Does CFPB have authority to postpone foreclosures?
The Consumer Financial Protection Bureau released a proposed rule on Monday that would bar servicers from starting on foreclosures until 2022. The CFPB also proposed streamlined processes for moving homeowners out of forbearance and into loss mitigation options. However, since the announcement, several industry leaders have expressed reservations about the blanket policy.
“My concern is that the bureau is overstepping its bounds and violating in essence agreements that have already been previously made,” said Dave Stevens, chief executive officer of Mountain Lake Consulting and former CEO of the Mortgage Bankers Association.
According to the CFPB, streamlining the process would allow servicers to get homeowners into less burdensome payments at a much quicker pace. But data shows that servicers are already serving borrowers well.
Does CFPB have authority to postpone foreclosures?
At the peak of forbearance, nearly 6 million borrowers were in some form of forbearance, but over half of those homeowners have since exited. According to MBA data, close to 86% of those who have exited did so with some sort of plan in place or they simply continued making their payments while they were in forbearance.
“I think the math speaks for itself how well the forbearance program has worked, and it’s one of the few times in my career that I have seen a government-initiated program adopted as well and executed as well by the industry as this one,” said Rick Sharga, executive vice president of RealtyTrac.
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Both the FHFA and FHA have been clear that they want to give homeowners in COVID-related forbearance enough time for a soft landing, kicking the can down the road months at a time to avoid a foreclosure cliff. Foreclosures themselves are already the last options for servicers – the process is expensive, time consuming, and involves complicated litigation, depending on the state.
The CARES Act caused some confusion among servicers when it was first passed, however, Stevens worries that a foreclosure halt could potentially hurt relationships with investors long term.
“What they are doing is getting involved in a very complex process and it may be forcing servicers to violate covenants of the investor who bought the loan, and that’s the real challenge,” said Stevens. “They have a responsibility to protect consumers’ interest, but to now come in and intervene in areas of mortgage lending that have already been pre-litigated with rule-making created under a similar democratic regime creates a lot of confusion and distrust, which is the last thing we need right now.”
Some industry leaders expected the foreclosure proposal to more closely mirror that of the HAMP program, a series of initiatives during the Obama administration that took a more prescriptive approach for servicers to follow. Under HAMP https://americashpaydayloan.com/title-loans-fl/, servicers extended the terms of loans after borrowers exited forbearance, lowered interest rates, deferred the principal balance and then walked borrowers through their options. The program expired in 2016.
“I was surprised we went all the way to the end game,” Sharga said. “Candidly, I’m not sure the CFPB has the legal standing to disrupt a contract law across the country, especially as some of these are private loans and there is a contract made between the borrower and lender. This is the first time the CFPB has really tried to interject itself in this dramatic manner. So I do suspect if they come out with this ruling, we might see legal challenges to it by somebody in the industry.”
Monday’s foreclosure proposal will be open for public comment until May 11 and would not go in to effect until the beginning of September, depending on industry response. Since its release, some organizations have already publicly commented on the CFPB’s recent actions.
