Exclusive: U.S. watchdog to adopt mortgage moratorium rule with some
exclusions - sources
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[June 22, 2021] By
Katanga Johnson
WASHINGTON (Reuters) - The U.S. consumer
watchdog in coming weeks will adopt a rule requiring mortgage servicers
to give struggling homeowners until next year to resume repayments, but
is expected to carve out some groups of borrowers following industry
pushback, four people with knowledge of the matter told Reuters.
The Consumer Financial Protection Bureau (CFPB) in April proposed, among
other measures, a new review process that would generally prohibit
mortgage servicers from starting a foreclosure until after Dec. 31,
2021. The rule will throw a lifeline to hundreds of thousands of
homeowners due to exit COVID-19 mortgage holiday or "forbearance"
programs in coming months.
Mortgage servicers receive payments from borrowers and pass them on to
investors, tax authorities and insurers.
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The CFPB plans to finalize the rule and make it effective before the end
of August, but has agreed to carve out certain groups of borrowers after
the industry said the proposal was too broad and beyond the CFPB's legal
remit, three of sources said.
A CFPB spokesperson said the agency is working on finalizing the
proposal but did not comment on what exclusions had been agreed to.
"We remain committed to working with both servicers and homeowners to
prevent avoidable foreclosures to the maximum extent possible," the
spokesperson added.
The borrowers expected to be carved-out, which has not previously been
reported, include those in the process of negotiating an arrangement
with their servicer to avoid foreclosure but who have not yet applied to
be put into forbearance, the same three people said.
It is also expected to exclude borrowers who may have abandoned their
homes without trying to notify their servicers and those who do not
respond to multiple inquiries from servicers about whether they wish to
remain in their homes.
The CFPB agreed to the exemptions to limit the compliance burden for
some servicers and give them more flexibility to help customers, the
four sources said. They said the rule will also not apply to small
servicers with limited market share that are less able to absorb the
compliance costs.
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A house-for-sale sign is seen inside the Washington DC Beltway in
Annandale, Virginia January 24, 2016. REUTERS/Hyungwon Kang
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The sources, some of whom spoke on the condition of anonymity, include a
regulatory official and industry lawyers and executives involved in the
discussions.
"The Bureau's rules achieve two aims: mandating some additional help for
struggling borrowers who have a plan to stay in their homes, while also creating
clear exemptions to help servicers maintain the steady supply of homes the
market demands," said Michael Bright, CEO of the Structured Finance Association,
which represents the mortgage securitization industry and was among the groups
that pushed for the exemptions.
FORECLOSURE CRISIS
To help Americans weather pandemic lockdowns, Congress last year gave struggling
homeowners the right to pause mortgage repayments and imposed a moratorium on
foreclosures.
As of June 14, an estimated 2 million homeowners were in forbearance, according
to the Mortgage Bankers Association. Around 900,000 of those forbearance plans
are due to expire later this year, industry data provider Black Knight
estimates.
CFPB staff are worried existing regulatory tools will not provide sufficient
help for homeowners who have suffered a permanent disruption of income as a
result of the pandemic.
They hope the new rule would prevent a wave of foreclosures by raising the
burden of "reasonable effort" a servicer makes to help struggling borrowers, one
of the sources said.
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At the same time, "the agency wants to make sure struggling consumers know that
they can't just put their head in the sand until December 31" and should reach
out to their servicer for help, said the regulatory official.
"And to servicers: we're watching you, but we want to achieve the best outcomes
for business and borrowers."
(Reporting by Katanga Johnson in Washington; Editing by Michelle Price and
Matthew Lewis)
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