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HUD announces Vermont and Montana disaster relief
On September 30, HUD announced disaster assistance for certain areas in Vermont impacted by a severe storm and flooding from July 29 to July 30, providing foreclosure relief and other assistance to affected homeowners. This followed President Biden’s major disaster declaration for the counties of Bennington and Windham issued on September 29. The following day, HUD announced disaster assistance for certain areas in Montana affected by the Richard Spring Fire from August 8 to August 20, also providing foreclosure relief and other assistance to affected homeowners. This followed President Biden’s major disaster declaration for Rosebud County and the Northern Cheyenne Indian Reservation issued on September 30. According to the announcement, federal funding is additionally available on a cost-sharing basis for hazard mitigation in all areas of Montana.
For both disaster relief measures, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is making FHA insurance available to victims whose homes were destroyed or severely damaged, such that “reconstruction or replacement is necessary.” Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house and the costs of repair, through a single mortgage. The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes. Flexibility measures for state and local governments, public housing authorities, tribes, and tribally designated house entities are also addressed.
FHA publishes draft HECM sections of handbook
On September 29, FHA requested stakeholder review and feedback on the draft Home Equity Conversion Mortgage (HECM) Origination through Servicing sections of its Single Family Housing Policy Handbook 4000.1. The new draft sections are a continuation of the agency’s move toward a consolidated, authoritative Handbook 4000.1, and contain revisions to policy language to improve clarity and consistency along with proposed new policies. FHA stated that once the final version is published, the HECM Origination through Servicing sections will conform to the new organizational structure of Handbook 4000.1 and will replace existing HECM guidance on: (i) origination through post-closing and endorsement; (ii) appraiser and property requirements; (iii) servicing and loss mitigation; and (iv) glossary and acronyms. Feedback on the draft sections (posted on the agency’s drafting table) are due by November 15.
District Court: Maryland escrow law does not confer private right of action
On September 22, the U.S. District Court for the District of Maryland granted a national bank’s motion for summary judgment in an action claiming the bank allegedly failed to pay interest on mortgage escrow accounts. The plaintiff filed a putative class action asserting various claims including for violation of Section 12-109 of the Maryland Consumer Protection Act (MCPA), which requires lenders to pay interest on funds maintained in escrow on behalf of borrowers. In response, the bank filed a motion to dismiss on the basis that the MCPA is preempted by the National Bank Act and by 2004 OCC preemption regulations. In 2020, the court denied the bank’s motion to dismiss after it determined, among other things, that under Dodd-Frank, national banks are required to pay interest on escrow accounts when mandated by applicable state or federal law. (Covered by InfoBytes here.) Citing previous decisions in similar escrow interest cases brought against the same bank in other states (covered by InfoBytes here and here), the court stated that Section 12-109 “does not prevent or significantly interfere with [the bank’s] exercise of its federal banking authority, because [Section] 12-109’s ‘interference’ is minimal, when compared with statutes that the Supreme Court has previously found were preempted.” The court further noted that state law—which “still allows [the bank] to require escrow accounts for its borrowers”—provides that the bank must pay a small amount of interest to borrowers if it chooses to maintain escrow accounts.
However, in its most recent ruling, the court held that the MCPA does not authorize the plaintiff to sue either. “[T]his court finds that § 12-109 does not confer a private right of action,” the court wrote, adding that the plaintiff’s breach of contract claim could not get around a notice-and-cure provision in her mortgage agreement that she had not complied with before suing. The plaintiff argued that these requirements did not apply because “her self-styled breach of contract claim is actually a statutory claim because the allegedly breached contractual provision is one which pledges general adherence to applicable law.” The court disagreed, stating that under the plaintiff’s theory “any claim for breach of contract, which also violated a federal or state law, would be vaulted to a privileged hybrid status. Such claims would enjoy an unlimited private right of action (regardless of whether the underlying statute created one) and. . .would be unbounded by any of the provisions or conditions precedent detailed in the contract itself.” The court also ruled that the plaintiff’s escrow statements, which “correctly reflected that her account was not accruing interest,” are themselves “not rendered deceptive by the mere fact that Plaintiff believes such interest is owed.”
