CFPB Preparing for Hectic Transition as Housing Protections End
The housing industry had an artificial pause button pushed during the pandemic, thanks to eviction moratoriums, forbearance programs, etc. As those draw to a close, CFPB proposed rules to maintain stability, and NAR commented with a suggestion that short sales might be the way to go.
WASHINGTON – As foreclosure moratoriums and forbearance programs begin to close, what’s the best way to keep the housing market stable, organized and productive without creating other problems, such as homelessness, frustration and an onslaught of evictions?
The U.S. Consumer Protection Bureau (CFPB) proposed rules to organize the transition, and the National Association of Realtors® (NAR) recently commented on those rules. CFPB posted its proposals online as “Protections for Borrowers Affected by the COVID-19 Emergency under the Real Estate Settlement Procedures Act, Regulation X”.
Outside CFPB’s proposals, NAR also co-sponsored a study, Protecting Homeownership From the Impact of COVID-19. It says the purpose of the study is a desire to “identify best practices learned from the Great Recession to blunt the pandemic’s impact on homeownership.”
In a letter sent to CFPB signed by NAR President Charlie Oppler, the association made a number of comments on CFPB’s proposals, including:
The nation needs an orderly transition out of forbearance
Oppler’s letters says that Realtors “greatly appreciate the efforts the CFPB has taken to consolidate information about loss mitigation options from all federal channels in a single location,” and it “supports the CFPB’s efforts … as states and localities ease and remove restrictions related to the spread of COVID-19.”
NAR agrees with a CFPB proposal to give at-risk homeowners a list of all their options, including both a home sale and a short sale. It will allow “distressed owners who have exhausted modification alternatives the means to exit homeownership in a manner that will minimize the impact on their credit score, equity, and time to return to homeownership.”
NAR also recommends a closer focus on short sales, saying they generally have a “smaller impact on the distressed owner and cost the lender less than a foreclosure.”
Time is of the essence
NAR suggests that the frustrations homeowners experienced with short sales during the Great Recession should not be repeated, saying “This all too often … would result in the potential homebuyer canceling the purchase contract, the property ending in foreclosure, and the distressed household suffering long-term harm.”
In the best cases, a short sale can take many months. NAR suggest that CFPB establish a “timeframe for servicers and investors to respond to buyers’ offers” as a way to streamline the short-sale process. It will “benefit the seller, the buyer and the community.”
Change foreclosure calculations for credit scores
A foreclosure or short sale hurts a homeowner’s credit score and makes it harder to get a mortgage in the future, but when does the impact from one of those events get recorded in a credit score?
NAR says the “freeze-out period” recorded on credit scores currently begins when the foreclosure process is completed – but many “lenders recognize the start of this period as when the lender or investor sells the distressed property, rather than when the distressed owner ceases to have title to the property.”
NAR calls the time between losing title and an eventual resale as a “limbo period.”
“While the CFPB does not have authority over practices of (Fannie Mae or Freddie Mac) or state foreclosure laws, NAR urges CFPB to use its ability to investigate the issue and to clarify for lenders when a consumer has satisfied their obligation under the foreclosure.”
NAR calls it “imperative that the CFPB and industry continue to work toward a clear, robust and holistic approach to supporting distressed owners making the transition out of forbearance during this crisis,” and urges CFPB to include its suggestions in its final rules.
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