The Consumer Financial Protection Bureau (CFPB) has announced a new rule to help prevent foreclosures in situations where they can be avoided. The new rule, which went into effect on Aug. 31, requires that most mortgage servicers help borrowers in forbearance find workable repayment options before initiating the foreclosure process.

Key Takeaways

  • Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, millions of Americans have been able to pause or reduce their monthly mortgage payments without the risk of foreclosure, a process known as forbearance.
  • With the new rule from the CFPB, most mortgage servicers are prohibited from initiating foreclosure on a loan that's in forbearance unless they first contact the borrower and provide meaningful options to help them stay in their homes.
  • The new rule went into effect on Aug. 31, 2021, but because it is temporary, homeowners whose loans are in forbearance should contact their servicers soon.

How the New Mortgage Rule Works

The coronavirus pandemic has had a significant impact on millions of homeowners, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act provided much-needed relief in the form of forbearance plans for borrowers who couldn't afford their monthly payments. The plans allowed the homeowner to temporarily pause or reduce their mortgage payments.

Those protections have since expired in many cases, but homeowners with FHA, USDA, or VA mortgages who have not taken advantage of forbearance can still request a COVID-related forbearance until Sept. 30, 2021. In the case of mortgages backed by Fannie Mae or Freddie Mac, there is, as yet, no deadline for requesting a COVID-related forbearance.

For homeowners who are currently in forbearance, the new rule provides that most mortgage servicers must now let them know about repayment or other options that can help them avoid foreclosure. In general, lenders cannot begin the foreclosure process before Jan. 1, 2022.

Because the new rule is temporary, the CFPB urges homeowners who are in this situation to get in touch with their mortgage servicers as soon as possible, while this rule is still in effect, rather than waiting for the servicer to contact them. The CFPB also suggests consulting with an approved housing counselor even before contacting the servicer.

Is My Mortgage Covered?

The new CFPB rule applies to mortgages that are federally backed, which includes the types mentioned above. However, home equity loans and lines of credit, reverse mortgages, and loans for investment properties are ineligible. Also, certain small mortgage servicers aren't required to comply, according to the CFPB. If you are unsure whether you're eligible, contact your mortgage servicer directly.