CFPB offers reminder on forbearance options for borrowers
On September 30, the CFPB issued an analysis of recent rules that ensure mortgage servicers provide options to potentially vulnerable borrowers exiting forbearance. The analysis points out that there are approximately 1.6 million borrowers exiting mortgage forbearance programs and that many may be vulnerable to a greater risk of harm due to a variety of circumstances, which may have been exacerbated by the effects of the Covid-19 pandemic. As previously covered by a Buckley Special Alert, the Bureau issued a final rule earlier this year, which took effect August 31, obligating servicers to continue specifying, with substantial detail, any loss mitigation options that may help borrowers resolve their delinquencies. In April, the CFPB also urged mortgage servicers “to take all necessary steps now to prevent a wave of avoidable foreclosures this fall.” Citing the millions of homeowners in forbearance due to the Covid-19 pandemic, the Bureau’s April compliance bulletin warned servicers that consumers would need assistance when pandemic-related federal emergency mortgage protections expire (covered by InfoBytes here). In addition, in August the Bureau released an overview report of Covid-19 pandemic responses from 16 large mortgage servicers, finding that, among other things: (i) most servicers reported abandonment rates of less than 5 percent during the reporting period, while others’ rates exceeded 20 percent, with one servicer as high as 34 percent; (ii) most servicers saw increased rates of borrowers who were delinquent upon exiting pandemic hardship forbearance programs in March and April 2021 compared to previous months; and (iii) delinquency rates ranged from about 1 percent to 26 percent for federally-backed and private loans (covered by InfoBytes here). According to the September analysis, the Bureau “encourages servicers to enhance their communication capabilities and outreach efforts to educate and assist all borrowers in resolving delinquency and enrolling in widely available assistance and loss mitigation options.” The Bureau further encourages servicers to ensure that their compliance management systems include robust measures and warns against one-size-fits-all practices that may harm vulnerable consumers.
VA extends Covid-19 loan deferment, clarifies forbearance timeline
On September 29, the Department of Veterans Affairs issued circulars providing updates for servicers on assisting borrowers who continue to be affected by the Covid-19 pandemic. According to Circular 26-21-19, servicers may continue to offer loan deferments as a home retention option to borrowers exiting a Covid-19 forbearance period. Servicers who select this option will defer repayment of principal, interest, taxes, and insurance “to the loan maturity date or until the borrower refinances the loan, transfers the property, or otherwise pays off the loan (whichever occurs first) and with no added costs, fees, or interest to the borrower, and with no penalty for early payment of the deferred amount.” The VA’s Covid-19 Home Retention Waterfall and Covid-19 Refund Modification guidance, issued in July (covered by InfoBytes here), provides that the loan deferment option may be used in situations where a borrower indicates that he or she can resume normal monthly guaranteed loan payments but cannot repay the arrearages. Additionally, the VA notes that in order “to relieve undue prejudice to a debtor, holder, or other person,” it is “temporarily waiving the requirement that the final installment on any loan shall not be in excess of two times the average of the preceding installments.” This waiver, the agency notes, is applicable only to VA’s Covid-19 Home Retention Waterfall cases. The Circular is rescinded July 1, 2023.
The same day, the VA also issued Circular 26-21-20 to clarify timeline expectations for forbearance requests submitted by affected borrowers. “For 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.” The VA states that it expects all Covid-19 related forbearances to end no later than September 30, 2022.
OCC reports improved mortgage performance
On September 28, the OCC reported that 95 percent of first-lien mortgages were current and performing at the end of the second quarter of 2021—an increase from 91.1 percent at the end of the second quarter of 2020 (the first full quarter of the Covid-19 pandemic). According to the report, seriously delinquent mortgages declined from 4.6 percent in the prior quarter (6.8 percent a year ago) to 3.8 percent. During the second quarter of 2021, servicers initiated 592 new foreclosures—a 28.9 percent decrease from the prior quarter but a 137.8 percent increase from a year ago. The OCC noted that events related to the pandemic, such as foreclosure moratoriums, “significantly affected these metrics.” Additionally, mortgage modifications decreased 17.1 percent from the prior quarter. Of the reported 39,599 mortgage modifications, 53.3 percent reduced borrowers’ pre-modification monthly payments, while 97.2 percent were “combination modifications” that “included multiple actions affecting affordability and sustainability of the loan, such as an interest rate reduction and a term extension.”
