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VA seeks comments on loss-mitigation options for guaranteed loans
On October 17, the Department of Veterans Affairs published a proposed rule in the Federal Register related to the Department’s Loan Guaranty Service. The proposed rule requests public comments regarding the expansion of the VA’s incentivized loss mitigation options that are available to servicers assisting veterans whose VA-guaranteed loans are in default. Specifically, the VA encourages comments regarding “any other topic that will help VA as it explores whether to expand the incentivized loss-mitigation options outlined in VA regulation.” Comments are due by January 17.
VA clarifies Covid-19 forbearance timeline
On September 19, the Department of Veterans Affairs issued a change to Circular 26-21-20 extending the rescission date to align with the end of Covid-19 pandemic, including conforming changes to VA’s expectation as to the completion of a forbearance period. As previously covered by InfoBytes, the VA issued Circular 26-21-20 in September 2021 to clarify timeline expectations for forbearance requests submitted by affected borrowers. The September 2021 Circular stated thar “[f]or borrowers who have not received a COVID-related forbearance as of the date of this Circular, servicers should approve requests from such borrowers provided that the borrower makes the request during the National Emergency Concerning the Novel Coronavirus Disease 2019 (COVID-19) Pandemic,” and that all Covid-19 related forbearances would end by September 30, 2022. However, Change 1 stated that “September 30, 2022” should be replaced with “six months after the end of the National Emergency Concerning the Novel COVID-19 Pandemic.” The circular is rescinded March 1, 2023.
Federal government directs agencies to eliminate medical debt as an indicator of creditworthiness
On August 25, the Director of the Office of Management and Budget (OMB) issued a memo directing “agencies with direct loan and loan guarantee programs that focus on consumer loans or small and medium businesses where a consumer’s credit history is a factor, to whenever possible and consistent with the law take actions to reduce the impact of medical debt in the underwriting of Federal credit programs.” Although OMB recognized that some agencies such as the Department Veterans Affairs and the CFPB have already taken some steps to lessen medical debt burdens, it found that these prior efforts have been insufficient. Instead, the memo stresses that “[t]he collective efforts of the Federal Government, working with the private sector” are necessary to “remedy the impact of the issue of medical debt as an indicator for creditworthiness.” The memo outlines guidance for agencies to develop a plan to eliminate medical debt as a factor for underwriting in credit programs. These steps include (i) “[i]dentifying any statutory, regulatory, or administrative changes that would be required to modify criteria and consideration factors, exclude medical debt, or otherwise lessen the impact of medical debt consideration or underwriting in Federal lending programs”; (ii) conducting an “[i]nitial qualitative assessment and cost-benefit analysis of any statutory or regulatory changes” or any anticipated changes; (iii) conducting an “[a]ssessment of whether model updates are required for FCRA cost estimation, especially if the exclusion of medical debt would explicitly or implicitly affect particular underwriting requirements such as debt-to-income ratios, etc.”; and (iv) incorporating stakeholder input and assessing known risks that may impact an agency’s goal of achieving its plan.
California mortgage lender to pay $1 million to settle fraud allegations
Recently, the United States Attorney for the Eastern District of Washington announced a settlement with a California-based mortgage lender to resolve allegations that it “improperly and fraudulently” originated government-backed mortgage loans insured by FHA, resulting in losses to the government when borrowers defaulted on their mortgages. The settlement concludes a joint investigation conducted by the U.S. Attorney’s Office and the Offices of Inspector General for the Department of Veterans Affairs and HUD, which commenced as required by the False Claims Act after a whistleblower (a former loan processor) filed a qui tam complaint against the lender in 2019. The whistleblower claimed that between December 2011 and March 2019, the lender knowingly underwrote certain FHA mortgages and approved some mortgages for insurance that failed to meet FHA requirements or qualify for insurance. The whistleblower further alleged that the lender “knowingly failed to perform quality control reviews that it was required to perform.”
“By improperly originating ineligible mortgages, lenders take advantage of the limited resources of the FHA program and unfairly pass the risk of loss onto the public,” the U.S. Attorney said. According to the announcement, the lender agreed to pay more than $1.03 million under the terms of the settlement agreement. The whistleblower will receive $228,172 of the settlement proceeds, plus attorney’s fees, expenses, and costs.
VA eliminates pre-approval process for certain loans
On May 19, the Department of Veterans Affairs (VA) issued Circular 26-22-09 to announce new procedures for loan approval and new procedures for processing joint loans. The Circular explains that, historically, the Department conducted a pre-closing review of loan application packages when the borrower had been rated unable to manage financial affairs and has a VA-appointed fiduciary. The Department also conducted a pre-closing review of cases where a loan would include more than one veteran using entitlement. In both cases, “the lender has sent such loan application packages to VA in advance of loan closing, and loan closing has not been able to proceed until after VA has issued approval.” The Circular noted that in an effort to streamline procedures to improve the veteran experience, the Department “has determined that such case-by-case reviews add a step that VA no longer believes necessary for ensuring program integrity.” The Circular also noted that that post-audit oversight would be as effective as a pre-closing review in maintaining program integrity, without the delays and additional administrative burdens that can be associated with the historical process. The Circular is effective immediately.
