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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.”
DFPI issues mortgage servicer requirements
On September 13, the California Department of Financial Protection and Innovation (DFPI) issued a notice detailing a new requirement that mortgage servicers provide information to DFPI describing the actions servicers are taking to help homeowners avoid foreclosure. According to the announcement, DFPI intends to “ensure that licensees tell consumers about assistance that is or will soon be available to delinquent mortgage borrowers and document their good faith efforts toward screening borrowers for applicable loan modifications, mortgage relief funds and other protections, including the upcoming federal Homeowner Assistance Fund,” which licensees are strongly encouraged to participate in. To protect vulnerable homeowners, DFPI will require licensees handling residential mortgages, either directly or through sub-servicers, to provide information describing the servicer’s: (i) screening process for determining borrower eligibility for foreclosure aid; (ii) compliance policies and procedures regarding loss mitigation; and (iii) assessment of the “magnitude of foreclosure risk among the loans they service.”
The same day, DFPI released a social media campaign designed to educate consumers about the California Homeowner Bill of Rights, the availability of HUD-certified housing counselors, and foreclosure options, among other things. The announcement also notes that DFPI recently launched a multi-pronged communications campaign to educate consumers and protect homeowners from foreclosure.
FHA issues presidentially declared major disaster area guidance
On September 10, FHA issued FHA INFO 21-7, which reminds mortgagees originating and/or servicing FHA-insured mortgages in the U.S. and its territories of guidance applicable in the event of a presidentially declared major disaster area (PDMDA) during the Covid-19 pandemic. For PDMDAs issued in connection with Covid-19, mortgagees must continue to follow existing guidance for borrowers already on a Covid-19 loss mitigation or recovery option. For all other borrowers, mortgagees must evaluate borrowers for all loss mitigation options available to them, which includes any applicable “PDMDA or COVID-19 Loss Mitigation Options or COVID-19 Recovery Options,” based on the reason for hardship. In addition, for all “mortgaged properties in areas covered by PDMDA declarations not related to the COVID-19 National Emergency,” FHA provides a number of other reminders to mortgagees, including: (i) FHA-insured forward mortgages secured by properties in a PDMDA are subject to a 90-day foreclosure moratorium after a disaster declaration; (ii) mortgagees should reach out to borrowers who may need loss mitigation assistance as soon as possible following the presidential declaration; and (iii) FHA-insured HECM loans secured by PDMDA properties that are due and payable for reasons other than the death of the last surviving borrower or the end of a deferral period due to the death of an eligible non-borrowing spouse are subject to a 90-day HECM foreclosure timeline extension.
Agencies extend Covid-19 eviction moratorium
On July 30, USDA, HUD, the VA, and FHFA extended their foreclosure-related eviction moratoria until September 30. The extensions follow President Biden’s July 29 announcement, which asked federal agencies to extend their respective eviction moratoria through the end of September following the expiration of the CDC’s moratorium on residential evictions on July 31. While Biden called on Congress to pass legislation to extend the eviction moratorium following a recent U.S. Supreme Court ruling, which stated that “clear and specific congressional authorization (via new legislation) would be necessary for the CDC to extend the moratorium past July 31”, emergency legislation to extend the federal eviction moratorium through the end of the year did not pass the U.S. House.
USDA extended its eviction moratorium for homeowners of properties financed or guaranteed by USDA through September 30 and reminded servicers that the single family foreclosure moratorium will expire on July 31. After this date, no new foreclosure filings should occur until homeowners are reviewed for new options to reduce their payments and stay in their homes, USDA noted.
FHA also announced the extension of its eviction moratorium for foreclosed borrowers and their occupants through September 30. The moratorium applies to homeowners with FHA-insured Title II Single Family forward and Home Equity Conversion (reverse) mortgages, excluding legally vacant or abandoned properties (see Mortgagee Letter 2021-19). The extension is intended to ensure borrowers with FHA-insured mortgages are not immediately displaced from their homes. FHA also noted the expiration of the foreclosure moratorium on July 31.
Additionally, VA Circular 26-21-14 extends eviction relief for properties previously secured by VA-guaranteed loans (including properties in VA’s Real Estate Owned (REO) portfolio through September 30, excluding vacant or abandoned properties.
Further, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will extend their moratorium on single-family REO evictions until September 30. The current moratorium was set to expire July 31. The REO eviction moratorium applies only to properties that have been acquired by the GSEs through foreclosure or deed-in-lieu of foreclosure transactions. FHFA also encouraged landlords of Fannie Mae or Freddie Mac-backed properties to apply for Emergency Rental Assistance (ERA) before beginning the process of evicting a tenant for non-payment of rent, and directed tenants and landlords to the CFPB’s online Rental Assistance Finder.
