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CFPB Proposes Plan To Prevent Foreclosure Wave. Is It Enough?

April 9, 2021

CFPB Proposes Plan To Prevent Foreclosure Wave. Is It Enough?

Published: Apr 7, 2021, 7:00am

Kelly Ann Smith

 The federal government wants to halt foreclosures until 2022, throwing yet another lifeline to struggling Americans suffering financial fallout from the coronavirus pandemic.

A new rule proposal from the Consumer Financial Protection Bureau (CFPB), a federal agency tasked with protecting consumers by enforcing federal consumer financial laws, would create a new pre-eviction review period to grant millions of Americans more time to figure out payment options before Covid-19 federal mortgage protections expire at the end of June. 

While this move appears to be a step in the right direction, some housing advocates say it’s still not enough to address an oncoming swell of millions of foreclosures. 

Problem: A Giant Foreclosure Wave is Coming

The CFPB cites industry data that suggested nearly 1.7 million borrowers will exit forbearance programs, where a lender allows borrowers to stop making payments for a period of time, in September and the following months. More mortgage holders are behind on payments today than at any time since 2010, according to the Bureau, and it warns that some families may end up having to sell their homes. 

At the peak of the pandemic in April, the unemployment rate hit an unprecedented rate of 14.8%, with every state and the District of Columbia reaching unemployment rates higher than rates seen during the Great Recession. After more than a year since the pandemic began, over 9.7 million Americans continue to collect unemployment benefits, and 24% of those currently unemployed have been unemployed for over a year.

With reduced—or no–income and dwindling emergency funds, many Americans weren’t able to afford their housing payments. 

Despite protections being put in place by federal, state and local governments, evictions are still taking place. Some state mandates prevented post-foreclosure evictions, but didn’t halt foreclosure sales themselves from taking place—meaning homeowners could lose their house, even while still living in it. Communities of color have been disproportionately affected by the pandemic, with Black and Hispanic families being more than twice as likely to report being behind on their housing payments than white families, according to a recent report by the Consumer Financial Protection Bureau (CFPB).

Read more: Government Extends Eviction Moratorium For 3 Months. Here’s What Renters Should Do

Now, homeowners are hurtling toward the end of their grace periods. The CDC foreclosure moratorium on federally-backed mortgages expires on June 30. At that time, homeowners will have to re-enter payment agreements with their mortgage servicers or take advantage of an additional six-month deferment period.

Foreclosure can be a time-consuming and expensive process. Homeowners are often left with having to pay the bill for late and attorney fees. A 2020 working paper from Stanford University found foreclosures have a long-term impact on people’s financial health, including loss of assets and missed payments on other forms of debt. And if you lose your home to foreclosure, you are significantly less likely to own a future home.

Solution: CFPB Wants to Halt Evictions Until 2022

The CFPB proposal aims to give the millions of consumers who are behind on their mortgage payments more time before their home is forced into sale due to foreclosure. The proposal creates a new “pre-foreclosure review” period where foreclosures are prohibited until January 1, 2022. CFPB representatives said on Monday during a press call that they’re looking for public feedback on the length of the review period and could adjust it accordingly.

Current rules require borrowers to be 120 days delinquent before the foreclosure process can start. Nearly 2.1 million homeowners in forbearance are already past the 90-day delinquency period, according to the Bureau, which brings concern that millions of Americans will automatically be transferred into foreclosure once the forbearance period expires. Nearly three million mortgage holders behind on their payments will have an opportunity to explore ways to resume payments and stay housed, should the proposal pass.

The new rule would apply to both federally-backed and private mortgages for primary residences. Until now, federal mortgage protections have only applied to federally-backed mortgage loans. According to the National Housing Law Project, 14.5 million (30%) of all mortgages are privately held.

“Our driving principle is simple: Struggling homeowners should have the opportunity to fully explore ways of getting current on their loans and avoiding foreclosure if possible,” said CFPB acting director Dave Uejio in a press call on Monday.

The proposal would loosen current rules to make the process of getting a homeowner into an affordable payment agreement faster, and with less paperwork. The waiver would only be available for loan modifications that don’t increase a monthly payment more than what it currently is and doesn’t extend the terms by more than 40 years from when the modification goes into effect.

