The Consumer Financial Protection Bureau has finalized temporary rules that will delay most foreclosures until next year, though the agency did create some exceptions that will allow mortgage servicers to begin the foreclosure process this year.

With foreclosure moratoriums ending, the CFPB said in a statement yesterday that the amendments to mortgage servicing rules would establish temporary safeguards to give borrowers enough time before foreclosure to explore other options, including loan modifications and selling their homes.

“As the nation shifts from the COVID-19 emergency to the economic recovery, we cannot be complacent about the dangers we still face,” CFPB Acting Director Dave Uejio said in a statement. “An unchecked wave of foreclosures would drain billions of dollars in wealth from the Black and Hispanic communities hardest hit by the pandemic and still recovering from the impact of the Great Recession just over a decade ago.”

Uejio added that a wave of foreclosures could destabilize the housing market for all consumers.

“We are giving homeowners the time and opportunity to make informed decisions about the best course of action for them and their families, whether that is seeking a loan modification or selling their home,” he said. “And we are giving mortgage servicers the flexibility they need to serve homeowners with dignity, while managing an unprecedented volume of borrowers seeking assistance.”

The CFPB’s new rules, which take effect on Aug. 31, apply only to mortgages on a borrower’s principal residence and do not cover reverse mortgages. Small servicers that are not currently subject to mortgage servicing regulations are exempt from the amendments.

The CFPB said more than 7 million homeowners deferred mortgage payments during the pandemic by entering COVID-19 hardship forbearance. About 2 million homeowners are still in forbearance, the CFPB said, projecting that more than half of those homeowners will remain in forbearance for more than a year. At least 900,000 homeowners are expected to exit forbearance between now and the end of the year, the CFPB said.

The Mortgage Bankers Association in its most recent weekly survey reported that the share of loans in forbearance has declined for 17 straight weeks, down to 3.91 percent of servicers’ volume as of June 20. Similar to the CFPB, the MBA estimates that 2 million homeowners are in forbearance plans.

Mike Fratantoni, MBA’s senior vice president and chief economist, said in a statement that the pace of new forbearance requests was low, but added that some homeowners who had exited forbearance have had to reenter, representing 6.2 percent of loans in forbearance as of June 20.

Foreclosure typically begins when borrowers are more than four months behind on their mortgage payments. The CFPB’s new rules provide borrowers with several safeguards, including:

• Giving borrowers who exit forbearance until the end of 2021 to consider their next steps and pursue options other than foreclosure.
• Allowing mortgage servicers to offer streamlined loan modifications to borrowers with COVID-19-related hardships without making borrowers submit paperwork for every option.
• Requiring mortgage servicers to increase their outreach to borrowers before initiating foreclosure and to provide borrowers with information about repayment or other options.

For borrowers who select one of the streamlined loan modification options, the CFPB also established several protections, including ensuring that the modification does not increase borrowers’ payments.

The CFPB will allow some foreclosures that have been frozen during the moratoriums to proceed. These include situations where borrowers have abandoned the property; were more than 120 days behind on their mortgage before March 1, 2020; are more than 120 days behind on their mortgage payments and have not responded to outreach from the mortgage servicer for 90 days; or have been evaluated for all options other than foreclosure and no available options remain.