On June 24th, Fannie Mae and Freddie Mac announced an extension to the Covid-19 forbearance moratorium. Both announcements were updates from the original Foreclosure Moratorium Date of March 18, 2020. At that time, servicers were instructed to suspend all foreclosure sales for the next 60 days, unless the property securing the mortgage loan had been determined to be vacant or abandoned.
Subsequently, we saw the foreclosure moratorium extended to April 30, 2020, June 30, 2020, then again to December 31, 2020; and lastly about every quarter through June 30, 2021. It was highly speculated that the June Foreclosure Moratorium would be extended out to September 30, 2021, so many lenders and services may be a little surprised about this monthly extension.
From the Whitehouse
The decision to extend the deadline came directly from the White House. In the announcement, the Biden-Harris Administration disclosed:
“Following the CDC’s decision to extend the eviction moratorium for one final month through July 31, 2021, the Administration is announcing a series of actions to help state and local governments prevent evictions. The Administration is also taking action to stabilize homeowners and support a return to a more stable housing market, including by extending the foreclosure moratorium for federally-backed mortgages by a final month, until July 31st.”
Most of the federal dollars allocated are in hopes to significantly lower the number of evictions. This block of funds is called “The American Rescue Assistance (ERA) plan. They have allocated $21.5 billion for renters to cover arrears owed to landlords. The $46 billion plan brought money to state and local governments to handle the not only emergency rental assistance but also to build new infrastructure, in hopes to create good paying jobs.
In addition to the assistance to help renters and landlords, the June 30th foreclosure moratorium date was pushed out to July 31, 2021. The three federally backed agencies under this mandate are HUD, VA, and USDA. They will all extend their foreclosure processes for one final month, until July 31, 2021. After the moratorium, these entities will take additional steps required to ensure homeowners have been provided all the options possible to save their homes from foreclosure.
“In addition, HUD, VA, and USDA will also continue to allow homeowners who have not taken advantage of forbearance to date to enter into COVID-related forbearance through September 30, 2021, while homeowners with Fannie Mae or Freddie Mac mortgages, who have COVID-related hardships, will also continue to be eligible for COVID-related forbearance. Finally, HUD, VA, and USDA will be announcing additional steps in July to offer borrowers payment reduction options that will enable more homeowners to stay in their homes.”
From the Consumer Financial Protection Bureau (CFPB)
On June 28, 2021, CFPB released an Executive Summary of the 2021 Mortgage Servicing COVID-19 Rule. CFPB will be working alongside the other agencies (Freddie, Fannie, VA, USDA, FHA) to “ensure an orderly transition to the post pandemic housing market.”
David Uejio, acting CFPB Director, has this to say about the current state of our economy and the effects of COVID-19 on the housing market.
“As the nation shifts from the COVID-19 emergency to the economic recovery, we cannot be complacent about the dangers we still face. An unchecked wave of foreclosures would drain billions of dollars in wealth from the Black and Hispanic communities hardest hit by the pandemic and still recovering from the impact of the Great Recession just over a decade ago. An unchecked wave of foreclosures would also risk destabilizing the housing market for all consumers. We are giving homeowners the time and opportunity to make informed decisions about the best course of action for them and their families, whether that is seeking a loan modification or selling their home. And we are giving mortgage servicers the flexibility they need to serve homeowners with dignity, while managing an unprecedented volume of borrowers seeking assistance.”
Since the beginning of the Covid outbreak, over 7M homeowners have filed for COVID-19 hardship forbearance. The forbearance program has temporarily paused their mortgage payments while they work out the financial hardships caused by the pandemic. As of this month, over 2M homeowners are still in forbearance. Although 5M have been able to come out of forbearance, those remaining make up 3% of the total borrower population. Data predicts that nearly 900,000 will be able to exit forbearance by December 31, 2021, leaving only a little over a million looking at foreclosure.
How will the Final Rules Help with the Transition?
This final rule amends certain obligations in Reg X regarding assistance available for borrowers experiencing a COVID-19 related hardship. The final rule is effective August 31, 2021. However, servicers may take voluntary action before this date if provisions are allowed.
CFPB has established temporary special safeguards to allow borrowers the necessary time to explore their options as they exit forbearance.
