Homeowners who found themselves in a tight spot with their mortgage but didn’t take advantage of the U.S.’ forbearance programs before it expired on August 31, 2021, are getting some extra help from the Consumer Financial Protection Bureau (CFPB). The agency has issued a new rule for mortgage servicers designed to help homeowners avoid foreclosure,
The new rule requires most mortgage servicers to take specific steps to assist homeowners in forbearance so they can find options for repaying their loan. It also gives servicers the ability to add repayment options without collecting a complete application from the borrower.
Are you covered?
Even though federal forbearance programs under the CARES Act were available only to homeowners with federally backed mortgages -- like those offered by HUD/FHA, VA, USDA, Fannie Mae, and Freddie Mac 00 the CFPB says its new rule applies whether your mortgage is federally backed or not.
“However, the mortgage loan you’re seeking relief for must be a closed-end loan for your principal residence,” the agency explains. “This rule doesn’t apply to home-equity lines of credit, open-end lines of credit, investment properties, or reverse mortgages. Also, small servicers, as defined by the servicing rules, are not required to comply with this rule.”
Homeowners in this situation are going to see the term “forbearance” a lot, so here’s a quick primer on the concept.
Forbearance is extended when a homeowner's lender or mortgage servicer allows them to pause or reduce payments for a limited period of time. That’s a good thing, but it doesn't let the homeowner off the hook or erase what they owe. Whatever amount was missed or reduced still has to be repaid at some point in the future.
For homeowners currently in forbearance, the 2021 Mortgage Servicing COVID-19 Rule contains a number of options available for repaying missing payments once their forbearance period ends. The CFPB says the most important thing someone in that situation can do is reach out to the servicer as soon as they can.
“The sooner a consumer connects with a servicer, the more likely the consumer will be able to secure the best option available to them,” the agency said.
What loan servicers are required to do
The CFPB says most servicers can’t start the process of foreclosing on a home until January 1, 2022 — except in limited circumstances — without first reaching out to the homeowner and evaluating their complete application for options to help them avoid foreclosure.
If the servicer makes contact with the homeowner near the end of their forbearance period, there are three things they must tell you:
The date your forbearance program will end
Your options for repaying your missed payments and avoiding foreclosure
Information on how to contact free housing counseling services
It’s important to note that these changes are temporary because they either include specific end dates or they’re linked to programs made available to borrowers with pandemic-related hardships. The CFPB says any homeowner in this position should get in touch with their servicer while these special protections are in place. After that, there’s no guarantee.
“The longer you wait, or the further you fall behind on your payments, the harder it may be to find a solution,” the agency advises. “If your servicer is trying to reach you, it’s very important that you talk with them—if they’re unable to reach you after trying for three consecutive months, a servicer may be able to start the foreclosure process before January 1, 2022.”
If you don’t know who your mortgage servicer is, here’s how you can find out. If your servicer doesn’t do their part by describing the available options, you can submit a report to the CFPB and they will work to get a response from the company.