By Michelle Price
WASHINGTON (Reuters) – The U.S. consumer watchdog on Monday finalized new protections for homeowners struggling to make mortgage payments due to the pandemic, but said foreclosures may resume in the coming months once those additional protections are in place .
The Consumer Financial Protection Bureau (CFPB) proposed, among other things, a new review process in April, which it said at the time would generally prohibit mortgage service providers from starting foreclosure by December 31, 2021.
The agency tries to prevent a wave of foreclosures as 900,000 homeowners begin exiting COVID-19 mortgage vacation or "forbearance" programs in the coming months.
Reuters reported last week that the agency should proceed with the foreclosure rule but segregate certain groups of borrowers after industry groups said the proposal is too broad and is beyond the legal remit of the CFPB.
The CFPB's acting director Dave Uejio told reporters on Monday that the final rule "requires a different pace" than originally proposed. It will require mortgage servicers to temporarily take additional safeguards from foreclosure, including greater efforts to reach troubled borrowers, but it will give service providers more flexibility, CFPB staff said.
An estimated 2 million homeowners were indulgent as of June 14, according to the Mortgage Bankers Association. Around 900,000 of them should expire this year, estimates the data provider Black Knight (NYSE 🙂 for the real estate industry.
Under the new rule, from August 31, 2021 to December 31, 2021, mortgage servicers are only allowed to apply for 120-day overrun accounts for foreclosure provided at least one of three new temporary safeguards has been put in place: the borrower has been thoroughly assessed and there are no options available to avoid foreclosure; property is given up; the borrower does not respond to the contact with the servicer.
The rule will also allow mortgage servicers to offer optimized loan modifications that cannot increase borrower payments; It also doesn't require borrowers to submit full papers. This flexibility will allow service providers to get borrowers into affordable mortgage payment plans faster and with less paperwork, the CFPB said.
The new protections required do not apply to non-primary residences, borrowers who were more than 120 days in arrears with their mortgages prior to March 1, 2020, and small mortgage services.
Speaking to reporters, CFPB officials said they were focused on preventing a cliff of foreclosures and ensuring an "orderly transition" to a normal housing market, but in some cases foreclosures would resume after the forbearance programs had expired.
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