Over the past week, the Consumer Finance Protection Bureau (CFPB) has expressed growing concern over how servicers will handle borrowers coming out of forbearance as the pandemic wanes. In three different communications, the CFPB announced:
—On Wednesday, March 31, that it would rescind seven of its temporary consumer protections put in place during the pandemic, effective April 1
—On Thursday, April 1, that it would ramp up enforcement and closely watch how servicers manage borrowers exiting forbearance
—On Monday, April 5, that it proposed a rule to prohibit servicers from starting foreclosure procedures until after December 31, 2021
“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,” said CFPB Acting Director Dave Uejio.
“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.”
What do these announcements mean for lenders and servicers, and how can you be sure to stay compliant while facing tightened enforcement?
Let’s dig into the CFPB’s statements.
“No excuse for inaction”
One of the first ways the newly emboldened CFPB is strengthening its control is by advocating for distressed homeowners, especially as exit rates trickle and moratorium expiration dates loom.
According to the Mortgage Bankers Association (MBA), around 2.5 million homeowners are still in forbearance. While that rate continues to drop, it’s not falling as quickly as it did in 2020. It took around five months for the percentage of homeowners in forbearance to drop a percentage point, from 6% to below 5% as of last week. And those homeowners still in forbearance are likely to be experiencing the most dire financial circumstances.
So, what’s the CFPB’s message in light of the current environment?
In a nutshell, the CFPB expects servicers to be prepared and act with compassion towards the millions of American families struggling with the possibility of foreclosure. Said acting CFPB Director Dave Uejio: “There is a tidal wave of distressed homeowners who will need help from their mortgage servicers in the coming months. Responsible servicers should be preparing now. There is no time to waste, and no excuse for inaction. No one should be surprised by what is coming.”
Specifically, the CFPB has sworn to closely watch how servicers interact with borrowers, respond to borrower requests, and process applications.
6 ways to stay CFPB compliant in 2021
The CFPB laid out guidelines for compliance in a few categories. By following these tips, lenders and servicers can feel confident they’re supporting struggling borrowers and avoiding costly penalties.
1. Think ahead.
Instead of simply waiting for the forbearance period to end, servicers should proactively contact borrowers as soon as possible so borrowers have a chance to apply for help. Doing so will help borrowers in hard financial positions to make a viable longterm plan.
2. Educate borrowers with informative materials.
To help sync borrowers up with appropriate assistance, servicers should ensure they’re provided with all the necessary documentation and information.
3. Ensure access for non-English language speakers.
The CFPB urges servicers to maintain compliance with the Equal Credit Opportunity Act and other laws that speak to equal access for borrowers with limited or no English proficiency.
4. Correctly and fairly evaluate all borrower income.
Some loss mitigation options require servicers to determine eligibility by evaluating income. In those situations, the CFPB expects servicers to carefully assess all borrower income, including public assistance, child support, alimony, and other sources in accordance with the Equal Credit Opportunity Act’s anti-discrimination policies.
5. Respond to inquiries in a reasonable amount of time.
Those servicers whose hold times lag behind industry averages may raise red flags with the CFPB.
6. Prevent foreclosures that can be avoided.
In general, the CFPB would like to see servicers helping borrowers to save their homes before foreclosure is initiated if at all possible. This means complying with foreclosure restrictions in Regulation X and other federal and state restrictions.
For those worried about run-ins due to non-compliance, the CFPB’s advice is simply to put the borrower first: “Servicers who put struggling families first have nothing to fear from our oversight, but we will hold accountable those who cause harm to homeowners and families,” said Uejio.
With 1.7 million borrowers at risk of foreclosure, the CFPB proposes a ban until 2022
The CFPB’s proposed foreclosure ban would prohibit mortgage servicers from initiating proceedings against delinquent borrowers until after December 31, 2021. This proposal would apply to both federal and private mortgages on principle residences and hasn’t been approved yet.
Around 1.7 million borrowers are slated to exit forbearance programs in September or October, when they will become at risk of foreclosure. The borrowers at highest risk are disproportionately Black, Hispanic, Native American, rural, and low-income homeowners.
“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,” commented Senior Advisor to the CFPB Acting Director Diane Thompson.
The CFPB’s proposal is looking to mitigate disastrous effects to homeowners by offering loan modification options to borrowers experiencing COVID-related hardships.
“What we’re proposing would be that you wouldn’t have to evaluate someone for every possible available option, so long as the options that you offer them have certain safeguards,” said Thompson.
For servicers and lenders in 2021, the bottom line in complying with complying with tightening CFPB regulations is to proactively communicate with borrowers so that as many homeowners as possible can remain in their homes.