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Mortgage Firms preparing for a tidal wave of foreclosures

On the 5th of April, the Consumer Financial Protection Bureau (CFPB) introduced a series of regulatory changes to deter preventable foreclosures as the urgent federal mortgage protections lapse. 

Millions of households have lost income due to the COVID-19 pandemic and the resulting economic downturn, and almost 3 million homeowners have fallen behind on their loan repayments.

The CFPB's plan intended to guarantee that both issuers and homeowners have the resources and time they need to collaborate to avoid unnecessary foreclosures. A crucial reason that CFPB claims for this move, i.e., an estimated 1.7 million customers will leave forbearance relief services in the United States in September and the following months, many of whom are a year or beyond behind on their loan repayments.

The huge economic crises due to pandemic affect many families and communities around the country. As per the CFPB's research and other information:

Millions of residents are in danger of losing their residences. About 3 million homeowners were late on their payments as of February 2021, with an approximate 2.1 million in forbearance and at minimum 90 days overdue. If present trends persist, 1.7 million such loans will be available in September 2021.

Halting foreclosures benefit both homeowners and societies. Foreclosures are costly for lenders, with creditors paying at least $12,500 on average. Adjacent homes depreciate as well, with sales prices falling by 1 to 1.6 per cent after foreclosure auctions in the region. Families who experience foreclosure are more likely to experience other negative consequences, such as increased financial hardship and housing insecurity.

The housing crisis is amplifying racial disparities. As per a March CFPB survey, black and Hispanic borrowers were more than twice as likely to be delayed on their mortgage payments as of December 2020.

If approved, the CFPB's request would:

  • Allow time for homeowners: Homeowners who have fallen behind on their loan repayments should be allowed to look at ways to get back on track and escape foreclosure. The new proposal would create a special pre-foreclosure evaluation period that would usually prevent servicers from initiating foreclosure until after the 31st of December, 2021, from ensuring that homeowners are not hurried into foreclosure when a possibly enormous number of borrowers leave forbearance at the same period this winter. The Consumer Financial Protection Bureau is seeking public feedback to know more restrictive options for accomplishing the same goal.
  • Provide alternatives to servicers: Enabling this option could help issuers get consumers into a more manageable mortgage payment quicker and with less documentation for both the mortgage provider and the applicant.
  • Keep consumers up to date on their choices: The CFPB also recommends making temporary improvements to certainly needed servicer interactions to ensure that homeowners receive critical details about their options at the right time during this downturn.

The CFPB's plans ensue a warning mortgage company that had not taken precautions to minimize a spike in "avoidable foreclosures," they could face repercussions. It will keep a close eye on how issuers interact with customers, address any issues, and execute loss reduction applications.

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