District Court approves supplemental $22 million class action foreclosure settlement
On July 26, the U.S. District Court for the Northern District of California granted preliminary approval of a proposed supplemental class settlement, adding new class members who were not part of the list of borrowers included in the court’s October 2020 original settlement order. The supplemental settlement provides more than $21.8 million for additional class members who lost their homes after allegedly being denied loan modifications from a national bank. Class members include borrowers who allegedly should have qualified for loan modifications but were not offered a home loan modification or repayment plan “due to excessive attorney’s fees being included in the loan modification decisioning” and “whose home[s] [the bank] sold in foreclosure.” According to the court’s order granting class certification, a software glitch allegedly caused a calculation error, which resulted in certain fees being misstated and led to incorrect mortgage modification denials. The original settlement set aside $1 million to compensate borrowers who endured “severe emotional distress” as a result of the error, and the supplemental settlement will provide new class members the same opportunity to apply for additional settlement amounts.
CFPB issues summer supervisory highlights
On June 29, the CFPB released its summer 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto loan servicing, consumer reporting, debt collection, deposits, fair lending, mortgage origination and servicing, payday lending, private education loan origination, and student loan servicing. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between January and December of 2020. Highlights of the examination findings include:
- Auto Loan Servicing. Bureau examiners identified unfair acts or practices related to lender-placed collateral protection insurance (CPI), including instances where servicers charged unnecessary CPI or charged for CPI after repossession. Examiners also identified unfair acts or practices related to payoff amounts where consumers had ancillary product rebates due, and also found unfair or deceptive acts or practices related to payment application.
- Consumer Reporting. The Bureau found deficiencies in consumer reporting companies’ (CRCs) FCRA compliance related to the following requirements: (i) accuracy; (ii) security freezes applicable to certain CRCs; and (iii) ID theft block requests. Specifically, examiners found that CRCs continued to include information from furnishers despite receiving furnisher dispute responses that “suggested that the furnishers were no longer sources of reliable, verifiable information about consumers.” Additionally, the report noted instances where furnishers failed to update and correct information or conduct reasonable investigations of direct disputes.
- Debt Collection. The report found that examiners found instances of FDCPA violations where debt collectors (i) made calls to a consumer’s workplace; (ii) communicated with third parties; (iii) failed to stop communications after receiving a written request or a refusal to pay; (iv) harassed consumers regarding their inability to pay; (v) communicated, and threatened to communicate, false credit information to CRCs; (vi) made false representations or used deceptive collection means; (vii) entered inaccurate information regarding state interest rate caps into an automated system; (viii) unlawfully initiated wage garnishments; and (ix) failed to send complete validation notices.
- Deposits. The Bureau discussed violations related to Regulation E and Regulation DD, including error resolution violations, issues with provisional credits, failure to investigate, failure to remediate errors, and overdraft opt-in and disclosure violations.
- Fair Lending. The report noted instances where examiners cited violations of HMDA/ Regulation C involving HMDA loan application register inaccuracies, and instances where lenders, among other things, violated ECOA/Regulation B “by engaging in acts or practices directed at prospective applicants that would have discouraged reasonable people in minority neighborhoods in Metropolitan Statistical Areas (MSAs) from applying for credit.”
- Mortgage Origination. The Bureau cited violations of Regulation Z and the CFPA related to loan originator compensation, title insurance disclosures, and deceptive waivers of borrowers’ rights in security deed riders and loan security agreements.
- Mortgage Servicing. The Bureau cited violations of Regulation X, including those related to dual tracking violations, misrepresentations regarding foreclosure timelines, and PMI terminations.
- Payday Lending. The report discussed violations of the CFPA for payday lenders, including falsely representing an intent to sue or that a credit check would not be run, and presenting deceptive repayment options to borrowers that were contractually eligible for no-cost repayment plans.
- Private Education Loan Origination. Bureau examiners identified deceptive acts or practices related to the marketing of private education loan rates.
- Student Loan Servicing. Bureau examiners found several types of misrepresentations servicers made regarding consumer eligibility for the Public Service Loan Forgiveness (PSLF) program, and identified unfair acts or practices related to a servicer’s “failure to reverse negative consequences of automatic natural disaster forbearances.” Additionally, examiners identified unfair act or practices related to failing to honor consumer payment allocation instructions or providing inaccurate monthly payment amounts to consumers after a loan transfer.
The report also highlights recent supervisory program developments and enforcement actions.
Special Alert: CFPB specifies pandemic foreclosure protections and signals tight supervision and enforcement around servicer efforts
The Consumer Financial Protection Bureau’s Covid-relief mortgage servicing rule issued yesterday steered away from a nationwide foreclosure freeze as initially proposed, instead creating heightened protections for those borrowers who became seriously delinquent during the pandemic. The distinction may not prove to be a game-changer for servicers, however, which will be obligated to carefully document outreach efforts and decisions to advance borrowers into foreclosure — with little margin for error.
