This article will help both loan officers and the borrowing public understands some of the possible proposals due to the COVID-19 pandemic and the need for some changes to some of the older, antiquated qualifiers for mortgages. Due to the rising number of mortgage defaults, the CFPB has proposed the following changes;
Three million homeowners are exiting forbearance agreements and are heading into foreclosure this fall. The sheer volume of foreclosures would tie up mortgage servicers, attorneys, and the court system, not to mention the borrowers themselves, so the CFPB has proposed a special pre-foreclosure screening process to slow the process, consequently giving all the parties time to get caught up on these overdue payments or enter into a loan modification plan. This would delay the start of foreclosures until after 31 December 2021.
Servicers, as I alluded to, are also at a crossroads as to how to address the needs of the borrowing public. Servicers and mortgage companies are NOT in the business of having real estate in their portfolios. They are in the business of servicing loans and remaining solvent. Executing these changes would allow a servicer to allow a loan modification of not more than 40 years.
The worst thing that can happen is a surprise from the lender indicating that the mortgage is now upside down and foreclosure is imminent. It makes more sense to have all the options available for the borrower long before this occurs.
The statistics are frightening. With three million people 90 days late on their mortgages and/or in forbearance, the CFPB is looking for ways to halt this from becoming so overwhelming, there are paperwork delays, and more people are behind more so than they already are. These delays can cause a delay in closings, which means the borrower may fall even further behind on their payments.
Another factor that is of great concern is the drop in values of these homes. When there is an area in which there are many foreclosures, the values of these properties drops by 1 to 1.6%. What that means for borrowers is a loss of their equity position in their own home, and if the borrower wanted to refinance, the loan to value would be higher.
Consequently, mortgage insurance would be imposed, creating a higher payment and higher debt to income ratios. Unfortunately, there is a racial disparity as well at work. People of color are more than two times to be in a situation like the one I just described. The CFPB, in a compliance bulletin in April, has instructed mortgage servicers to avail more resources to assist these homeowners.
Additionally, the CFPB will be monitoring the responsiveness to these requests and how the company complies and interacts with the borrowing public. As a former loan officer, I found that putting yourself in a position of helping your borrower will cause them to want to work with you, increase their compliance when you request more documents if needed, and send referrals your way. In short, you will become their mortgage guy/girl.
Amidst the COVID-19 pandemic, with many people losing their jobs and possibly homes, Congress has pushed to overhaul the credit reporting system and how it impacts one’s ability to qualify for a mortgage. The changes that House Committee on Financial Services Chair is proposing, Maxine Waters, D-California, are as follows:
Two bills passed the house. They are the Comprehensive CREDIT Act and the Protecting Your Credit Score Act of 2021. Chiu Chiu Wu of the National Consumer Law Center testified that the three-tier system (Experian, Equifax, and Trans-Union) would better serve the borrowing public and mortgage companies by using a single credit registry system under the auspices of the CFPB to protect borrowers from abuse and unfair practices.
The fact is that many employers, insurance companies, and other employers use credit reports and scores to determine a person’s viability as a potential employee. With the growing disparity along racial lines, the COVID-19 pandemic and other issues, the time for an overhaul is now. The proposals that are being presented are:
- Employers would no longer use credit reports and scores to determine an applicant’s ability to work. Anything that has nothing to do with a credit decision would be eliminated as a legal yardstick or determining factor to make such a decision.
- Unpaid credit card payments or anything negative on the score sheet remains on the report for seven years. Under this proposal, it would be changed to 4. Bankruptcies would stay on the report for seven years.
- Unpaid medical bills quite often appear as a negative factor on a credit report. The fact is people do get into accidents, become ill, and cannot work, through no fault of their own. The proposal would not allow the reporting of these issues on a credit file for one year.
- Finally, there would be a moratorium on reporting COVID-19 or other disaster-related credit issues.
The information provided here is a move in the right direction because these changes reflect a difference in this industry. Between the growing racial, gender, and other societal disparities, a global pandemic, a financial sector that is on the precipice of possibly going insolvent, and a lack of participation on the part of people in the labor force, these changes are needed. The time for delay is over.
When the Biden administration took the reins of power in January, there had already been two stimulus checks issued. He signed into law a third. Instead of keeping their mortgages up to date or making a reasonable faith effort to get caught up, many people squandered those monies on other so-called priorities. The changes I just elucidated above are needed; however, we must use good, prudent judgment when these changes are implemented along with common sense.