From August 31, 2021, through December 31, 2021, at least one of the following Procedural Safeguards must be met unless an exception applies, before referring certain 120-day delinquent accounts for foreclosure. The following is an excerpt from the June 28, 2021 memo:
- The borrower was evaluated based on a complete loss mitigation application and existing foreclosure protection conditions are met. To meet this safeguard, the servicer must confirm that:
- The borrower submitted a complete loss mitigation application, and the servicer evaluated the application.
- The borrower remained delinquent since submission of the loss mitigation application.
- The foreclosure protection conditions in the existing Mortgage Servicing Rules discussed above, are met, such that a servicer is permitted by the Rules to make a foreclosure referral.
- The property is abandoned. To meet this safeguard, applicable state or local law must consider the property securing the mortgage abandoned when referred to foreclosure.
- The borrower is unresponsive to servicer outreach. To meet this safeguard, the servicer must not have received any communications from the borrower in the 90 days prior to the foreclosure referral and the servicer must confirm:
- It has complied with the early intervention live contact requirements in the Mortgage Servicing Rules during that 90-day period.
- It has provided the early intervention 45-day written notice required by the Mortgage Servicing Rules. The servicer must have sent the notice at least 10 but no more than 45 days before foreclosure referral.
- It has complied with all loss mitigation notice requirements in the Mortgage Servicing Rules during that 90-day period, such as the notice of an incomplete loss mitigation application.
- The borrower’s forbearance program, if applicable, ended at least 30 days before foreclosure referral.
Exceptions: The temporary procedural safeguards are not required if:
- The foreclosure referral occurs (as permitted by applicable law) on or after January 1, 2022.
- The borrower was more than 120 days delinquent prior to March 1, 2020.
- The applicable statute of limitations will expire before January 1, 2022.
If the servicer has met the temporary procedural safeguards, or if the safeguards do not apply, the servicer may proceed with foreclosure referral, to the extent permitted by other law and the existing foreclosure protections in the Mortgage Servicing Rules. If the temporary procedural safeguards apply, a servicer is required to maintain records that evidence the servicer complied.
The following is an excerpt from the CFPB’s June 28, 2021 memo:
The 2021 Mortgage Servicing COVID-19 Rule adds a new exception to that list. The 2021 Rule permits servicers to offer certain COVID-19-related loan modification options based on the evaluation of an incomplete application. To qualify for this exception, the loan modification program must:
- Limit loan term extensions. The loan modification must not extend the loan term more than 40 years from the date the modification is effective.
- Limit periodic payment increases. The loan modification must not increase the borrower’s monthly principal and interest payment beyond the amount that was required prior to the modification.
- Prohibit interest accrual on delayed amounts. If the loan modification allows the borrower to delay payment of any portion of the amount owed until the property is sold, the mortgage is refinanced, the modification matures, or, for FHA insured loans, until the mortgage insurance terminates, then the loan modification must not allow interest to accrue on those amounts. Such amounts could include, for example, forborne periodic payments.
- Be available to borrowers with COVID-19-related hardships. The loan modification must be made available to borrowers experiencing COVID-19-related hardships, although it need not be only available to those borrowers.
- End (or be designed to end) preexisting delinquency. The loan modification must end any pre-existing delinquency when the borrower accepts the modification offer. If a trial period applies, the loan modification must be designed to end any pre-existing delinquency when the borrower satisfactorily completes any trial period requirements and accepts the permanent loan modification.
- Not include certain fees. The servicer must not charge fees in connection with the loan modification and must promptly waive certain existing fees the borrower owes, such as late fees, penalties, or stop-payment fees, that were incurred on or after March 1, 2020.
The details above only highlight the rules that will be in place to help homeowners stay in their homes. Through the end of this year, the government will be keeping a very close eye on how the measures already in place are working. We expect that reporting at the end of every month may dictate some new procedures. There will be additional data coming out in the month of July. As servicers, we should all be ready for anything and all things. Keeping alert to the changes in our economy and in the market, will become as guide as we plan for the next two quarters of 2021.
Nonetheless, servicers will be busy with loss mitigation, appraisal work, property preservation, title work, and even foreclosure-related services. Nexval will keep you apprised and be ready to take on any volume you can’t handle or want to outsource. We are the experts in streamlining your processes and increasing productivity. Outsourcing is our business. We will be here to serve you.