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The threat of foreclosure against homeowners may be thwarted until at least the end of 2021.

The Consumer Financial Protection Bureau (CFPB) is proposing to modify its mortgage lending rules to prepare for an anticipated unprecedented number of homeowners exiting forbearance programs later in 2021.

The proposal includes a temporary moratorium on most foreclosures through the end of the year. This includes:

  • a pre-foreclosure review period which will limit mortgage servicers from initiating foreclosure proceedings for all mortgages secured by a principal residence until after December 31, 2021;
  • the addition of more procedural steps when servicers contact delinquent homeowners, such as making homeowners impacted by a COVID-19-related hardship aware of forbearance programs through August 31, 2022;
  • informing homeowners exiting forbearance plans about other loss mitigation options through August 31, 2022;
  • fewer prohibitions on offering loss mitigation options based on incomplete applications when homeowners are experiencing COVID-19-related hardships; and
  • a provision on servicers recording a notice of default (NOD) or filing for foreclosure due to a mortgage delinquency through December 31, 2021.

However, the CFPB might include some exceptions to the proposed review period. For example, lenders may be allowed to begin foreclosure before December 31st, such as when a homeowner is ineligible for a loan workout or is unresponsive to contact efforts.

Other dates are also being considered for the end of the review period, in the form of a grace period which has the potential to extend several days beyond a homeowner’s exit from a forbearance program.

The CFPB is accepting comments on the proposed rules until May 10, 2021. Real estate and other professionals are invited to weigh in with their own opinions at the Federal Register.

2022: the year of foreclosures

The proposed set of rules from the CFPB are part of the effort to slow the opening floodgates of foreclosures that have built up. As of January 2021, more than 2.1 million homeowners who were enrolled in forbearance programs were seriously delinquent (90 days or more behind) on their mortgage payments. Without a clear path to reinstatement, these delinquent homeowners will be headed for foreclosure upon exiting forbearance.

Heading into 2022, expect an increase in foreclosure sales and voluntary sales by delinquent owners who cannot pay. This will be followed by a rise in Real Estate Owned (REO) inventory. Once home values begin to fall back in response to rising foreclosure rates, short sales will take off. All the while, more cautious homebuyers will stand back until they sense prices have risen from a bottom.

With the expiration of the foreclosure moratorium currently scheduled to occur in mid-2021 and the CFPB’s review period expiring at the end of 2021, expect the year of foreclosures to take shape in 2022.

Depending upon the extent of further government stimulus and the potential extensions of the foreclosure moratorium, a gainful recovery is not anticipated to begin until around 2024.

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