Agencies instruct servicers to pause foreclosures while HAF assistance is available
On May 6, the Secretaries of HUD, Department of Veterans Affairs, Department of Agriculture, and Treasury announced that servicers of federally-backed mortgages should pause pending foreclosure proceedings while assistance is available under the Homeowner Assistance Fund (HAF). President Biden’s American Rescue Plan established HAF to provide approximately $10 billion in financial support for families affected by the Covid-19 pandemic. According to the announcement, pausing pending proceedings is considered “a vital step towards keeping families in their homes as they receive assistance through the HAF program and is consistent with Congress’s intent in putting in place the HAF program to protect vulnerable homeowners.” The Secretaries encourage homeowners and servicers to continue collaborating on loss mitigation options so that homeowners eligible for assistance can choose “the best path to staying in their homes and fully utilize available resources.” They also “strongly encourage servicers to offer these loss mitigation options to borrowers who are struggling to make their mortgage payments, including those who are eligible for HAF funding.” The announcement further noted that, among other things, Treasury is urging HAF program administrators to ensure that their programs expedite handling of applications from homeowners with pending foreclosure proceedings, and to develop expedited procedures for handling homeowners with immediate threats to housing stability, in addition to supporting homeowners who may benefit from the agencies’ loss mitigation options.
Biden orders agency action on medical debt
On April 11, the Biden administration released a Fact Sheet regarding an initiative to decrease “malicious” and “predatory” billing and collection practices related to medical debts, including holding medical providers and debt collectors “accountable for harmful practices.” According to the Fact Sheet, the administration has ordered several agencies to take actions intended to “lessen the burden of medical debt and increase consumer protection.” The Fact Sheet provides “guidance to all agencies to eliminate medical debt as a factor for underwriting in credit programs,” and states, among other things, that the: (i) FHFA is reviewing the credit models that Fannie Mae and Freddie Mac use; (ii) USDA is discontinuing “the inclusion of any recurring medical debts into borrower repayment calculations”; and (iii) VA is reviewing its underwriting guidelines to ensure it minimizes or eliminates medical debt reporting as a proxy for creditworthiness. Additionally, the Fact Sheet noted that the Department of Health and Human Services is requesting data from over 2,000 providers on medical bill collection practices, lawsuits against patients, financial assistance, financial product offerings, and third party contracting or debt buying practices. The Fact Sheet also noted that the CFPB “will investigate credit reporting companies and debt collectors” in regard to “patients’ and families’ rights,” which includes targeting “coercive credit reporting” and determining whether medical debts should be included in consumer credit reports.
District Court denies defendants summary judgment over FCA violations
On March 16, the U.S. District Court for the Eastern District of Texas denied a motion for summary judgment by a mortgage servicer relating to False Claims Act (FCA) claims alleging false certifications of compliance to obtain payment under three different government programs: Treasury’s Home Affordable Modification Program (HAMP), FHA HAMP, and VA HAMP. According to the memorandum opinion and order, the relator, a former loss-mitigation specialist at the mortgage servicer, alleged that the mortgage servicer engaged in widespread dual tracking, continuously moving homeowners’ mortgages through the foreclosure process even as the defendants were supposed to be evaluating the mortgages for loss mitigation options and HAMP. The plaintiff further alleged that “the dual tracking led many homeowners to lose their homes in foreclosure when foreclosure should have been suspended during the resolution of modification and other workout processes,” and that the defendants “knowingly lacked adequate HAMP systems, processes, staffing, and training.”
The defendants argued that, “notwithstanding industrywide difficulties, publicly available service assessments and third-party reviews show that [the mortgage servicer was] one of the highest-rated servicers participating in HAMP []. Further, though Treasury had the power to withhold incentives for HAMP non-compliance, Treasury never did so and consistently paid HAMP incentive payments to [the mortgage servicer] until the program expired.” The mortgage servicer also argued that summary judgment was appropriate for several reasons; (i) the court lacks jurisdiction to consider any of the relator’s claims under the FCA’s first-to-file bar; (ii) the relator’s claims fail because he cannot establish one or more of the required elements as to each claim; and (iii) the relator’s VA claim fails because the he cannot cite to any evidence of a certification by the mortgage servicer to the VA, and thus cannot demonstrate a false statement or fraudulent conduct. The court held that, pursuant to Fifth Circuit precedent, the first-to-file rule is inapplicable here because this case was filed by the same relator in a New York district court. With respect to the remaining claims, the court held that summary judgment is inappropriate where, as here, there exist genuine issues of material fact.
Biden to streamline medical debt forgiveness for veterans
On March 1, President Biden announced that veterans will be able to apply for medical debt forgiveness under a new streamlined process in 90 to 120 days. According to the White House press release, the current process for veterans who are entitled to medical debt forgiveness is complicated, confusing, and time consuming, and may deter veterans from applying for relief. To streamline the medical debt forgiveness request process, the Department of Veterans Affairs (VA) will provide an online option for veterans and set a simple income threshold for receiving relief. The announcement follows a final rule issued by the VA last month, which amended its regulations around the conditions by which VA benefits debts or medical debts are reported to consumer reporting agencies (CRAs), and created a methodology for determining a minimum threshold for debts reported to the CRAs. (Covered by InfoBytes here.)
VA updates loan repayment relief for Covid-19 borrowers
On February 28, the Department of Veterans Affairs (VA) issued changes updating Circular 26-21-07 to address loan repayment relief for borrowers affected by Covid-19. The circular is “Change 2” of the original circular issued in June 2021, which, among other things, provided servicers with information regarding home retention options and foreclosure alternatives for impacted borrowers. The guidance stems from the extended duration of the pandemic and developments in the VA’s program. (Covered by InfoBytes here). The circular is now effective until July 2023.