The COVID-19 pandemic has taken an incredible toll on many homeowners in unexpected ways. As a result, millions of Americans have fallen behind on mortgage payments and face foreclosure.
Thankfully, the Consumer Financial Protection Bureau (CFPB) has recently finalized a rule that creates safeguards to give homeowners the opportunity to avoid foreclosure. The rule, designed for borrowers struggling to pay their mortgage, goes into effect on August 31, 2021, and is expected to be in effect until January 1, 2022.
Three Safeguards and Exceptions Struggling Homeowners Should Know
The existing rules prevent foreclosure processes from commencing until a borrower is 120 days behind on their payments. With the addition of the recently finalized CFPB rule, borrowers will have the opportunity to avoid home foreclosure. The new rule does not ban foreclosure entirely but provides several alternate paths to get mortgage payments back on track.
If you are 120 or more days behind on your mortgage, the new Consumer Financial Protection Bureau rule provides these safeguards:
- It requires a loss mitigation application to be completed in full by the borrower and thoroughly reviewed by the loan servicer before foreclosure may begin.
- It requires loan servicers to locally and legally confirm that a property is abandoned before starting the foreclosure process.
- It requires loan servicers to attempt reasonable efforts to establish communication with the borrower. However, if the borrower has not responded within 90 days and is more than four months behind on payments, the foreclosure process can begin.
In addition to these safeguards, the new Consumer Financial Protection Bureau rule also covers a few exceptions where these safeguards will not apply. These exceptions include:
- If the foreclosure referral date occurs after the safeguard rule expires
- If the borrower was 120 or more days delinquent before March 1, 2020
- If statutes of limitations that apply to the situation expire before January 1, 2022
Additionally, the Consumer Financial Protection Bureau strongly encourages loan providers to provide borrowers with three or more options to avoid foreclosure. Some of these options include:
- Resuming regular payment with a plan to pay past-due amounts at the end of the mortgage
- Pursuing a loan modification, making use of streamlined loan modification rules made available as of August 31, 2021
- Pursuing the option to put the home up for sale
How Can the COVID-19-Related Updated Loan Modification Process Help You?
Along with the safeguards discussed above, the Consumer Financial Protection Bureau has created streamlined loan modification processes to assist struggling homeowners further. While loan servicers would typically require extensive paperwork to verify borrowers’ income and expenses before altering the loan, this rule allows incomplete applications to be considered. Additionally, the streamlined loan modification rule will:
- Limit extensions to 40 or fewer years from the effective date of modification
- Limit payment increases
- Limit interest on delayed payments
- Be available to COVID-19-affected homeowners without limiting access to non-affected borrowers
- End pre-existing delinquency on the date of acceptance of the modified loan
- Waive specific fees associated with loan modification
If you have been affected by the COVID-19 pandemic and face financial difficulties, seek the professional services of an experienced lawyer. Call the offices of Siddons Law Firm at 610-255-7500 for help understanding and applying the new protections for homeowners struggling to pay their mortgages.