The Consumer Financial Protection Bureau said Monday it is considering new rules aimed at averting a wave of foreclosures later this year when millions of homeowners are no longer allowed to put off making their mortgage payments.
Last year, the federal government suspended foreclosures and evictions for mortgages insured by the Federal Housing Administration as the coronavirus pandemic left millions of people unemployed. Fannie Mae and Freddie Mac did the same for borrowers in single-family homes with loans backed by the two mortgage buyers. The initiatives offered borrowers relief for up to one year and suspended late charges and penalties.
The FHFA in February said borrowers with a COVID-19 forbearance plan on Feb. 28 could request an extension of up to three months, giving homeowners with mortgages backed by Fannie Mae or Freddie Mac up to 15 months of forbearance. The FHA also extended forbearance provisions in February, giving homeowners until June 30 to request a COVID-19-related forbearance, and allowing homeowners who requested forbearance by June 30, 2020, to request up to two extensions of up to three months.
Nearly 3 million U.S. homeowners were behind on their home loans as of February, with about 2.1 million mortgages in forbearance and at least 90 days late, according to the CFPB. If current trends continue, there still may be 1.7 million such loans by September, the CFPB said.
The FHFA’s quarterly Foreclosure Prevention and Refinance Report showed that 26,489 Massachusetts single-family mortgages held by one of the government-sponsored enterprises, Fannie Mae or Freddie Mac, were considered delinquent at the end of 2020, down from 33,178 at the end of June but about 68 percent higher compared to the end of 2019, when 15,730 mortgages had missed payments. Massachusetts had about 695,000 single-family mortgages with the GSEs on Dec. 31.
One rule proposed by the agency would prohibit mortgage servicers from starting the foreclosure process before Dec. 31. The CFPB is also considering whether to permit servicers to initiate foreclosures before the end of this year, in certain cases, such as if they’ve made efforts to contact an unresponsive borrower.
The CFPB is also weighing a rule that would allow servicers to offer “certain streamlined loan modification options” to borrowers with hardships caused by the pandemic, and changes to ensure servicers are notifying borrowers of their options in a timely basis. The agency is seeking public input on its proposed rule changes through May 11.
The proposal would only apply to loans secured by a borrower’s principal residence. It comes after the CFPB warned mortgage servicers last week that they should be taking “all necessary steps now to prevent a wave of avoidable foreclosures this fall.”
Citing research it released last month, the CFPB also said that the current housing crisis was deepening racial inequality. The CFPB’s report on housing insecurity found that Black and Hispanic homeowners were more than two times as likely to be behind on housing payments at the end of 2020.
“The nation has endured more than a year of a deadly pandemic and a punishing economic crisis. We must not lose sight of the dangers so many consumers still face,” CFPB Acting Director Dave Uejio said. “Millions of families are at risk of losing their homes to foreclosure in the coming months, even as the country opens back up. Last week we warned that servicers need to be prepared for a high volume of borrowers exiting forbearance, and today we are proposing additional guardrails and tools for servicers as they navigate the coming months. We will do everything in our power to ensure servicers work with struggling families to find solutions that prevent avoidable foreclosures.”
The Mortgage Bankers Association in its most recently weekly Forbearance and Call Volume Survey reported that the share of loans in forbearance decline for five straight weeks, down to 4.9 percent of servicers’ volume as of March 28. The MBA estimates that 2.5 million homeowners are in forbearance plans.
Mike Fratantoni, MBA’s senior vice president and chief economist, said in a statement that new forbearance requests from homeowners reached the lowest level since March 2020. He also pointed to signs that some homeowners continue to struggle with their mortgage payments.
“More than 21 percent of borrowers in forbearance extensions have now exceeded the 12-month mark,” Fratantoni said. “Of those that exited forbearance in March, more than 21 percent received a modification, indicating that their income had declined and they could not afford their original mortgage payment.”
Staff writer Diane McLaughlin contributed to this report.
