CFPB Finalizes a New Rule Restricting Mortgage Foreclosures Until 2022

Under a new federal rule, mortgage servicers have to do more to help you avoid foreclosure if you’ve been affected by COVID-19.

By , Attorney

On June 28, 2021, the Consumer Financial Protection Bureau (CFPB) finalized a rule, making it mandatory for loan servicers to enhance their efforts to help homeowners affected by the COVID-19 pandemic. The rule ensures that borrowers get a meaningful chance to pursue loss mitigation options to avoid foreclosure and allows 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 will effectively prohibit servicers from starting foreclosures before January 1, 2022.

New CFPB Rule Beefs Up Existing Protections for Struggling Homeowners

Under federal mortgage servicing laws, a servicer generally can't initiate a foreclosure until the borrower is more than 120 days delinquent. 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.

While federal law already prohibits a servicer from beginning a foreclosure until the borrower is more than 120 days delinquent, the new CFPB rule provides more protection to borrowers affected by the coronavirus crisis. From August 31, 2021 through December 31, 2021, unless an exception applies, a loan servicer may start a foreclosure only if the borrower is over 120 days behind on their mortgage payments and:

  • the borrower has abandoned the property
  • the borrower hasn't responded 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, or 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 New CFPB Rule

The rule applies to borrowers with a "COVID-19-related hardship," which is 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 new rule doesn't apply to non-primary residences or small mortgage servicers. The protections also don't apply if the borrower was more than 120 days delinquent before March 1, 2020, or the applicable statute of limitations will expire before January 1, 2022.

Although the rule goes into effect on August 31, 2021, servicers may voluntarily comply with certain required activities before that time.

Getting Help With Your Mortgage Payments

If you're behind on your mortgage payments because of the COVID-19 pandemic, 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, and whether you're in or exiting a COVID-19 forbearance. You most likely have several alternatives. For example, you might qualify for a loan modification or a payment deferral.

Also, the new CFPB rule allows servicers to streamline their loan modification process for borrowers with COVID-19-related hardships by not making them submit all the paperwork for every possible option.

National Foreclosure Moratorium Ends on July 31, 2021

The Biden-Harris Administration released a statement on June 24, 2021, that the three federal agencies that back many of the mortgages in the United States—the Department of Housing and Urban Development (HUD), VA, and USDA—agreed to extend their foreclosure moratoriums for FHA-insured, VA-guaranteed, and USDA loans for just one more month, through July 31, 2021. The FHFA also agreed to extend its foreclosure moratorium for mortgages backed by Fannie Mae and Freddie Mac until July 31, 2021.

While the moratoriums have been extended many times during the pandemic, further extensions are unlikely.

Effective date: August 31, 2021