FDIC releases August enforcement actions
On September 24, the FDIC released a list of administrative enforcement actions taken against banks and individuals in August. During the month, the FDIC issued eight orders consisting of “one Consent Order, three terminations of Consent Orders, two Orders to Pay Civil Money Penalty, one Removal/Prohibition Order, and two Section 19 Orders.” Among the orders is an order to pay a civil money penalty imposed against a Nebraska-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “[m]ade, increased, extended or renewed a loan secured by a building or mobile home located or to be located in a special flood hazard area without providing notice to the borrower and/or the servicer as to whether flood insurance was available for the collateral.” The bank also allegedly “[f]ailed to comply with proper procedures for force-placing flood insurance in instances where the collateral was not covered by flood insurance at some time during the term of the loan.” The order requires the payment of a $3,000 civil money penalty.
HUD issues mortgagee letter on Covid-19 forbearance
On September 27, HUD issued Mortgagee Letter 2021-24, which extends and adds Covid-19 relief options for borrowers who are struggling with mortgage payments due to the pandemic and for senior homeowners with Home Equity Conversion Mortgages (HECM) who require assistance to stay in their homes. According to HUD, these actions are in response to the impact of the pandemic and “are part of FHA’s continuing evolution of its COVID-19 policies so that the right tools are in place to help borrowers.” FHA is now providing: (i) “up to six months of COVID-19 Forbearance for borrowers requesting an initial COVID-19 Forbearance or HECM Extension from their mortgage servicer between October 1, 2021, and the end of the COVID-19 National Emergency, and an additional six months if the COVID-19 Forbearance or HECM Extension is exhausted and expires before the end of the COVID-19 National Emergency”; and (ii) “up to six months of additional forbearance for borrowers who requested or will request an initial COVID-19 Forbearance or HECM Extension from their mortgage servicer between July 1, 2021, and September 30, 2021, allowing these borrowers up to a maximum of 12 months of COVID-19 Forbearance or HECM Extension.”
Pennsylvania adopts mortgage servicing regulations
On September 25, the Pennsylvania Department of Banking and Securities adopted provisions regarding mortgage servicing regulations. Among other things, the regulations clarify the definition of a “COVID-19 related hardship,” establish general disclosure requirements, and provide early intervention and loss mitigation procedures and options. Specifically, the regulations establish that until October 22, 2022, a servicer must, after establishing live contact for borrowers not in forbearance programs, inform them that forbearance programs are available for those experiencing a “COVID-19-related hardship” and must list and describe these forbearance programs and the actions the borrower must take to be evaluated for the programs, among other things. Additionally, for borrowers in forbearance programs at the time of live contact, servicers, until October 22, 2022, must provide the end date of the borrower’s current forbearance program, a list and description of the types of forbearance extensions, and a way that the borrower can find contact information for homeownership counseling services, among other things. The regulations also establish loss mitigation procedures in that a servicer may offer a borrower a loss mitigation option based upon evaluation of an incomplete application, provided that certain criteria are met. In addition, the regulations create certain Covid-19-related loan modification options, such as a loan modification can be made available to borrowers experiencing a Covid-19-related hardship. The regulations are effective immediately.
FHFA extends Covid-19 multifamily forbearance
On September 24, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will continue to offer Covid-19 forbearance to qualified multifamily property owners. The forbearance options for GSE-backed multifamily mortgages were set to expire September 30, but have been extended for the fourth time. Eligible multifamily property owners that enter into new or modified forbearance agreements are required to (i) “[i]nform tenants in writing about tenant protections available during the property owner’s forbearance and repayment periods”; and (ii) “[a]gree not to evict tenants solely for the nonpayment of rent while the property is in forbearance.” Additionally, property owners must also provide a tenant at least 30-days’ notice to vacate, may not charge a tenant late fees or penalties for nonpayment of rent, and must allow a tenant flexibility to repay back rent over time and not in a lump sum.