CFPB Seeks Foreclosure Delay
April 6, 2021
Concerned a foreclosure wave is on the horizon, the Consumer Financial Protection Bureau proposed a rule on Monday that would prohibit mortgage servicers from foreclosing against delinquent borrowers for the remainder of this year. The CFPB’s proposal would apply to federal and private mortgages on a principal residence.
Foreclosure protections—including moratoriums and forbearance plans—that were put in place due to the COVID-19 pandemic are set to expire by this fall. The CFPB estimates that 1.7 million borrowers could be at risk of foreclosure by September.
“I don’t think anyone has ever before seen this many mortgages in forbearance at one time that are expected to exit forbearance all at one time,” Diane Thompson, senior advisor to the acting director at the CFPB, told CNBC about the reasoning behind the agency’s proposal. “This could put an enormous strain on servicer capacity.”
COVID-19 protections have allowed financially struggling homeowners to suspend their payments as part of forbearance programs. However, while forbearance allows homeowners to defer their payments, it does not forgive missed payments. The government agency says that loans placed in forbearance programs during the pandemic will reach the end of their period by September or October.
The CFPB warned mortgage servicers last week that they could face penalties if they don’t take action to help prevent a surge in “avoidable foreclosures.”
“The CFPB is worried about a prospective cliff in the future,” Patricia McCoy, a professor at Boston College Law School, told CNBC. “At some point, the cliff will happen. Forbearance will go away, the foreclosure moratorium will go away, and 1.7 million borrowers are at instant risk of foreclosure.”
Many homeowners who are in forbearance are behind on payments by more than 120 days, Thompson adds.
The CFPB’s proposal would prevent mortgage servicers from initiating a foreclosure through the remainder of this year, possibly giving mortgage servicers more time to evaluate borrowers’ financial situation and determine whether a mortgage modification could help prevent foreclosure in the long run.
The CFPB proposal still needs final approval. The CFPB is accepting public comments on the proposed 2021 foreclosure ban until May 11.
“Consumer Protection Group Proposes Rule to Prevent Foreclosures Until 2022,” CNBC (April 5, 2021) and “Mortgage Firms Face Foreclosure Ban Until 2022 Under CFPB Plan,” Bloomberg (April 5, 2021)
Updated: April 09, 2021