Commonwealth Bank of Australia (ASX: CBA) has become the first of the big four banks to announce a temporary ban on home foreclosures for borrowers struggling in the COVID-19 recession.
Normally lenders, as a last step, will forcibly sell a home to recoup costs if a loan falls behind in payments. This usually happens in Australia after many iterations of payment negotiations and hardship arrangements.
However, Financial Counselling Australia (FCA) wrote an open letter to Australian banks in September calling for a moratorium on foreclosures for customers in trouble due to the pandemic.
CBA on Tuesday wrote back to FCA agreeing to a ban until September next year.
"Our customers are also worried about losing their home through no fault of their own," said CBA retail bank group executive, Angus Sullivan, in the letter.
"I'm pleased to confirm that we will be putting in place a freeze on forced sales for COVID home loan deferral customers who are unable to return to full repayments."
FCA Chief, Fiona Guthrie, told The Motley Fool CBA's announcement was "a very welcome move".
"It means that customers who are struggling purely because of the pandemic will get some breathing space, which is what they need at the moment. It gives people who have lost their jobs time to regroup," she went on to say.
Talk to the bank if you're in trouble
Many home loan customers who are in financial strife are already on payment deferrals, which were offered by all four major banks as COVID-19 struck.
CBA's foreclosure ban will be upheld for customers who had a clean record of repayments for 12 months before they were forced into payment deferrals.
Borrowers who were already struggling before the pandemic will be subject to the standard procedures.
Home loan customers who would like to be considered for the foreclosure ban must get in touch with CBA to discuss their situation.
"This will give these customers the opportunity to get back on their feet, confident they can remain in their home this Christmas and well into next year," wrote Sullivan.
"It will also help deliver some confidence as the economy recovers and restrictions are lifted."
CBA's decision came after consultation with FCA about its call for a moratorium on forced sales.
The CBA share price was up 1.38% on Tuesday, closing at $69.82.
The Australian banking industry was quick to offer payment deferrals for both home and business loans when the first nationwide lockdown came in in March.
Those payment pauses are now starting to come off for many customers. And with government financial assistance starting to scale down, FCA was prompted to call out for a foreclosure ban to prevent those Australians struggling with repayments from going homeless.
