The Federal Housing Finance Agency (FHFA) is requiring Fannie Mae and Freddie Mac servicers to follow the Consumer Financial Protection Bureau’s (CFPB) new foreclosure rule a full month before it goes into effect.
The move clarifies how servicers should approach the month-long gap between the foreclosure moratorium expiration at the end of July, and the CFPB rule, which takes effect at the end of August. Starting during that period, servicers must now adhere to the CFPB’s procedural safeguards for foreclosures.
In most cases, servicers will not be able to initiate a foreclosure until the end of the year.
The action is the first major policy move the agency has taken since Sandra Thompson, a veteran regulator who has been at the agency since 2013, assumed the role of acting director last week. Hours after a Supreme Court decision removed the restrictions on firing the FHFA director, the White House removed Mark Calabria, the agency’s previous director.
Requiring Fannie Mae and Freddie Mac to adhere to the policy is meant to protect borrowers from foreclosure and provide certainty for servicers about the GSEs expectations, the FHFA said in a press release.
Given the changing rules and wave of new entrants coming back into the non-QM market, it’s an excellent time for lenders to evaluate their tech stack and consider adding an automated underwriting system (AUS) to ensure compliance and expedite the origination process.
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“Today, many families’ finances are improving allowing them to exit forbearance,” said Thompson. “The protections FHFA is putting in place today will protect vulnerable families as they begin their financial recovery from the impact of the COVID-19 pandemic.”
According to the new CFPB rule, servicers can initiate a foreclosure action only after the borrower has submitted a loss mitigation application, and either isn’t eligible for, breaks or rejects a loss mitigation agreement. Those extra steps do not apply if the borrower was already six months past-due by March 2020 or if the property is abandoned.
The rule also establishes expectations for how servicers should communicate with borrowers about loss-mitigation options. The new regulation allows escrow-shortages to be included in a loss-mitigation plan, to provide an alternative to paying excessive amounts in a short period.