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The Consumer Financial Protection Bureau proposed a rule Monday to prevent a wave of foreclosures this fall, when certain Covid-era protections for homeowners are set to expire.
The proposal, which would need final approval, generally prohibits mortgage servicers from initiating foreclosure proceedings against delinquent borrowers until after Dec. 31, 2021.
The rule would apply to all mortgages, both federal and private, on a principal residence, CFPB officials said Monday.
The Covid pandemic has led to a stark rise in housing insecurity amid mass unemployment and income loss, stressing homeowners’ ability to pay monthly mortgages.
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The federal government let borrowers suspend payments as part of forbearance programs and placed a moratorium on foreclosures. Forbearance doesn’t forgive missed mortgage payments; it only defers them.
Loans placed in forbearance program early in the pandemic will reach the end of their forbearance period in September or October, the CFPB said.
As many as 1.7 million borrowers are expected to exit forbearance programs around that time and be at risk of foreclosure — a figure that dwarfs anything mortgage servicers have seen, CFPB Acting Director Dave Uejio said Monday.
Such a foreclosure cliff would disproportionately impact Black, Hispanic, Native American, rural and low-income homeowners, the CFPB said.
“The CFPB is worried about a prospective cliff in the future,” said Patricia McCoy, a professor at Boston College Law School and the CFPB’s former assistant director for mortgage markets.
“At some point, the cliff will happen,” she added. “Forbearance will go away, the foreclosure moratorium will go away, and 1.7 million borrowers are at instant risk of foreclosure.”
The consumer agency proposed establishing a “temporary Covid-19 emergency pre-foreclosure review period” during which mortgage servicers can’t make an initial notice of foreclosure. This period would last through 2021.
This comes on top of existing protections that disallow such a notice or filing until a borrower’s loan obligation is more than 120 days delinquent. Many homeowners in forbearance are behind more than 120 days, said Diane Thompson, senior