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(From Credit Union Times) – Saying that the pandemic has caused a “shocking increase in housing uncertainty,” the Consumer Financial Protection Bureau (CFPB) proposed Monday to stop mortgage servicers from foreclosing on most home loans until after the end of the year.
The plan outlined by the agency is an attempt to give borrowers time to find ways to make payments once pandemic relief ends.
“We are going to use everything in our toolbox to prevent avoidable foreclosures,” Acting CFPB Director Dave Uejio told reporters in a telephone conference call. “This rule is one of the sharpest tools in our toolbox.”
He said the agency wants “to ensure that servicers and borrowers have time to work together.”
Last week, the agency said it expects mortgage servicers to assist millions of homeowners as pandemic protections end and will closely monitor efforts to help borrowers remain in their homes. That follows the agency’s announcement that it was rescinding guidance issued last year that gave financial services companies flexibility in following agency rule as they faced the coronavirus crisis.
The CFPB will accept comment on the proposed mortgage rule until May 10 and some form of the rule is expected to become effective on August 31. The rule only applies to institutions with more than 5,000 mortgages.
“The CFPB’s proposal seeks to ensure that both servicers and borrowers have the tools and time they need to work together to prevent avoidable foreclosures, recognizing that the expected surge of borrowers exiting forbearance in the fall will put mortgage servicers under strain,” the agency said in outlining the rule.
The CFPB said it wants to give the almost three million people behind on their mortgages time to resume making payments. The proposed rule would establish a special pre-foreclosure review period that generally would prohibit servicers from starting the foreclosure process before December 31.
The agency is seeking comment on that date, as well as suggestions about whether there are “more limited” ways to achieve the same purpose.
The rule also would permit servicers to offer borrowers certain streamlined loan modification options based on an evaluation of an incomplete application. Often mortgage servicers require additional information throughout the process.
“Allowing this flexibility could allow servicers to get borrowers into an affordable mortgage payment faster, with less paperwork for both the servicer and the borrower,” the CFPB said.
The option would only be available for changes that do not increase a borrower’s monthly payment and that extend the loan term by more than 40 years.
The proposed rule also would require servicers to make sure that borrowers receive information about their options throughout the pandemic.