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Montana amends mortgage servicing laws
On February 16, the Montana governor signed HB 30, which amends certain provisions of the state’s mortgage laws. Among other things, the act outlines provisions related to financial condition requirements, model state regulatory prudential standards for nonbank mortgage servicers, risk assessments, and licensee reporting requirements. The act also permits remote work provided certain conditions are met, including that a licensee’s employees and independent contractors do not meet with the public in an unlicensed personal residence, business records are not stored at the remote locations, appropriate security measures are put in place to ensure the confidentiality of customer information, and the NMLS record reflects the designation of a properly licensed location as the mortgage loan originator’s official workstation. In addition, the act amends provisions related to the denial of a licensee’s application or renewal, and updates designated manager and branch office licensing requirements to account for the remote location allowance. The act further provides the Department of Administration (acting through the Division of Banking and Financial Institutions) with rulemaking authority for addressing the revocation or suspension of licenses for cause, investigations into alleged violations, and fees, among other things. Additional amendments address the sharing of confidential supervisory information with state and federal financial regulators. Exempt from the act’s requirements are not-for-profit servicers and housing financing agencies, while servicers solely involved in reverse mortgage servicing are exempt from certain portions of the act. Similarly, servicers with 25 or fewer loans, or servicers wholly owned and controlled by one or more state- or federally-regulated depository institutions are also exempt from certain portions of the act. A servicer that is also licensed as an escrow business may apply to waive or adjust certain financial condition requirements. The act is effective July 1.
FHA expands Covid-19 loss mitigation options
On February 13, HUD issued Mortgagee Letter 2023-03, which makes technical corrections to Mortgagee Letter 2023-02 issued in January that expanded and enhanced loss mitigation options for borrowers struggling to make payments on FHA-insured mortgages. The enhancements extend FHA’s Covid-19 loss mitigation options to all eligible borrowers, including non-occupant borrowers, who fall behind on mortgage payments, regardless of the cause of delinquency. Mortgage servicers must use FHA’s Covid-19 recovery loss mitigation “waterfall” of options to assess all borrowers who are in default (or at risk of imminent default). The enhancements also raise the maximum partial claim amount from 25 percent of the mortgage’s unpaid principal balance to the maximum 30 percent allowed by statute to help increase home retention. Mortgage servicers can also offer loss mitigation options to borrowers who qualified for or used homeowner assistance funds who may no longer technically be delinquent but require further assistance to avoid redefault. Additionally, the enhancements provide incentive payments to mortgage servicers when Covid-19 recovery options are successfully completed.
The availability of FHA’s Covid-19 loss mitigation options are extended for 18 months beyond the April 30 mandatory effective date for servicers to remove “uncertainties associated with the timing of the end of the National Emergency,” HUD explained, adding that “FHA is temporarily suspending the use of its FHA-Home Affordable Modification (FHA-HAMP) options concurrent with [Mortgagee Letter 2023-02]” in order to simplify loss mitigation options. Mortgage servicers may begin offering these options to borrowers immediately.
CFPB updates Mortgage Servicing Examination Procedures
On January 18, the CFPB released an updated version of its Mortgage Servicing Examination Procedures, detailing the types of information examiners should gather when assessing whether servicers are complying with applicable laws and identifying consumer risks. The examination procedures, which were last updated in June 2016, cover forbearances and other tools, including streamlined loss mitigation options that mortgage servicers have used for consumers impacted by the Covid-19 pandemic. The Bureau noted in its announcement that “as long as these streamlined loss mitigation options are made available to borrowers experiencing hardship due to the COVID-19 national emergency, those same streamlined options can also be made available under the temporary flexibilities in the [agency’s pandemic-related mortgage servicing rules] to borrowers not experiencing COVID-19-related hardships.” Servicers are expected to continue to use all the tools at their disposal, including, when available, streamlined deferrals and modifications that meet the conditions of these pandemic-related mortgage servicing rules as they attempt to keep consumers in their homes. The Bureau said the updated examination procedures also incorporate focus areas from the agency’s Supervisory Highlights findings related to, among other things, (i) fees such as phone pay fees that servicers charge borrowers; and (ii) servicer misrepresentations concerning foreclosure options. Also included in the updated examination procedures are a list of bulletins, guidance, and temporary regulatory changes for examiners to consult as they assess servicers’ compliance with federal consumer financial laws. Examiners are also advised to request information on how servicers are communicating with borrowers about homeowner assistance programs, which can help consumers avoid foreclosure, provided mortgage servicers collaborate with state housing finance agencies and HUD-approved housing counselors to aid borrowers during the HAF application process.
