CFPB Rule Restricting Mortgage Foreclosures Until 2022

On June 28, 2021, the Consumer Financial Protection Bureau (CFPB) finalized a rule, making it mandatory for mortgage servicers to enhance their efforts to help homeowners affected by the COVID-19 pandemic. The rule ensured that homeowners got a meaningful chance to pursue loss mitigation options to avoid foreclosure and allowed servicers to offer assistance to borrowers faster.

Initially, the CFPB had proposed a moratorium on foreclosures until 2022, but an outright ban wasn't included as part of the final rule. But in most cases, the rule effectively prohibited servicers from starting foreclosures before January 1, 2022.

The foreclosure protections discussed in this article apply to foreclosures from August 31, 2021 through December 31, 2021.

When Foreclosure Can Usually Start

Under federal mortgage servicing laws, a servicer generally can't initiate a foreclosure until the borrower is more than 120 days delinquent. (12 C.F.R. § 1024.41(f)(1)(i)).

And, if you submit a complete loss mitigation application before a foreclosure starts, the servicer must hold off on starting a foreclosure until it reviews the application and:

• informs you that you're not eligible for any loss mitigation option, and any appeal you make has been exhausted
• you reject the workout option that the servicer offers to you, or
• you accept a loss mitigation option but fail to comply with the terms of the deal, like not making payments during a trial modification. (12 C.F.R. § 1024.41(g)).

While federal law already prohibits a servicer from beginning a foreclosure until the borrower is more than 120 days delinquent, the CFPB rule provided more protection to borrowers affected by the COVID pandemic.

CFPB Rule Enhanced the Existing Protections for Struggling Homeowners

From August 31, 2021 through December 31, 2021, unless an exception applied, a loan servicer could start a foreclosure only if the borrower was over 120 days behind on their mortgage payments and:

• the borrower had abandoned the property
• the borrower didn't respond to the servicer's outreach attempts for 90 days, or
• the borrower applied for loss mitigation and was reviewed and deemed ineligible for any loss mitigation option and didn't timely appeal or the appeal was denied, the borrower rejected all loss mitigation options, or the borrower did not perform under an option offered (and the borrower remained delinquent at all times since submitting the application).

Applicability of the CFPB Rule

The rule applied to borrowers with a "COVID-19-related hardship," which was defined as "a financial hardship due, directly or indirectly, to the national emergency for the COVID-19 pandemic declared in Proclamation 9994 on March 13, 2020 (beginning on March 1, 2020) and continued on February 24, 2021, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C.1622(d))."

The rule didn't apply to non-primary residences or small mortgage servicers. The protections also didn't apply if the borrower was more than 120 days delinquent before March 1, 2020, or the applicable statute of limitations would expire before January 1, 2022.

Provision Adding Temporary Live Contact and Other Requirements

Another rule added temporary early intervention live contact requirements because of the COVID-19 pandemic. The requirements included:

• servicers had to provide information regarding forbearances and loss mitigation options to delinquent borrowers (the required disclosures depended on whether the borrower was in a forbearance program at the time of live contact), and
• the servicer also had to identify at least one way that the borrower could find contact information for homeownership counseling services, such as referencing the borrower's periodic statement. (12 C.F.R. § 1024.39(d)(3)(i)).

This rule expired on October 1, 2022.

Getting Help With Your Mortgage Payments

If you're behind on your mortgage payments because of COVID-19 or another reason, your options depend on what entity, like the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), USDA, Fannie Mae, or Freddie Mac, owns or guarantees your loan.

You most likely have several alternatives. For example, you might qualify for a loan modification.

Getting Help With Foreclosure

If you're facing a foreclosure, look into your options as soon as possible. Don't wait to ask for help. Contact a HUD-approved housing counselor who can tell you about different foreclosure avoidance options and will help you for free.

Also, consider talking to a foreclosure attorney to learn more about your state's foreclosure procedures and what you should do in your situation.