Amending Regulation X to give servicers and homeowners more time to work through options
The Consumer Financial Protection Bureau (CFPB) released a notice of proposed rulemaking on Monday that would amend Regulation X to provide a special pre-foreclosure review period prohibiting servicers from starting foreclosures until after December 31, 2021.
Under current CFPB foreclosure rules, a borrower must be 120 days delinquent before the foreclosure process can start. The Bureau said that nearly 2.1 million households in forbearance are past the 90-day delinquent mark and said it is concerned that those homeowners may be transferred immediately in to the foreclosure process once their forbearance period expires.
To manage a potential wave of foreclosures, the CFPB’s proposed change would permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application.
“What we’re proposing would be that you wouldn’t have to evaluate someone for every possible available option, so long as the options that you offer them have certain safeguards,” said Diane Thompson, senior advisor to the acting CFPB director, on a Monday media call.
Similarly, in the spring of 2020, the CFPB engaged in a rulemaking process that laid out new guidelines for servicers. Servicers didn’t have to evaluate every borrower for every loss mitigation option so long as they moved them in to a deferral where the payments that they missed were put on the back end and they resumed their regular payments, Thompson said.
Usually, with certain exceptions, Regulation X requires servicers to review a borrower for all available options at once, which can mean borrowers have to submit more documents before a servicer can make a decision.
This new rule would also allow for servicers to move borrowers directly from forbearance in to a modification without reviewing them for all options so long as the modification meets certain basic consumer protection standards. Those standards are also a subject the CFPB is looking for input on during the proposed rulemaking, set to expire May 11, 2021.
“One common way to make payments more affordable is you just extend out the amortization time, how long people are making payments,” Thompson said. “So it would be under our proposal that period could only be extended out another 40 years, and the payment after capitalization and interest rate changes could be no more than their current payment.”
The CFPB also proposes temporary changes to certain required servicer communications to make sure that, during this crisis, borrowers receive key information about their options at the appropriate time.
According to the Bureau, while many protections of the CARES Act only apply to federally backed mortgages, the Bureau is looking to set a blanket standard across the industry so that all homeowners would have similar protections regardless of who the owner or servicer of the loan is. The CFPB said it will also cover the private mortgage sector that currently makes up 30% of the market.
“The nation has endured more than a year of a deadly pandemic and a punishing economic crisis. We must not lose sight of the dangers so many consumers still face,” said CFPB Acting Director Dave Uejio. “Millions of families are at risk of losing their homes to foreclosure in the coming months, even as the country opens back up. Last week we warned that servicers need to be prepared for a high volume of borrowers exiting forbearance, and today we are proposing additional guardrails and tools for servicers as they navigate the coming months.”
The CFPB said that the proposed rule, if finalized, would not change coverage of the Mortgage Servicing Rule, so small servicers, as defined in Regulation Z, would not be subject to these requirements.
This is the third time in less than a week the CFPB has expressed growing concern about dealing with borrowers as the pandemic tapers off. On Thursday, the Bureau warned servicers that it is ramping up enforcement and will be specifically watching how they manage borrowers coming out of forbearance. On Wednesday, the Bureau announced it was rescinding seven of its temporary policies put in place to protect consumers during the pandemic, effective April 1.