On Monday, federal officials finalized a rule to slow what they fear could be an impending wave of foreclosures due to the pandemic, making it easier for lenders to change loan terms for borrowers and adding additional hurdles before lenders can seize at home.
The Consumer Financial Protection Bureau said about 3 percent of home mortgage borrowers are currently at least four months overdue – the point from which most foreclosure processes are allowed to begin.
“We’ve never seen so many borrowers fall so far behind on their mortgages before,” said Dave Wegio, acting director of the bureau.
A federal moratorium on evictions and foreclosures has been keeping most offenders in place since March last year, but those protections will end on July 31st. new consumer bureau rulewhich will take effect August 31 and run through the end of the year, mortgage service providers are generally barred from initiating foreclosures unless they comply with the increased rules.
In most cases, lenders will only be allowed to foreclose a home if it has been waived, if the borrower has not responded to messages for at least 90 days, or if the borrower has been formally assessed for all available “mitigation” options (such as changing loans) and none of them are viable.
Service Providers will also be allowed to initiate foreclosure from borrowers who are 120 days or more late in payments before March 1, 2020.
The new rule also allows mortgage service providers to more easily propose some loan modifications as long as the changes do not increase the borrower’s monthly payments or extend the loan term by more than 40 years after the modification date.
The rule is significantly softer than the proposal the consumer bureau put forward in April. banned most foreclosures for the remainder of the year… Mr. Uejio described the agency’s revised approach as one that would encourage “moderate returns” from foreclosures.
Pete Mills, senior vice president of housing policy at the Mortgage Bankers’ Association, said the agency’s rule was generally sound and included changes the industry was pushing for, such as an exemption to allow abandoned property buyouts to continue.
“In many cases, service companies are already going well beyond the minimum rule requirements to contact borrowers,” said Mr Mills.
There will be a one-month gap between the end of the federal moratorium and the effective date of the new consumer bureau rule, but lenders will still be required to make good faith efforts to attract borrowers and explore alternatives before proceeding, the bureau said in a telephone conversation with reporters.
Diane Thompson, senior adviser to the bureau, said the agency’s goal was to prevent “preventable” foreclosures and give people time to reflect on their choices, including renewing payments, changing a loan, or selling a home.
For those who have not made payments since the outbreak of the pandemic, “it is important to understand that you will need to develop a plan to address this problem in the not too distant future,” said Ms. Thompson. said. “People should evaluate their capabilities.”