NY restricts lenders’ ability to reset statute of limitations on foreclosures
In December, the New York governor signed A 7737-B, the “Foreclosure Abuse Prevention Act,” which amends the rights of parties in foreclosure actions. Among other things, the law provides that a lender or servicer’s voluntary discontinuance of a foreclosure action does not reset New York’s 6-year statute of limitations on foreclosures, according to New York CPLR §213. Further, pursuant to the new law, if an action to foreclose a mortgage or recover any part of the mortgage debt is time-barred, any other action seeking to foreclose the mortgage or recover the debt is also time-barred. The amendments are effective immediately and, notably, apply to all pending actions in which a final judgment of foreclosure and sale has not been enforced.
District Court grants summary judgment to bank in discriminatory lending suit
On December 19, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of a national bank with respect to discriminatory lending allegations brought by the County of Cook in Illinois (County). As previously covered by InfoBytes, the County alleged that the bank’s lending practices were discriminatory and led to an increase in foreclosures among Black and Latino borrowers, causing the County to incur financial injury, including foreclosure-related and judicial proceeding costs and municipal expenses due to an increase in vacant properties. In 2021, the court denied the bank’s motion to dismiss the alleged Fair Housing Act violations after determining that all the County had to do was show a reasonable argument that the bank’s lending practices resulted in foreclosures, and that the bank failed to dispute that the County properly alleged a financial injury sufficient to support standing.
The court explained in its December 19 order, however, that two of the County’s expert witnesses did not make valid comparisons when measuring the denial rate for minority borrowers compared to white borrowers. According to the court, the expert witnesses failed to properly account for the financial conditions of the borrowers seeking mortgage modifications, leaving the County with “no other evidentiary basis to establish that [the bank] engaged in intentionally discriminatory servicing practices that caused minority borrowers to disproportionately suffer default and foreclosure.” The court found that, accordingly, the County cannot demonstrate “intentional discrimination against minority borrowers that proximately caused the County’s injuries, and its disparate treatment claim accordingly cannot survive summary judgment.” Additionally, the court found that the County failed to cite authority for its arguments that the bank can be liable for loans it purchased “and for which it did not commit any discriminatory acts in servicing” or for loans it originated but sold and never serviced.
Massachusetts reaches settlement in unfair debt collection and mortgage servicing matter
On December 22, the Massachusetts attorney general announced a settlement with a South Carolina mortgage servicer to resolve claims that it allegedly failed to assist homeowners avoid foreclosure and engaged in unfair debt collection and mortgage servicing practices. According to an assurance of discontinuance filed in Suffolk Superior Court, the servicer allegedly violated the Massachusetts’ Act to Prevent Unlawful and Unnecessary Foreclosures, which requires servicers to make a good faith effort to help borrowers with certain unfair loan terms avoid foreclosure. Among other things, the servicer allegedly failed to (i) properly review borrowers’ income, debts, and obligations when assessing affordable loan modifications; (ii) provide borrowers with the results of these assessments; or (iii) provide borrowers with notice of their right to present a counteroffer after being offered a loan modification. The servicer also allegedly violated the state’s debt collection regulations by failing to timely issue compliant debt validation notices, and calling borrowers more than twice in a seven-day period. While denying the allegations, the servicer agreed to pay $975,000 to the state and will undertake significant business practice changes and provide ongoing reporting to the AG to ensure compliance.
FHA extends some pandemic-related waivers
On December 20, FHA published FHA INFO 2022-107, which extends temporary regulatory and Single Family Housing Policy Handbook 4000.1 waivers, and permits mortgagees to use alternative methods for conducting face-to-face interviews with borrowers in accordance with FHA’s early default intervention requirements. FHA initially published temporary partial waivers of these requirements on March 13, 2020, and previously extended them through December 31, 2022, in response to the Covid-19 pandemic. FHA is further extending the waivers due to the Covid-19 pandemic, the spread of the Respiratory Syncytial Virus and seasonal flu, and current staffing and resource constraints affecting mortgage servicers. The waivers are now effective through December 31, 2023.
