Important Update: Anticipated Rulemaking on Mortgage Servicing

Posted by Gracie Nelson on May 30, 2024

At GoWest, we strive to keep our members informed about significant regulatory changes that could impact their operations. Recently, the CFPB sought public input on mortgage forbearance programs implemented due to the Covid-19 pandemic. The following provides a summary and analysis of the rule, as well as our prediction of future rulemaking regarding mortgage servicing. 

Background: 

The 2021 Mortgage Servicing COVID-19 Rule aimed to assist borrowers facing COVID-19-related hardships. Key aspects included temporary procedural safeguards to prevent foreclosures, streamlined loan modifications for borrowers, and enhanced early intervention requirements. The rule also allowed financial institutions to offer certain loan modifications without a complete application, provided specific conditions were met, such as limiting loan term extensions and prohibiting interest accrual on delayed amounts. These measures were designed to help borrowers avoid foreclosure and remain in their homes. 

For more detailed information, you can access the full executive summary here 

Impacts and Analysis: 

The data released by the CFPB following the now expired 2021 rule, indicates that forbearance programs played a crucial role in stabilizing borrowers’ financial situations, and lead to positive outcomes for both members and financial institutions during the pandemic. 

Specific examples include, 

High Rate of Current Loans Before Closing: A significant 84% of loans in forbearance were current before closing. This suggests that many borrowers who took forbearance managed to recover and maintain their mortgage payments. Additionally, the majority (98%) of loans that were current in March 2021 remained current before closing, indicating strong borrower stability and effective mortgage management. 

Recovery from Forbearance: Over 52% of mortgages that were in forbearance in March 2021, became current by March 2023. This shows that most loans in forbearance became current before closing and allowed borrowers to regain financial stability. 

Lower Foreclosure and Bankruptcy Rates Among Forbearance Loans: Loans in forbearance had relatively low foreclosure (0.4%) and bankruptcy (0.1%) rates before closing, indicating that forbearance helped many borrowers avoid these negative outcomes. 

Looking forward: 

The forbearance programs enacted during this time were measurable and positively affected members and financial institutions alike. We anticipate future rulemaking to follow a similar framework to the 2021 Mortgage Servicing COVID-19 Rule as it helped alleviate challenges with forbearance and troubled debt restructuring for members. GoWest has already advocated for such updates on our most recent visit to Washington D.C. during the Spring Hike the Hill.  

As we await the CFPB’s proposed changes, GoWest will keep you updated on any developments. Our goal is to ensure our member credit unions can navigate these changes smoothly and continue to thrive in a competitive financial landscape. 

Posted in Advocacy on the Move, Regulatory Advocacy.