not yet applied for a deferral, the same three people said.
It is also expected to exclude borrowers who may have left their homes without trying to notify their service providers, and those who do not respond to multiple requests from service organizations about whether they want to stay in their homes.
CFPB agreed to exemptions to limit the compliance burden on some service centers and give them more flexibility in helping customers, four sources said. They said the rule would also not apply to small service companies with limited market shares that are less able to cover the costs of regulatory compliance.
Sources, some of whom spoke on condition of anonymity, included a regulator, lawyers, and industry leaders who participated in the discussions.
“The Bureau’s rules have two purposes: to mandate some additional assistance to needy borrowers who plan to stay in their homes, and to create clear exceptions to help service providers maintain a stable supply of homes in line with market demands,” said Michael Bright, CEO of the Association. structured finance, which represents the mortgage securitization industry and was one of the tax exemption groups.
To help Americans weather the pandemic restrictions, Congress last year gave struggling homeowners the power to suspend mortgage payments and imposed a moratorium on home foreclosures.
As of June 14, about 2 million homeowners were on hold, according to the Mortgage Bankers Association. Industry data provider Black Knight estimates that around 900,000 of these abstinence plans will expire at the end of this year.
CFPB staff are concerned that existing regulatory instruments will not provide sufficient assistance to homeowners who have suffered irreversible income declines as a result of the pandemic.
They hope the new rule will stave off a wave of foreclosures by increasing the burden of “reasonable effort” that service staff are making to help borrowers in need, one source said.
At the same time, “the agency wants to make sure that troubled consumers know they can’t just stick their heads in the sand before December 31,” and should seek help from their service staff, said the regulator.
“And to the service staff: we are watching you, but we want to achieve the best results for the business and borrowers.”
Katanga Johnson Reporting in Washington Editing by Michelle Price and Matthew Lewis
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