CFPB releases new mortgage servicing rule: What it means for homeowners

As foreclosure moratoriums come to an end, the Consumer Financial Protection Bureau (CFPB) released a new mortgage servicing rule that took effect Aug. 31 to help prevent foreclosures for borrowers facing delinquency. The rule will prevent most foreclosures from taking place before January 2022.

Millions of homeowners went into mortgage forbearance due to economic hardship brought on by the COVID-19 pandemic. As many of those forbearance periods come to an end, the CFPB is installing new mortgage relief options to help prevent "avoidable foreclosures." Under the new servicing rule, most mortgage servicers will be required to take extra steps to help homeowners in forbearance with options for repaying their mortgages. 

If you've recently exited mortgage forbearance due to coronavirus-related hardships, you may want to look into your mortgage refinance options to help lower your monthly payments. Visit Credible to find your personalized rate and see how much you could save.

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CFPB's new servicing rule: A breakdown

The CFPB's regulation was issued as an amendment to the Truth in Lending Act and Real Estate Settlement Procedures Act, a rule that protects homeowners and loan borrowers from predatory lending practices.

Before Jan. 1, 2022, most servicers will not be able to start the foreclosure process or assess penalties. A few exceptions, however, will be made for abandoned properties or dealing with an unresponsive borrower. During this delay, servicers must inform homeowners of:

• When their forbearance program will end
• Their options for repaying their missed payments and ways to avoid foreclosure
• Contact information for free housing counseling services

If you are struggling to get back on your feet and make your payments by their due date, a mortgage refinance could help lower your monthly payments. Visit Credible to compare multiple lenders at once and choose the one with the best interest rate for you.

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Who does the servicing rule apply to?

The new servicing rule applies to all homeowners. Under the final rule, servicers can even offer options to delinquent borrowers or homeowners at risk of foreclosure with an incomplete application for loss mitigation. 

The desired loan must be a closed-end loan on a borrower’s principal residence. It does not apply to home-equity lines of credit, open-end lines of credit, investment properties or reverse mortgages. Small servicers are also not required to comply with the new rule. 

Servicers must make reasonable diligence efforts and perform a full loss mitigation evaluation before they can begin any foreclosure proceedings. If you have questions about your eligibility for loss mitigation options, contact your mortgage servicer to see your options. You can also consider a mortgage refinance to lower your monthly payments. Visit Credible to get prequalified in minutes without affecting your credit score.

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What are my options for exiting forbearance?

Homeowners who are reaching the end of the forbearance period have several options available to help them get back on track with their mortgage payments. Homeowners should turn in their complete loss mitigation application to their servicer to learn more about their options. Here are a few repayment options:

Repayment plan: A repayment plan increases the homeowners’ monthly payments for a few months until the missed payments are paid off. 

Deferral: Deferment allows homeowners to push back their missed payments to the end of the loan without accruing an interest payment.

Modification: Homeowners who can no longer afford their previous payments can take out a loan modification which could lower payments by giving borrowers a lower interest rate or changing their loan term. The new servicing rule prevents servicers from making a loan modification that would increase a homeowners’ monthly mortgage payments. 

Reinstatement: This allows homeowners to simply pay back missed payments in one lump sum payment. 

If you are considering which option is best for you, also consider taking out a mortgage refinance. Due to recent changes by the Biden administration, even some homeowners who have been in forbearance can be eligible to refinance their mortgage. For further assistance, contact Credible to speak to a home loan expert and discuss your options.

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