Millions of homeowners around the country who are behind on their mortgage payments can look forward to added protections from foreclosure through the end of 2021 under new rules finalized by the Consumer Financial Protection Bureau.
Under the new rules, which go into effect on August 31 and extend until the end of the year, most mortgage servicers cannot start the foreclosure process without first contacting homeowners to see if they qualify for a lower interest rate or other modification to make it easier to pay.
The Consumer Financial Protection Bureau said that around 3 percent of residential mortgage borrowers are now at least four months in arrears — the point at which most foreclosure processes are allowed to begin.
The Federal moratorium on evictions and foreclosures put in place by the Centers for Disease Control and Prevention is set to expire at the end of July. “We want servicers and homeowners to be actively engaged in loss-mitigation throughout the summer and the fall so that we can get as many people as possible to a good outcome,” Diane Thompson, a senior adviser to the agency’s acting director, said on a call with reporters.
3 things to know about the new rules:
- Giving borrowers modification options: After August 31, in most cases, servicers need to let borrowers complete a “loss mitigation application” (or a loan modification request), and they need to thoroughly review it before starting a foreclosure. If borrowers are still unable to make payments after exhausting modification options, then the foreclosure can proceed. The CFPB also streamlined the application process, making it easier for servicers to offer certain options without collecting a complete application from borrowers.
- Abandoned properties: Servicers can foreclose on abandoned properties. To meet this standard, the applicable state or local law must consider the property abandoned.
- Unresponsiveness: Servicers need to make a reasonable effort to reach borrowers before starting a foreclosure proceeding. If a borrower is more than 4 months delinquent on their payments and unresponsive for more than 90 days, then the servicer can move forward with foreclosure.
Exceptions:
These rule changes only apply to principal residences, not investment properties or second homes. The changes also do not apply to reverse mortgages, and “small servicers” (as defined by the Bureau) are not subject to the new requirements. The rules also do not apply if the foreclosure referral occurs on or after January 1, 2022, if the borrower was more than 120 days delinquent prior to March 1, 2020, or if the applicable statute of limitations will expire before January 1, 2022.
Not a foreclosure ban
It’s important to understand that this is not a foreclosure moratorium or eviction ban. For borrowers who are behind on their payments, they should be in contact with their servicer to make sure you know your options.
Additional Resources from the Consumer Financial Protection Bureau:
- How to figure out who your mortgage servicer is
- Talk to a housing counselor for help understanding your situation.
- Visit the CFPB’s housing resources for more important information about forbearance and your potential options for exiting forbearance.