The Consumer Financial Protection Bureau (CFPB) is warning servicers that it is ramping up enforcement and will be specifically watching how servicers manage borrowers coming out of forbearance.
In a Thursday compliance bulletin, the CFPB said it will monitor how servicers work to prevent a wave of foreclosures from occurring this fall. “Unprepared is unacceptable,” the Bureau said. The CFPB will closely monitor how servicers engage with borrowers, respond to borrower requests and process applications for loss mitigation.
“There is a tidal wave of distressed homeowners who will need help from their mortgage servicers in the coming months. 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,” said CFPB acting Director Dave Uejio.
As of March 29, the Mortgage Bankers Association estimates 2.5 million homeowners are still in some form of forbearance. That number is steadily approaching half of the peak seen in April, 2020, but what was once a wave of exits is now closer to a trickle. It took nearly five months for the national forbearance rate to drop an entire percentage point – down from 6% to below 5% as of last week, as economists point out those who stay in loss mitigation the longest are likely to be in the greatest need.
The federal foreclosure moratoriums will expire at the end of June. At the current rate of improvement, Black Knight data shows that the number of homeowners considered seriously delinquent on their mortgages should fall to 1.8 million by that time.
From forbearance to post-forbearance: How to make the process effective
To accommodate the large volume of loans still in forbearance, mortgage servicers must have functional, flexible and effective forbearance processes in place. Here are some actionable steps to create that process.
Presented by: FICS
In particular, the CFPB said it will be paying close attention to how well servicers are:
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.”
“Our first priority is ensuring struggling families get the assistance they need,” Uejio said. “Servicers who put struggling families first have nothing to fear from our oversight, but we will hold accountable those who cause harm to homeowners and families.”
Thursday’s bulletin is the second time in two days that the CFPB has vowed stricter enforcement as the economy steadily opens up. On Wednesday, the Bureau announced it was rescinding seven of its temporary policies put in place to protect consumers during the pandemic, effective April 1.
Broadcasting its intent to use its full authority under the Dodd-Frank Act, the Bureau rolled back leniencies on HMDA data reporting, loan modifications, appraisal standards and credit reporting.
“Companies should have had sufficient time to adapt to the pandemic and should now be able adequately to comply with the law and respond to enforcement actions or supervisory activities without the flexibility afforded under the statement,” the Bureau said after removing its signatory from the Statement on Bureau Supervisory Enforcement Response to COVID-19 pandemic.
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