As the Home Loan Moratorium Ends, 3 New Rules May Help Homeowners Avoid Foreclosure (UPDATE)

Last Updated on July 14, 2021

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Many homeowners are dreading July 31: the new day the home loan moratorium ends. If you own a home and took advantage of mortgage forbearance during the Covid-19 economic fallout, you may be glad to hear about some new protections put in place as the deadline nears.

The Consumer Finance Protection Bureau (CFPB) isn’t extending the deadline, but they have added a few safeguards that may help homeowners avoid foreclosure.

New Safeguards Against Foreclosure

  1. Loss Mitigation. The new rules state that homeowners must fill out a loss mitigation application with their lender before any foreclosure process can start. Loss mitigation helps homeowners facing any type of financial crisis by having their lender work with them on an adjusted repayment plan, a loan modification, or a short sale. Your lender is obligated to work with you to help you stay in your home if possible.
  2. Abandonment. Lenders need to confirm that a home is abandoned before they start foreclosure proceedings.
  3. Reasonable efforts to reach you. Loan servicers and lenders must make reasonable efforts to reach homeowners before foreclosing. Foreclosure proceedings cannot begin unless the homeowner is four months past due or more, and unresponsive for more than 90 days.
New Rules to Protect Homeowners
The new rules state that homeowners must fill out a loss mitigation application with their lender before any foreclosure process can start. Photo credit: Shutterstock.com

Options to Keep Your Home After Moratorium Ends

If you’re a homeowner who is behind on your mortgage payments, lenders must give you at least three options to keep your home according to the CFBP. Typically, they include:

  • Resume regular payments and add any missed payments to the end of the mortgage loan
  • Modify the loan’s length or interest rate
  • Sell the home

These new safeguards will be in place from August 31, 2021, to January 1, 2022, and are not a moratorium on foreclosures. Rather they’re in place so that homeowners who wish to keep their homes, have the financial wherewithal to make payments, and/or work with their lender in good faith to have the opportunity to make restoration considering the devastating effects the global pandemic had on jobs and businesses through most of 2020 and into 2021.

When foreclosures do begin, they’ll likely start with homes that have been abandoned and with homeowners who were 120 days or more overdue before March 2020.

Mortgage forbearance
About 2.5 million Americans took advantage of mortgage forbearance programs and payment suspensions that were implemented due to Covid-19 according to the Mortgage Bankers Association.  At the peak of the global health crisis, the unemployment rate soared to 14.8%. Photo credit: Shutterstock.com

Mass Lending Assistance Likely Needed

About 2.5 million Americans took advantage of mortgage forbearance programs and payment suspensions that were implemented due to Covid-19 according to the Mortgage Bankers Association.  At the peak of the global health crisis, the unemployment rate soared to 14.8%.

By the fall experts expect a flood of homeowners will request assistance from their lenders.

The swell of those who will likely be foreclosed on will disrupt the lives of families and children and disproportionately affect Black and Hispanic families. Additionally, foreclosures have a long-term impact on financial wellness, including loss of assets, missed payments on other debt, loss of credit rating, inability to qualify for other housing, and significantly less likelihood of homeownership in the future.

Still, experts say this housing crisis will be very different from 2008 as many homeowners will be given every opportunity to avoid foreclosure, refinance, and even sell their homes and downsize. The jobless rate now sits at  5.9% at the time of this writing, and the economy is on the upswing, hopefully casting a glow of hope despite the housing loan moratorium’s end.

The goal is to keep homeowners in their homes, allow them to modify their loans, assist them with short sales or regular sales to downsize, and make sure lenders afford them every possible opportunity. Those goals should make a difference.