Comments due on CFPB proposal to mitigate foreclosure surge

The Consumer Financial Protection Bureau on Monday announced it has proposed a set of rule changes intended to help prevent avoidable foreclosures as COVID-19 emergency federal foreclosure protections expire. The CFPB’s proposal, if finalized, would:

• Give borrowers time: To make sure borrowers aren’t rushed into foreclosure when a potentially unprecedented number of borrowers exit forbearance at around the same time this fall, the proposed rule would provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after December 31, 2021. The CFPB is seeking public input on that date, as well as whether there are more limited ways to achieve the same purpose. For example, the CFPB is considering whether to permit earlier foreclosures if the servicer has taken certain steps to evaluate the borrower for loss mitigation or made efforts to contact an unresponsive borrower. This provision, like the rest of the proposal, would only apply to loans secured by a borrower’s principal residence.
• Give servicers options: The proposed rule would permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application. Normally, with certain exceptions, Regulation X requires servicers to review a borrower for all available options at once, which can mean borrowers have to submit more documents before a servicer can make a decision. 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. This provision 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.
• Keep borrowers informed of their options: The CFPB also proposes temporary changes to certain required servicer communications to make sure that, during this crisis, borrowers receive key information about their options at the appropriate time.

The proposed rule would only apply to a mortgage loan that is secured by a property that is a borrower's principal residence. It would not apply to small servicers as defined in section 1026.41(e)(4) of Regulation Z. If finalized as proposed, the rule would be effective on August 31, 2021. Comments will be accepted through May 10, 2021.

• CFPB Summary of the proposal rulemaking
• Unofficial redline of the proposal