Millions of Americans have benefited from the payment suspension and mortgage maintenance programs that both borrowers and the federal government put in place due to the Covid-19 pandemic last year. As these emergency programs begin to decline this year, the Bureau of Financial Consumer Protection wants to put in place precautions to ensure that millions of families are not forced into negativity.
A year into the pandemic, about 2.5 million homeowners are still enrolled in some sort of tolerance program, according to data from the Mortgage Bankers Association for the week of March 21, 2020. But even with these programs, about 5% of homeowners who currently related to their mortgage loans, the MBA found in its latest report.
This could increase exponentially as tolerance programs begin to decline this fall.
“Emergency protection for homeowners will expire later this year and by the fall, a flood of lenders will need help from their service workers,” CFPB acting director Dave Uejio said Monday. The CFPB proposes amendments to the rules for mortgage lending to ensure that service providers and lenders have the tools and time to work together to prevent avoidable prosecutions, which disrupt lives, uproot children and those least able to bear, incur further costs. “
To help homeowners who are behind on their mortgage loans, the CFPB proposes a new rule that introduces a ‘temporary Covid-19 emergency period for the negative before the negative’, which will essentially prevent relationship service workers from starting the negotiation process until after 31 December 2021.
This new review period would be an addition to the existing rules prohibiting loan service workers from starting the negative process until a homeowner is owed more than 120 days on their home loan.
Many of the current tolerance programs were drafted into the CARES Act last year and apply to loans federally backed by agencies, including Fannie Mae, Freddie Mac, the Federal Housing Administration and the Department of Housing and Urban Development. Private moneylenders and service providers have also set up their own tolerance programs. The CFPB’s proposed rule will cover all homeowners, including those who have mortgage loans with private lenders such as banks.
The CFPB’s plan released on Monday is currently a proposal. The agency is seeking public comment until May 11 before issuing a final rule.
In addition to requiring mortgage lenders to undertake a review period, the CFPB also proposes a streamlined loan modification process, which usually allows homeowners to apply to have their loan interest rate lowered, their loan term extended and / or their monthly payments to reduce. .
The streamlined process enables service providers to offer some loan modification options based on incomplete applications. Normally, borrowers have to submit a myriad of documents – including proof of income, such as pay stubs, tax returns and recent bank statements – before a server can make a decision.
By streamlining the process, service workers can make homeowners end up with less burdensome payments faster, says CFPB. The expedited process would only be available for loan modification options that do not increase homeowners’ monthly payments, extend the term of the mortgage for more than 40 years or charge any fees.
In February, President Joe Biden ordered federal housing regulators to extend mortgage lending programs for another six months and extend relief programs in a move that covered an estimated 70% of single-family home mortgage lending in the U.S.
Morgages backed by Fannie Mae or Freddie Mac, as well as by the Department of Veterans Affairs (VA), the Department of Agriculture (USDA) and the FHA have announced that they are extending their tolerance programs to 18 months. For homeowners who enrolled in March and April 2020, this means the programs will expire in September and October.
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