With millions of U.S. homeowners behind on their mortgages after theslammed the economy, the Consumer Financial Protection Bureau is proposing banning foreclosures until next year.
Many families face the risk of foreclosure when federal emergency protections expire, the CFPB stated in announcing proposed rule changes on Monday. The count of homeowners behind on their mortgages has doubled since the start of the pandemic, with 6% of mortgages delinquent as of December and more homeowners behind on their house payments than at any time since 2010, the peak of the Great Recession, the agency noted.
"We've seen a shocking increase in housing insecurity, with millions living precariously and months behind on mortgages or rent," acting CFPB Director Dave Uejio said in a news conference.
As of February, there were nearly 3 million homeowners behind on their mortgages, with an estimated 2.1 million mortgages at least 90 days delinquent, according to the agency.
The CFPB is also proposing what it calls "guardrails" to protect loan servicers from a major hit if mortgage borrowers default. That would include allowing servicers to offer streamlined ways to help homeowners adversely affected by COVID-19 to lower their mortgage payments.
In addition, the agency proposed giving borrowers who are behind on their mortgages more time by providing a pre-foreclosure review period that would restrict servicers from starting foreclosure until 2022.
"We will do everything in our power to ensure servicers work with struggling families to find solutions that prevent avoidable foreclosures," Uejio said.
Families whose homes are foreclosed often end up suffering long-term financial distress, including housing instability. Foreclosures can also hurt the value of neighboring properties, according to the CFPB.
"We fully embrace the idea of helping troubled borrowers stay in their homes," Jaret Seiberg, an analyst with Cowen Washington Research Group, said in a report. "Foreclosures hurt borrowers, servicers, lenders and communities. There is no upside to proceeding with foreclosures when there are restructurings available that could help borrowers get current on their mortgages."
The agency set a May 10 deadline for comments on its proposed rule, which could take effect as soon as September.