Prevent Foreclosure By Improving Borrower Communication As Forbearance Ends

As 2021 ends, mortgage servicers are still helping borrowers impacted by COVID-19. Since the spring of 2020, borrowers with loans backed by federally sponsored programs have had the right to receive forbearance. In October, the Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA), and U.S. Department of Veterans Affairs (VA) extended the forbearance deadline, allowing borrowers to make the initial forbearance request until the COVID-19 National Emergency officially ends.

This means that servicers will be assisting borrowers in forbearance programs for the foreseeable future. Borrowers who were among the earliest beneficiaries are now approaching their 18-month deadline. Lenders are understandably concerned that forbearance programs ending will result in a foreclosure surge. ATTOM, a mortgage data firm, reported that foreclosure starts in Q3 2021 increased by 67% from the third quarter of 2020. Despite this increase, the number of new foreclosures is lower than average due to the historically low numbers of defaults in 2020.

The Consumer Financial Protection Bureau (CFPB) doesn’t want to see borrowers exiting forbearance wind up in foreclosure. Federal regulators will judge servicers based on the outcomes their borrowers experience after forbearance. To prevent costly foreclosures – and avoid unnecessary scrutiny from regulators - servicers need to communicate effectively to guide borrowers out of forbearance and back on track with their mortgage payments. Servicers must, for instance, contact borrowers 30 days before their forbearance period ends to discuss their repayment options. Missing this deadline is not an option.

Mortgage servicers should use multiple communication channels, mortgage servicing software, and web applications to improve communication and assist borrowers as forbearance ends.

Read the Today's Lending Insight article.