There are caveats: According to Bloomberg, the CFPB is weighing whether to allow mortgage servicers to move forward with foreclosures by the end of the year if they take steps to reduce consumers’ monthly payments.

When asked if the CFPB is not expecting to see the CDC moratoriums extended, a representative stated, “Our rule is based on the current state of the market” and what the agency thinks homeowners and servicers need at this time.

The American Rescue Plan Act of 2021, signed into law by President Joe Biden in March, provides $10 billion in emergency funds to help homeowners pay their mortgages, utility bills and property taxes. The CFPB acknowledged that there could be a delay in getting the funds deployed at a state level, so the Bureau is moving forward with additional protections.

Is This CFPB Proposal the Right Solution?

The CFPB proposal would give consumers more time to determine how to move forward with their mortgage loans, but housing advocates warn that it isn’t the right solution.

“[..]The Bureau’s proposal announced today to impose a broad foreclosure moratorium through the end of the year is not the right solution and may make it more difficult for homeowners to know they should be seeking permanent solutions sooner,” writes the National Consumer Law Center (NCLC) in a press release

Instead, the NCLC recommends the CFPB prevent servicers from filing for foreclosure unless they meet “rigorous requirements to establish contact with the borrower,” and to review borrowers for home retention opportunities. Borrowers who tell their mortgage servicers that they can’t resume payments should also have access to protections like appeal rights and ability to halt the foreclosure process, writes the NCLC.

Laurie Goodman, vice president for housing finance policy at the Urban Institute, is also not in favor of halting foreclosures until early next year. Goodman says the moratoriums already in place are effective but believes it’s unlikely that additional measures will be needed through the end of the year.

“At the rate we’re going, the economy is going to heal well before the end of the year,” Goodman says. She adds that borrowers who have already gone through the loss mitigation process where they’ve reviewed all their options—and still determine that foreclosure would be the best option for them—should have the option to sell their home on their terms and downsize.

Goodman is sympathetic that some Americans will end up losing their homeowner status but acknowledges that this is the reality of an unprecedented situation—and adds that it’s unlikely we will see a large wave of people forced out of their homes, as seen during the Great Recession.  

“Very few borrowers are going to end up evicted,” Goodman says. “Most borrowers have a lot of equity in their home and will be able to downsize—this is very different from 2008.”

While this move appears to be a step in the right direction, some housing advocates say it’s still not enough to address an oncoming swell of millions of foreclosures. 

Problem: A Giant Foreclosure Wave is Coming

The CFPB cites industry data that suggested nearly 1.7 million borrowers will exit forbearance programs, where a lender allows borrowers to stop making payments for a period of time, in September and the following months. More mortgage holders are behind on payments today than at any time since 2010, according to the Bureau, and it warns that some families may end up having to sell their homes. 

At the peak of the pandemic in April, the unemployment rate hit an unprecedented rate of 14.8%, with every state and the District of Columbia reaching unemployment rates higher than rates seen during the Great Recession. After more than a year since the pandemic began, over 9.7 million Americans continue to collect unemployment benefits, and 24% of those currently unemployed have been unemployed for over a year.

With reduced—or no–income and dwindling emergency funds, many Americans weren’t able to afford their housing payments. 

Despite protections being put in place by federal, state and local governments, evictions are still taking place. Some state mandates prevented post-foreclosure evictions, but didn’t halt foreclosure sales themselves from taking place—meaning homeowners could lose their house, even while still living in it. Communities of color have been disproportionately affected by the pandemic, with Black and Hispanic families being more than twice as likely to report being behind on their housing payments than white families, according to a recent report by the Consumer Financial Protection Bureau (CFPB).

Read more: Government Extends Eviction Moratorium For 3 Months. Here’s What Renters Should Do

Now, homeowners are hurtling toward the end of their grace periods. The CDC foreclosure moratorium on federally-backed mortgages expires on June 30. At that time, homeowners will have to re-enter payment agreements with their mortgage servicers or take advantage of an additional six-month deferment period.

