The Consumer Financial Protection Bureau (CFPB) announced a new foreclosure rule last month that throws delinquent borrowers with federally backed loans a lifeline when federal forbearance programs end July 31.

Effective Aug. 31 through Dec. 31, 2021, the new rule will give the 2 million homeowners who are still in mortgage forbearance more options for staying in their home, and make it more difficult for servicers to move forward with foreclosure proceedings.

More than 3% of all borrowers are so far behind on their payments that, according to CFPB Acting Director Dave Uejio, foreclosure could begin immediately once the ban ends. “We have never before seen this many borrowers so far behind on their mortgages,” Uejio said.

Under the new guidelines, servicers can’t begin the foreclosure process unless a property is abandoned, the borrower is more than 120 days delinquent and hasn’t responded to outreach in more than 90 days, or the homeowner was more than 120 days delinquent prior to March 1, 2020.

It’s a step back from the bureau’s proposal earlier this year to delay foreclosures altogether until 2022 — a measure the Credit Union National Association (CUNA) called “unnecessary” and “overbroad to the point of being unconstitutional.”

The new foreclosure rule, which only applies to primary residences, also stipulates that servicers give homeowners three options to avoid losing their home:

1. Resume regular payments and move missed payments to the end of the mortgage,
2. Modify the length or interest of the loan, or
3. Sell the home

In addition to existing rules that prevent servicers from starting the foreclosure process until a borrower is more than four months behind on payments, the new rule “gives people a bridge to get into those options for loan modification,” said Uejio’s senior advisor, Diane Thompson. “But that only works if people take advantage of that and do the hard work of assessing what the best path forward for them and their families is.”

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