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Exclusions to be changed under new rule

The Consumer Financial Protection Bureau (CFPB) announced Wednesday that it wants mortgage lenders to work with homeowners who are struggling to make their payments instead of foreclosing on their properties.

The new proposal, which has not yet been finalized, would emphasize streamlining information — including ensuring borrowers can access communications in languages ​​they can understand, the federal agency said. They added that other proposals involving better ways to secure credit scores for distressed homeowners were being explored.

“When struggling homeowners can get the help they need without unnecessary barriers, it’s better for borrowers, servicers and the economy as a whole,” CFPB Director Rohit Chopra said in a statement. “The CFPB’s proposal would reduce avoidable foreclosures and make the mortgage market more resilient during future crises.”

Some of the options the CFPB suggests lenders could explore are pausing borrowers’ monthly payments or extending loan terms to make those outlays less costly. The regulator suggested that during the pandemic, the move to defer mortgage payments helped both borrowers and lenders.

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Recent data suggests there has been an uptick in foreclosures in recent months even as repossession filings and the start of the default process were slowing.

The CFPB said Wednesday that lenders can look for ways to avoid foreclosure and only go to that option as a last resort.

“Servicers generally would only be permitted to proceed with foreclosure after all avenues for assistance have been exhausted or the borrower has ceased communication with the servicer,” the CFPB said in its statement. “The proposal would also limit the fees a servicer can charge a borrower while the servicer reviews possible options to help the borrower.”

The second proposal would ask lenders to reduce what the agency described as the current cumbersome process that requires all necessary information for every possible option available to struggling borrowers.

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“This could delay assistance offers, hurting both homeowners and servicers. Under the proposal, servicers would have more flexibility to review borrowers for each option individually, potentially allowing for faster assistance,” the CFPB said.

Other proposed changes include tailored information to borrowers to give them better insight into what options are available to them to avoid foreclosure.

“This includes changing the notifications that borrowers receive shortly after missing a payment to include information about who the loan investor is and how to get information about available assistance,” the agency pointed out.

The CFPB said that until the new rules take effect, current rules will remain in place.

“The CFPB encourages comments from the public and all interested stakeholders. Comments must be received by September 9, 2024,” the CFPB said in its statement.

A for sale sign is seen in front of a foreclosed home on October 15, 2007 in Antioch, California. On Wednesday, the government proposed new rules to help borrowers against foreclosures.

Justin Sullivan/Getty Images