Since the COVID-19 pandemic hit, millions of Americans lost jobs and many homeowners have had a hard time keeping up with their mortgage payments.
According to the Consumer Financial Protection Bureau, around 3% of all residential mortgage borrowers are now behind in their payments by at least four months, more than at any time during even the 2008 subprime mortgage crisis. “We have never before seen this many borrowers so far behind on their mortgages,” said Dave Uejio, the bureau’s acting director.
Four months is the point when foreclosure proceedings typically begin, but thanks to extended federal moratoriums, mortgage lenders have been held back on starting any new foreclosures for the past year.
However, for the health of the mortgage industry and the housing market and the general U.S. economy, that situation cannot last forever, and the current homeowner protections are set to expire on July 31, 2021. In order to stop a wave of foreclosures from starting on that date, the CFPB has issued a new rule that will take effect one month later, on August 31, and will be valid through the rest of the year.
Lenders will temporarily have to take extra steps before foreclosing on delinquent borrowers. Mortgage companies will be able to begin proceedings only if the home has been abandoned, or if the borrower has been unresponsive to contact for at least 90 days, or if they have thoroughly evaluated the borrower and no foreclosure prevention options are viable.
Banks will be allowed to immediately start processing foreclosures on any borrowers who were already 120 late before March 1, 2020, when the pandemic started causing financial problems.
The new rule also makes it easier for mortgage lenders to help borrowers into loan modifications. Delinquent homeowners will not be required to submit full paperwork for these streamlined loan changes, hopefully allowing lenders more flexibility to work with these borrowers. According to the new rule, no loan modification can increase borrower payments though, or extend their loan term by more than 40 years.
The CFPB’s goal is to avoid “preventable” foreclosures, according to Diane Thompson, a senior advisor at the bureau, by giving those homeowners time to make important decisions about resuming payments, modifying their loans, or selling. To borrowers who haven’t been making payments during the pandemic, she says its “important to understand that you’re going to need to figure out a plan for how to address that in the not-too-distant future. People need to be assessing their options.”
If you are behind on your mortgage payments, there are several options you can try right now to avoid a looming foreclosure. First contact your lender and explain your situation. The sooner you contact them, the better your chances of getting help, including mortgage forbearance, loan modifications, or altered mortgage terms. Second, you can ask for foreclosure avoidance counseling through the US Department of Housing and Urban Development (HUD), for more ideas. Third, you could try to sell your home before foreclosure proceedings start. The housing market is still hot right now, with rising prices and limited inventory, so there is a good chance you could sell for enough money to pay off your back payments as well. If you do not have enough equity, you could ask your lender for a short sale. In any case, involve your lender right away to avoid the worst consequences.