OCC reports on third quarter mortgage performance
On December 15, the OCC announced the release of OCC Mortgage Metrics Report, Third Quarter 2022, in which it reported that “97.2 percent of mortgages included in the report were current and performing at the end of the quarter, compared to 95.6 percent a year earlier.” As explained in the report, servicers initiated 9,835 new foreclosures in the third quarter of 2022—a decrease from the previous quarter but an increase from a year ago. The foreclosure volume in this reporting period is lower than pre-Covid-19 pandemic foreclosure volumes, the OCC said. Servicers also completed 16,160 mortgage modifications in the third quarter—a 42.5 percent decrease from the previous quarter. Of these modifications, 72.4 percent reduced a loan’s pre-modification monthly payment, and 93.1 percent consisted of a combination modification containing multiple actions such as interest rate reductions and term extensions. Additionally, the OCC found that during the reporting period, first-lien mortgages represented 22 percent of all outstanding residential mortgage debt (or approximately 12 million loans equaling $2.7 trillion in principal balances).
FHA announces pandemic assistance on reverse mortgages
On December 15, FHA published Mortgagee Letter 2022-23, COVID-19 Home Equity Conversion Mortgage (HECM) Property Charge Repayment Plan, which provides requirements for a new property charge repayment plan option for senior homeowners with HECMs who have gotten behind on their property charge payments as a result of the Covid-19 pandemic. The eligibility policies of the new repayment plan include, among other things:
- Making the plan available to borrowers who have applied for Homeowner Assistance Fund (HAF) assistance, if the HAF funds combined with the borrower’s ability to repay will satisfy the servicer’s advances for the delinquent property charges;
- Permitting the Covid-19 HECM Repayment Plan regardless of whether the borrower has been unsuccessful on a prior repayment plan and whether the borrower owes over $5,000 in property charge advances; and
- Requiring a verbal attestation from the borrower that they have been impacted by Covid-19.
Additionally, borrowers may receive a repayment plan regardless of the dollar amount of property charge payments owed. Further, servicers can offer homeowners a repayment plan of up to five full years (60 months) regardless of whether a prior repayment plan has been used.
District Court denies dismissal of RESPA "dual-tracking" suit
On November 1, the U.S. District Court for the Northern District of Ohio declined to grant summary judgment in favor of a mortgage servicer defendant in a Regulation X, RESPA, and Ohio Residential Mortgage Lending Act (RMLA) suit against the mortgage servicer and a law firm (collectively, “defendants”). The case concerned a loan modification that plaintiff had allegedly sought from defendants, for which the defendant mortgage servicer ultimately denied, and the defendant law firm initiated a foreclosure action. The defendant mortgage servicer challenged the count in the complaint alleging that the defendant mortgage servicer’s moving for summary judgment in the state foreclosure action violated Regulation X and RESPA’s prohibition on dual tracking. Dual tracking “occurs when a lender ‘actively pursues foreclosure while simultaneously considering the borrower for loss mitigation options.’” The defendant mortgage servicer argued that the prohibition on moving for summary judgment found in Regulation X did not apply because the plaintiff rejected the loan modification. The defendant mortgage servicer based this argument on the fact that it did not receive the plaintiff’s executed modification by a certain date. Because of this, the defendant mortgage servicer argued that it was permitted to move forward with a foreclosure judgment, and its decision to reverse the denial of the modification was at its discretion and not subject to the requirements of 12 C.F.R.1024.41(g).
The court found, however, that there was a genuine dispute as to whether the plaintiff returned the loan modification agreement by the designated date. The court continued, “[the defendant mortgage servicer’s] explanation regarding all three of the exceptions found at §41(g) subsections (1) through (3) each expressly depend upon the factual assertion that [the plaintiff] did not return a signed modification agreement and thereby rejected same. Inasmuch as there is evidence that [the plaintiff] did so, the court cannot conclude that [the defendant mortgage servicer] is entitled to judgment as a matter of law regarding the exceptions in §41(g) of Regulation X.” Among other things, the court also found that the defendant mortgage servicer “failed to act with reasonable care and diligence, in good faith, to safeguard and account for money tendered by [the plaintiff].” The court concluded by finding that the plaintiff sufficiently identified plausible damages as a result of a RESPA violation, further permitting her claims to stand.