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Mortgage servicers should prepare for surge

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Consumer Protection, Legislation
Tuesday, April 6, 2021
The Consumer Financial Protection Bureau (CFPB) warned mortgage servicers to be prepared for the surge of borrowers who will need assistance to stay in their homes once their loans come out of forbearance.

“There is a tidal wave of distressed homeowners who will need help from their mortgage servicers in the coming months,” CFPB acting Director Dave Uejio said in a release. “Responsible servicers should be preparing now. There is no time to waste, and no excuse for inaction. No one should be surprised by what is coming.”

The bureau said servicers should have sufficient resources and staff to ensure they are prepared for when nearly 1.7 million borrowers exit forbearance in September and the following months, many of them a year or more behind on their mortgage payments.

“Our first priority is ensuring struggling families get the assistance they need,” Uejio said. “Servicers who put struggling families first have nothing to fear from our oversight, but we will hold accountable those who cause harm to homeowners and families.”

The bureau said it will pay particular attention to how well servicers are being proactive, such as contacting borrowers in forbearance before the end of their forbearance period so they have time to apply for help; working with borrowers and ensuring they have all necessary information and documentation needed to evaluate the borrowers for assistance; addressing language access for those borrowers with limited English proficiency and maintaining compliance with applicable laws and regulations; evaluating income fairly to determine loss mitigation options; handling inquiries promptly; and preventing avoidable foreclosures.

The CFPB also issued a notice of proposed rulemaking (NPR) that would make temporary changes to mortgage servicing in order to help prevent avoidable foreclosures.

The rule would give borrowers time, give servicers options, and keep borrowers informed of their options. Specifically, the NPR suggests a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after Dec. 31, 2021, though the date is up for debate.

For servicers, the rule would allow them to offer certain streamlined loan modification options to borrowers with COVID-19 related hardships based on the evaluation of an incomplete application. This would only be available for modifications that do not increase a borrower’s monthly payment and that extend the loan’s term by no more than 40 years from the modification’s effective date.

Finally, the NPR also suggests temporary changes to certain required servicer communications to make sure that borrowers receive key information about their options at the appropriate time.

Comments are due on or before May 10, 2021. The rule would become effective August 31, 2021.

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