Real Estate

CFPB To Mortgage Servicers: Get Prepared, Or Else

The Consumer Financial Protection Bureau sent out a stern warning to mortgage servicers, telling them to get prepared to prevent a wave of foreclosures later this year. 

The Consumer Financial Protection Bureau sent out a stern warning to mortgage servicers, telling them to get prepared to prevent a wave of foreclosures later this year. 

As borrowers emerge from forbearance, which is expected to happen in the coming months, servicers will have their work cut out for them. But the CFPB warns this work will be done under a microscope as it plans to keep a close eye on the industry. 

The bureau sent out a letter Thursday saying being unprepared would not be an acceptable excuse. 

“Servicers should dedicate sufficient resources and staff now to ensure they are prepared for a surge in borrowers needing help,” the letter stated. “The CFPB will closely monitor how servicers engage with borrowers, respond to borrower requests and process applications for loss mitigation. The CFPB will consider a servicer’s overall effectiveness in helping consumers when using its discretion to address compliance issues that arise.”

The letter gives a list of specific areas the CFPB will be looking for:

  • Being proactive: Servicers should contact borrowers in forbearance before the end of the forbearance period so they have time to apply for help.
  • Working with borrowers: Servicers should work to ensure borrowers have all necessary information and should help borrowers in obtaining documents and other information needed to evaluate the borrowers for assistance.
  • Addressing language access: The CFPB will look carefully at how servicers manage communications with borrowers with limited English proficiency and maintain compliance with the Equal Credit Opportunity Act and other laws.
  • Evaluating income fairly: Where servicers use income in determining eligibility for loss mitigation options, servicers should evaluate borrowers’ income from public assistance, child-support, alimony or other sources in accordance with the Equal Credit Opportunity Act’s anti-discrimination protections.
  • Handling inquiries promptly: The CFPB will closely examine servicer conduct where hold times are longer than industry averages.
  • Preventing avoidable foreclosures: The CFPB will expect servicers to comply with foreclosure restrictions in Regulation X and other federal and state restrictions in order to ensure that all homeowners have an opportunity to save their homes before foreclosure is initiated.

“There is a tidal wave of distressed homeowners who will need help from their mortgage servicers in the coming months,” CFPB Acting Director Dave Uejio said. “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.” 

“Our first priority is ensuring struggling families get the assistance they need,” he continued. “Servicers who put struggling families first have nothing to fear from our oversight, but we will hold accountable to those who cause harm to homeowners and families.”

Current federal foreclosure moratoriums are set to expire in June 2021. The CFPB said servicers should use this time to begin ramping up operations and even reaching out to borrowers. 

Over the past month, forbearance numbers have continued to improve. For the fifth consecutive week – the longest stretch since September – there was improvement in active forbearance volumes, according to Black Knight data. As of March 30, 2.54 million homeowners remained in forbearance, representing 4.8 percent of all homeowners with mortgages.

But it is difficult to predict how close these homeowners actually are to foreclosure. 

For starters, it is unclear how much financial hardship consumers are actually in. That’s because when the Federal Housing Finance Agency made forbearance available, it did not require proof of hardship in order to enter forbearance. Some consumers could have enrolled out of an abundance of caution while others could be truly unable to make their mortgage payment. 

“No one really knows how many of these people who are in forbearance are actually going to be able to recover, and how many of them are also going to go to serious delinquency,” Tim Mayopoulos, Blend president and former Fannie Mae CEO, said.

Upon taking over as acting director, Uejio told CFPB staff that the bureau will direct its attention to mortgage servicers, promising “aggressive action” to ensure companies follow the law.

Uejio will serve as acting director until Biden’s nominee, Federal Trade Commission Commissioner Rohit Chopra, is confirmed by the Senate as the next director of the CFPB.

Email Kelsey Ramirez 

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