Mortgage Servicers to be Inundated as 900k Homeowners are Projected to Exit Forbearance in the Next Year

As the federal foreclosure moratoria are phased out, the Consumer Financial Protection Bureau (CFPB) has finalized amendments to help mortgage borrowers from unwelcome surprises as they exit forbearance plans.

At least 900,000 homeowners are projected to exit forbearance from now until the end of the year. Not since the Great Recession have so many borrowers been so far behind.

As of June 22:

• 3.9% of all mortgages remain in COVID-19 related forbearance plans

• More than 3% of all borrowers are four or more months behind on their mortgage which is the point at which a foreclosure may be initiated.

• Of the 7 million homeowners who took advantage of COVID-19 hardship forbearance, approximately 2 million remain in COVID related forbearance plans.

The goal is to give homeowners the time and opportunity to make informed decisions about the best course of action.

Mortgage servicers will be required to offer greater flexibility so that, although they will be managing an unprecedented volume of borrowers who need assistance, they can still serve the homeowner with dignity.  Specifically:

• Servicers must meet temporary special procedural safeguards before initiating foreclosures. This will give borrowers time to process their current options and next steps to avoid foreclosure.

• Servicers can temporarily offer streamlined loan modifications to borrowers with COVID related hardships without having the borrower submit all the paperwork for every possible option. These streamlined loan modifications cannot increase the borrower’s loan payment.

• Servicers will be required to communicate with borrowers before initiating a foreclosure and inform the borrower about repayment options.

In effect the goal is to give the borrower at least 3 options to bring their mortgage current and avoid foreclosure:

• Resume regular mortgage payments – servicers can move a borrower’s missed payments to the end of the mortgage, commonly known as a “deferral”.

• Lower their monthly mortgage payment – the proposed streamlined loan modifications can change the interest rate, principal balance, or length of the mortgage.

• Sell their homes — if there is sufficient equity a sale may be an option.  However, long-term forbearance may have significantly eroded equity.

Although these amendments are in place to provide an alternative, foreclosures can still be initiated under CFPB rules if the borrower:

• Has abandoned the property;

• Was more than 120 days behind on their mortgage before March 1, 2020;

• Is more than 120 days behind on their mortgage payment and has not responded to specific required outreach from the mortgage servicer for 90 days:

• Has been evaluated for all options other than foreclosure and there are no available options to avoid foreclosure.

These rule changes evidence the CFPB’s strong dedication to help consumers foster a smooth and equitable recovery in the housing market.  An unchecked wave of foreclosures would drain billions of dollars in wealth, particularly within Black and Hispanic communities hardest hit by the pandemic. Over the coming months the CFPB will significantly outreach to borrowers to share information about mortgage options, through direct contact as well as working with mortgage servicers and media.

Reach out to Home Assistance Center regarding your options, let us work out a strategy that fits your needs and provide you the relief that you deserve.