Regulators and government agencies are changing the rules of mortgage servicing for delinquent loans. Here’s what’s happening and some of the potential effects…
New Rules For Mortgage Servicers
Both the Federal Housing Finance Agency (FHFA) and the Consumer Financial Protection Bureau (CFPB) have issued new regulations affecting mortgage lenders and their servicers.
These rules center on the deep concern these agencies have about the market, and a huge potential wave of foreclosures and evictions once other forms of stimulus and help for homeowners run out this summer.
Foreclosure Ban Extended Until December
Together these rules effectively continue a national foreclosure ban until December 2021. With this, lenders and servicers are blocked from filing first notices of foreclosure on federally backed Fannie Mae and Freddie Mac loans.
This is despite previous rulings by judges striking down such bans, and ruling them unconstitutional.
There can be some exceptions. Such as if the property is abandoned, or the noteholder and servicer can prove their outreach to borrowers with no responses. If borrowers fail to perform under trial loan modifications they may also be foreclosed on.
New Loan Modification Guidelines
Details of these changes can be found directly from the news release by the FHFA and in the CFPB’s 208 page rule change for servicers.
In addition to having to prove the outreach done to connect with borrowers, other notable provisions of these rules include lenders having to waive all late charges, and charge no fees for modifications, not being able to extend terms beyond 480 months, and not being able to increase payments after a forbearance period.
Outcomes For Mortgage Investors
This may all be good news for homeowners. At least depending on how well their servicers deliver, and actually work to help versus circumvent the rules.
Financial institutions have been reporting strong new profits and balance sheets, with fewer bad loans than they anticipated at the beginning of COVID lockdowns. So, there may be little to fear about them folding or needing another massive bailout.
However, this does seem to put a huge burden on investors. The strong may find others are increasingly willing to cash out and sell their loan notes at deeper discounts. For those that are not experienced at providing these types of modifications and workouts for borrowers over the past decade, it could bring additional expenses, workload, and stress. Yet, there is still a lot of upside for mortgage note investors who are interested in providing good win-win payment plans for the few who need them.
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