Getting Ahead of Consumer Loan Defaults Post-Pandemic

On this Tuesday, the Supreme Court refused to lift a ban on evictions for tenants that the Centers for Disease Control and Prevention recently extended through the end of July. The eviction moratoria is one of a handful of debt pauses put in place by the federal government during the COVID-19 pandemic that are set to expire soon. The student loan moratorium ends on September 30. The mortgage foreclosure moratorium ends on July 31. In anticipation of the end of the foreclosure moratorium, this week, the CFPB finalized new rules that put into place protections for borrowers that servicers must use before they foreclose.

Student loans and mortgages are most people's two largest debts. But they are not the only large loans that people are in danger of getting behind on post-pandemic. Indeed, when student loan and mortgage debts become due, people may prioritize paying them ahead of car loans, credit cards, and similar. In a new op-ed in The Hill, Christopher Odinet, Slipster Dalié Jiménez, and I set forth how the CFPB can use its legal authority to steer a range of loan servicers to offering people affordable modifications. As a preview, we suggest that the CFPB should issue a compliance and enforcement bulletin directing loan servicers to make a reasonable determination that a borrower has the ability to make all required, scheduled payments in connection with any modification.

The piece is a short version of our new draft paper, Steering Loan Modifications Post-Pandemic, which we wrote as part of the upcoming "Crisis in Contracts" symposium hosted by Duke Law's Law & Contemporary Problems journal. The paper contains more about what federal agencies already are doing to get ahead of mortgage modification requests, about why similar is needed for the range of consumer loans, and about the reasoning behind our suggestion that the CFPB use its prevent what we term modification failures.