The bureau’s final rule, which takes effect Aug. 31, obligates a servicer to continue specifying, with substantial detail, any loss mitigation options that may help the borrower resolve their delinquency. It also largely preserves the proposed streamline modification option on the basis of an incomplete loss mitigation application, although most servicers already have been offering many of these modifications since the early days of the pandemic.
FHFA announces CFPB final rule
On June 29, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will not be permitted to make a first notice or filing for foreclosure that would be prohibited by the CFPB’s “Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X” final rule prior to the rule’s effective date. As previously covered by a Buckley Special Alert, the Bureau’s final rule, which takes effect August 31, obligates a servicer to continue specifying, with substantial detail, any loss mitigation options that may help borrowers resolve their delinquencies. GSEs are required to follow the CFPB’s new protections a month before the CFPB rule takes effect, which will protect borrowers from foreclosure and provide certainty for servicers regarding GSE expectations. According to FHFA, “[s]ervicers will still be able to make a notice or filing for foreclosure on abandoned properties and those that had a foreclosure referral prior to March 2020, along with certain other exceptions.” FHFA’s action eliminates the gap between the expiration of its current moratoriums for single family foreclosures and real estate owned (REO) evictions that will expire on July 31 (covered by InfoBytes here) and the effective date of the CFPB’s rule, which is a month later.
FHA extends Covid-19 foreclosure moratorium and other flexibilities
On June 25, FHA announced the extension of several Covid-19-related flexibilities in Mortgagee Letter 2021-15, which extends the foreclosure and eviction moratorium in connection with the Covid-19 pandemic, expands the Covid-19 forbearance and the home equity conversion mortgage (HECM) extension, and establishes the Covid-19 advance loan modification (Covid-19 ALM). As previously covered by InfoBytes, in December 2020, FHA first extended its foreclosure and eviction moratorium through February 28. In the most recent extension, FHA further extended its foreclosure and eviction moratorium for all FHA-insured single family mortgages, excluding vacant or abandoned properties, through July 31. For FHA’s Covid-19 forbearance policy, FHA expanded the date to request an initial Covid-19 forbearance from June 30 to September 30 and provided an additional three-month extension to the forbearance for borrowers who began their initial forbearance between July 1, 2020, and September 30, 2020. FHA also established the Covid-19 ALM, which, among other things, “offers borrowers who are currently 90 or more days delinquent, or at the end of their COVID-19 forbearance, the opportunity for a 30-year rate and term mortgage modification that will bring their mortgage current and reduce the principal and interest portion of their monthly mortgage payment by at least 25 percent” and establishes a Default Code. FHA also expanded the HECM Covid-19 extensions by “providing an additional three-month extension to HECM borrowers, where an initial HECM extension period began between July 1, 2020, and September 30, 2020.”
Waters urges foreclosure moratoria extension
On June 21, Chairwoman of the House Financial Services Committee Maxine Waters (D-CA) sent a letter to several federal agencies “urging them to administratively extend their moratoria on foreclosures at least until the CFPB is able to finalize and implement its pandemic recovery mortgage servicing rule.” As previously covered by a Buckley Special Alert, the Bureau issued a proposed rule in April that would broadly halt foreclosure initiations on principal residences from August 31, 2021 until 2022, and change servicing rules to promote consumer awareness and processing of Covid-relief loss mitigation options. The proposed rule also would create new and detailed obligations for communicating with borrowers to ensure they are aware of their loss mitigation options for pandemic-related hardships.
The letter, which was sent to the secretaries of HUD, the Department of Agriculture, the Department of Veterans Affairs, as well as the director of FHFA and the acting director of the CFPB, stresses that many homeowners will face the risk of foreclosure when the emergency federal foreclosure mortarium expires on June 30, as the Bureau’s proposed rule is not expected to take effect until August. This gap in critical protections, Waters cautions, “could result in servicers expediting efforts to initiate foreclosures before a final rule takes effect, especially for borrowers who have not been able to access forbearance options during the pandemic[.]” The letter requests not only an extension of the current foreclosure moratoriums but also urges the Bureau to finalize the rule (or issue an interim final rule if necessary) as soon as possible to prevent unnecessary foreclosures and ensure homeowners have the opportunity to finalize affordable loan modifications. Additionally, Waters urges the Bureau to alert servicers of the consequences should they, among other things, fail to notify homeowners about their post-forbearance options, unnecessarily delay reviewing loan modification applications, engage in improper foreclosure-related activity, unlawfully discriminate against borrowers, or provide inaccurate, adverse information to credit reporting agencies.