Servicers -CFPB Issues Final Rules as Foreclosure Protections Expire
by: Bill Dolan, CMB, AMP
Over seven million homeowners took advantage of COVID-19 hardship forbearance, to temporarily suspend their obligations to make monthly mortgage payments.
As of this date, over two million homeowners remain under forbearance, and it is anticipated that they will remain for more than a year.
The rules established this week will take effect on August 31, 2021, and will cover all mortgages on principal residences. However, if you are defined as a “small” servicer, you are excluded from these rules.
For those of you that do not fit the small servicer eligibility category, the rules established by the CFPB are basically giving homeowners the time and opportunity to make an informed decision as to what course of action they should take in either seeking a loan modification or selling their property.
Once the federal foreclosure moratorium has been lifted, foreclosure may be initiated upon exiting their forbearance.
The new rules will require servicers to work with your borrowers to prevent avoidable foreclosures.
As a servicer you must:
Give borrowers a meaningful opportunity to pursue loss mitigation options.
Servicers must meet temporary special safeguards prior to initiating foreclosure for certain mortgages through year-end.
Allow servicers to help assist borrowers more quickly.
Servicers can offer streamlined loan modifications to borrowers with COVID-19-related hardships, without submitting all paperwork for every possible option.
Streamlined loans mods cannot increase the borrower’s payments.
Communicate all options to your homeowners.
Every option must be communicated to the borrower prior to foreclosure being initiated.
Key repayment information must be afforded the borrower when addressing their repayment who are exiting forbearance or struggling to make their monthly mortgage payments.
You as a servicer should offer these three (3) options to bring the borrowers current to avoid foreclosure:
Resume regular payments.
Servicers may defer the borrower’s missed payments to the end of the mortgage term.
Lower the monthly payment.
Servicers can provide a loan modification to change the principal balance, interest rate or the term of the mortgage.
Sell the property.
If borrowers have sufficient equity, a sale may very well be a possibility.
In some cases, foreclosures are unavoidable and if this is the case, the servicer may initiate foreclosure if:
The borrower has abandoned the property.
Was delinquent 120 days prior to March 1, 2020.
Is presently 120 days delinquent with their mortgage payments and, has not reached out to the servicer for assistance in the last 90 days.
Evaluation of all options have been tried and there is no option to avoiding foreclosure.
Difficult decisions await homeowners and the sooner homeowners reach out to you, the better the outcome will be for them.
If you as a financial institution are looking to ensure a smooth transition of these homeowner’s protections and your Collections and Loss Mitigation departments are not up to the challenge, you may want to consider reaching out to Spillane Consulting Associates who can offer the necessary support and various alternatives for outsourcing these functions.
For a free consultation to discuss these and other services SCA offers, please contact Bill Dolan, Director at (617) 694-2617 or visit our website at: www.scapartnering.com to learn more.
