By Clark J. Belote, Lisa Hudson Kim, Real Estate Claims & Title Insurance Solutions

On April 5, 2021, the Consumer Financial Protection Bureau (“CFPB”) proposed rule changes (under public comment until May 10, 2021, and available here) designed to prevent residential foreclosures when the existing COVID-19 emergency federal foreclosure protections end. The intent behind the Bureau’s proposal is to ensure that mortgage servicers and homeowners are equally equipped with the requisite tools and time to partner in attempting to avoid unnecessary foreclosures. These proposed rules will require servicers to follow certain procedures in evaluating loss mitigation applications and require certain communication efforts with borrowers in default, among other things. For example, Regulation X will preclude noticing a foreclosure until the borrower is at least 120 days delinquent.

The CFPB reports that nearly three (3) million homeowners have fallen behind on their mortgages due to the economic crisis spawned by the global virus. The CFPB proposal recognizes that there will be an anticipated major uptick in borrowers ending their forbearance periods in Fall 2021 as the U.S. reopens from more than one (1) year of pandemic-related shutdowns. This is predicted to place a potentially-crippling strain on the mortgage servicing industry.

Statistics emerging from the pandemic reveal that the number of homeowners behind on their mortgage payments has doubled since March 2020 when COVID-19 emerged. Approximately six percent (6%) of mortgages were reported delinquent as of 2020 year-end. More borrowers are reported delinquent on their mortgages now than at any time since 2010 when the Great Recession crested its peak. Industry forecasts predict that approximately 1.7 million homeowners will complete forbearance programs in September 2021, emerging with a year or more in mortgage payment defaults.

In response, the CFPB’s proposal seeks to:

• Provide borrowers with more time for a pre-foreclosure review period to explore ways to resume making mortgage payments and to cure defaults, during which time servicers are prohibited from starting foreclosure until after December 31, 2021;
• Provide mortgage servicers with options of offering streamlined loan modifications to borrowers with pandemic hardships based on evaluation of incomplete applications, with less paperwork, more flexibility, and faster placement in relief programs. The parameters of this relief are that the modification must not increase a borrower’s monthly payment and must not extend the loan’s term by more than 40 years from the modification’s effective date; and
• Keep borrowers educated on alternatives by requiring servicers to communicate key information to borrowers during the pandemic.

The CFPB warns mortgage servicers to be prepared for the surge in homeowner requests that will arise later this year. Servicers were further cautioned to dedicate ample resources and staff to address this impending need. Moving forward, the CFPB intends to closely monitor how servicers are connecting with borrowers, responding to requests, and processing loss mitigation assistance applications for compliance purposes. Late 2021 will present a critical period for the mortgage servicing industry.

If you have any questions regarding this mortgage servicing development and proposed regulatory response or title and real property matters in general, please contact Lisa Hudson Kim: (757) 491-4017 or lhkim@kaufcan.com, or Clark Belote: (757) 624-3109 or cjbelote@kaufcan.com.

The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2024.