CFPB Releases Final Rule to Protect Homeowners from Foreclosure, post-COVID

The Consumer Financial Protection Bureau yesterday announced the release of a final rule, which will go into effect on August 31 and aims to ensure an “orderly transition” back to a normal housing market by providing protections to homeowners to prevent a flood of foreclosures now that many forbearance programs put into place during the COVID-19 pandemic are ending.

For the most part, mortgage lenders and servicers will be prohibited from initiating foreclosure proceedings against homeowners who have experienced a “COVID-19-related hardship” until Jan. 1, 2022. Servicers will be required to inform homeowners of their options, including repayment details, when communicating with homeowners. Servicers are also prohibited from initiating any foreclosure action until they have made contact with a homeowner or evaluated an application to help homeowners avoid foreclosure. Between August 31 and December 31, the only accounts that can be referred for foreclosure are those that are at least 120 days past due and one of the three following conditions have been met: the borrower has been thoroughly evaluated and there are no available options to avoid foreclosure; the property is abandoned; the borrower is unresponsive to servicer outreach. Homeowners that were at least 120 days delinquent when the national emergency was declared in March 2020 are not eligible for these protections.

The rule also streamlines the application process and the paperwork needed to modify mortgages in an attempt to get homeowners into “affordable mortgage payment plans faster,” the CFPB said.

“A large number of borrowers remain seriously delinquent and will be at risk of foreclosure initiation this fall,” the CFPB said in the rule. “This final rule will help ensure a smooth and orderly transition as the other Federal and State protections end by providing borrowers with a meaningful opportunity to explore ways to resume making payments and avoid foreclosure.”

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