CFPB Considers Permanently Restoring Covid Mortgage Protections (1)

The Consumer Financial Protection Bureau is seeking information to possibly make pandemic-era foreclosure prevention and automatic refinancing programs permanent features of the mortgage market.

The Thursday request for information for rulemaking is seeking input from lenders and other interested parties on ways to automatically allow financially vulnerable borrowers—due to natural disasters, pandemics and other events out of their control—to pause payments and extend the loan maturity date. Such automatic protections could also help mortgage servicers, the CFPB said.

The CFPB’s automatic mortgage refinancing proposal would have loans of certain borrowers—the ones with low balances and minority groups that weren’t able to benefit from the 2020 mortgage refinancing boom—to assume lower interest rates when they fall. The agency asked prospective commenters to address the extent of possibilities of such measures.

Borrowers with small loan balances and Black and Hispanic borrowers were less likely to benefit from refinancing, the CFPB said. Making refinancings automatic could allow those borrowers to benefit when interest rates, which are currently spiking as a result of the Fed’s efforts to combat inflation, fall again.

“We are eager for input on ways that borrowers taking out loans today can refinance to lower rates in the future,” CFPB Director Rohit Chopra said in a statement.

The comment period closes 60 days after publication in the Federal Register.

In March 2020, Congress enacted the CARES Act, the government’s first pandemic relief bill, and included forbearance options for homeowners who lost work or saw their incomes decline.

The legislation, along with other federal protections, allowed borrowers to pause payments for up to 18 months. It also extended the repayment period by the same amount if a borrower could show their income was impacted by the pandemic.

According to the CFPB, 93% of the 8.2 million borrowers who took advantage of pandemic mortgage forbearance programs have restarted making payments. Only 5% of borrowers no longer using forbearance programs are delinquent or in active foreclosure proceedings.

A Federal Reserve Bank of Boston study found that between January and October 2020, some $5.3 billion in outstanding mortgage debt was refinanced with low interest rates spurred by the Federal Reserve’s actions to boost the economy when the pandemic took hold.

Borrowers saved around $280 per month as a result of changes to payment plans made during the refinancing boom, the Boston Fed study found.

The Mortgage Bankers Association plans to “provide feedback” within the comment period, Adam DeSanctis, the industry group’s spokesman, said in a statement.