Foreclosure can be a time-consuming and expensive process. Homeowners are often left with having to pay the bill for late and attorney fees. A 2020 working paper from Stanford University found foreclosures have a long-term impact on people’s financial health, including loss of assets and missed payments on other forms of debt. And if you lose your home to foreclosure, you are significantly less likely to own a future home.

Solution: CFPB Wants to Halt Evictions Until 2022

The CFPB proposal aims to give the millions of consumers who are behind on their mortgage payments more time before their home is forced into sale due to foreclosure. The proposal creates a new “pre-foreclosure review” period where foreclosures are prohibited until January 1, 2022. CFPB representatives said on Monday during a press call that they’re looking for public feedback on the length of the review period and could adjust it accordingly.

Current rules require borrowers to be 120 days delinquent before the foreclosure process can start. Nearly 2.1 million homeowners in forbearance are already past the 90-day delinquency period, according to the Bureau, which brings concern that millions of Americans will automatically be transferred into foreclosure once the forbearance period expires. Nearly three million mortgage holders behind on their payments will have an opportunity to explore ways to resume payments and stay housed, should the proposal pass.

The new rule would apply to both federally-backed and private mortgages for primary residences. Until now, federal mortgage protections have only applied to federally-backed mortgage loans. According to the National Housing Law Project, 14.5 million (30%) of all mortgages are privately held.

“Our driving principle is simple: Struggling homeowners should have the opportunity to fully explore ways of getting current on their loans and avoiding foreclosure if possible,” said CFPB acting director Dave Uejio in a press call on Monday.

The proposal would loosen current rules to make the process of getting a homeowner into an affordable payment agreement faster, and with less paperwork. The waiver would only be available for loan modifications that don’t increase a monthly payment more than what it currently is and doesn’t extend the terms by more than 40 years from when the modification goes into effect.

There are caveats: According to Bloomberg, the CFPB is weighing whether to allow mortgage servicers to move forward with foreclosures by the end of the year if they take steps to reduce consumers’ monthly payments.

When asked if the CFPB is not expecting to see the CDC moratoriums extended, a representative stated, “Our rule is based on the current state of the market” and what the agency thinks homeowners and servicers need at this time.

The American Rescue Plan Act of 2021, signed into law by President Joe Biden in March, provides $10 billion in emergency funds to help homeowners pay their mortgages, utility bills and property taxes. The CFPB acknowledged that there could be a delay in getting the funds deployed at a state level, so the Bureau is moving forward with additional protections.

Is This CFPB Proposal the Right Solution?

The CFPB proposal would give consumers more time to determine how to move forward with their mortgage loans, but housing advocates warn that it isn’t the right solution.

“[..]The Bureau’s proposal announced today to impose a broad foreclosure moratorium through the end of the year is not the right solution and may make it more difficult for homeowners to know they should be seeking permanent solutions sooner,” writes the National Consumer Law Center (NCLC) in a press release

Instead, the NCLC recommends the CFPB prevent servicers from filing for foreclosure unless they meet “rigorous requirements to establish contact with the borrower,” and to review borrowers for home retention opportunities. Borrowers who tell their mortgage servicers that they can’t resume payments should also have access to protections like appeal rights and ability to halt the foreclosure process, writes the NCLC.

Laurie Goodman, vice president for housing finance policy at the Urban Institute, is also not in favor of halting foreclosures until early next year. Goodman says the moratoriums already in place are effective but believes it’s unlikely that additional measures will be needed through the end of the year.

“At the rate we’re going, the economy is going to heal well before the end of the year,” Goodman says. She adds that borrowers who have already gone through the loss mitigation process where they’ve reviewed all their options—and still determine that foreclosure would be the best option for them—should have the option to sell their home on their terms and downsize.

Goodman is sympathetic that some Americans will end up losing their homeowner status but acknowledges that this is the reality of an unprecedented situation—and adds that it’s unlikely we will see a large wave of people forced out of their homes, as seen during the Great Recession.  

“Very few borrowers are going to end up evicted,” Goodman says. “Most borrowers have a lot of equity in their home and will be able to downsize—this is very different from 2008.”

 

 

 

 

 
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Our blog provides information and education for homeowners and professionals We encourage comments, questions responses to our blog articles.
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