A new mortgage rule aims to speed modifications and slow foreclosures.
Federal officials finalized a rule on Monday intended to slow what they fear is an impending wave of pandemic-related foreclosures by making it easier for lenders to change borrowers’ loan terms and adding additional hurdles before lenders cannot seize the houses.
The Consumer Financial Protection Bureau said about 3% of residential mortgage borrowers now have at least four months in arrears – the point at which most foreclosure processes are allowed to begin.
“We have never seen so many borrowers so late on their mortgages,” said Dave Uejio, acting director of the office.
Federal moratoria on evictions and foreclosures have kept most delinquent homeowners in place since last March, but those protections will end on July 31. repairers will generally be prevented from initiating a foreclosure unless they have complied with tightened rules.
In most cases, lenders will only be allowed to foreclose on a home if it is abandoned, if the borrower has not responded to messages for at least 90 days, or if the borrower has been formally appraised for all “loss mitigation” options available (such as loan modification) and none are viable.
Repairers will also be allowed to make foreclosures for borrowers who were already 120 days or more past due before March 1, 2020.
The new rule also makes it easier for mortgage agents to come up with certain loan modifications as long as the modifications do not increase a borrower’s monthly payments or extend the loan term by more than 40 years beyond the due date. modification.
The rule is significantly more flexible than a proposal launched by the Office of Consumer Affairs in April, which would have banned most foreclosure filings for the remainder of the year. Mr Uejio described the agency’s revised approach as one that would encourage “a measured return” of foreclosures.
Pete Mills, senior vice president of residential policy for the Mortgage Bankers Association, said the agency’s rule was generally reasonable and incorporated the changes the industry had requested, such as the exception allowing foreclosures on property. abandoned properties.
“In many cases, service providers are already going well beyond the minimum rule requirements to reach borrowers,” Mills said.
There will be a one-month gap between the end of the federal moratorium and the date the new consumer office rule takes effect, but lenders will still need to make a good faith effort to contract borrowers and explore options. alternatives before proceeding with a foreclosure, office officials said on a call with reporters.
Diane Thompson, senior advisor to the office, said the agency’s goal was to avoid “avoidable” foreclosures and give people time to think about their choices, including resuming payments, changing their loan or the sale of their house.
For those who haven’t made payments since the pandemic took hold, it’s “important to understand that you’re going to have to make a plan to fix this problem in the not-so-distant future,” Ms Thompson mentioned. “People have to weigh their options. “
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