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  • VA seeks comments on loss-mitigation options for guaranteed loans

    Federal Issues

    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.

    Federal Issues Agency Rule-Making & Guidance Department of Veterans Affairs Mortgages Mortgage Servicing Loss Mitigation Consumer Finance

  • Massachusetts reaches settlement with mortgage servicer over foreclosure practices

    State Issues

    On August 17, the Massachusetts attorney general announced that a national mortgage servicer must pay $3.2 million to resolve allegations that its mortgage servicing, debt collection, and foreclosure practices were unfair and deceptive. According to the assurance of discontinuance, the servicer allegedly violated Massachusetts’ Act Preventing Unlawful and Unnecessary Foreclosures by not providing notice and opportunity for borrowers to apply and be reviewed for loan modifications. Among other things, the servicer also allegedly placed debt collection calls exceeding the number of calls permitted by state law, did not inform borrowers of their right to request verification of the amount of their debt, unfairly charged foreclosure-related fees prior to obtaining authority to foreclose, and failed to send required debt validation notices. While the servicer denied the allegations, it agreed to pay borrowers $2.7 million in the form of principal forgiveness on eligible loans as well as a $500,000 fine. The servicer also agreed to “make significant changes” to its business practices.

    State Issues Enforcement Massachusetts State Attorney General Consumer Finance Foreclosure Debt Collection Mortgages Mortgage Servicing

  • FHFA, Ginnie Mae update minimum financial eligibility requirements for enterprise seller/servicers and issuers

    Agency Rule-Making & Guidance

    On August 17, FHFA and Ginnie Mae released a joint announcement regarding updated minimum financial eligibility requirements for seller/servicers and issuers. Ginnie Mae also updated its requirements for servicers of Ginnie Mae mortgages in coordination with FHFA. According to the standards, sellers and servicers will be required to maintain a base net worth of $2.5 million plus 35 basis points of the unpaid principal balance for Ginnie Mae servicing and 25 basis points of the unpaid principal balance for all other 1-to-4-family loans serviced. Fannie and Freddie sellers and servicers would be required to maintain a capital ratio of tangible net worth to total assets that is greater than or equal to 6 percent. Depository institutions would continue to rely on their prudential regulatory standards to meet the GSEs’ capital and liquidity requirements. According to HUD Secretary Marcia L. Fudge, the standards “ensure that we continue to address the needs of underserved communities through easy, equitable and sustained access to mortgage credit.” FHFA also released FAQs regarding the seller/servicer minimum financial eligibility requirements, and Ginnie Mae released eligibility requirement comparison tables.

    Agency Rule-Making & Guidance Federal Issues FHFA Ginnie Mae Fannie Mae Freddie Mac Mortgages Mortgage Servicing

  • FHFA to require servicers to maintain fair lending data

    Agency Rule-Making & Guidance

    On August 10, the FHFA announced that Fannie Mae and Freddie Mac will start requiring servicers to obtain and maintain borrowers’ fair lending data on their loans. Data must transfer with servicing throughout the mortgage term, the announcement states, adding that beginning March 1, 2023, servicers will be required to collect borrower data including age, race, ethnicity, gender, and preferred language. The update follows an announcement issued in May (covered by InfoBytes here), which requires lenders to collect information on the borrower’s language preference, and on any homebuyer education or housing counseling that the borrower received, so that lenders can increase their understanding of borrowers’ needs throughout the home buying process. To facilitate the upcoming changes, Freddie Mac issued servicing Bulletin 2022-17, which outlines servicing requirements and notes that data elements must be stored in a format that can be searched, queried, and transferred. Simultaneously, Fannie Mae issued SVC-2022-06 to incorporate the new fair lending data requirements into its Servicing Guide. “Having fair lending data travel with servicing will help servicers do the important work of providing assistance to borrowers in need, helping to further a sustainable and equitable housing finance system,” FHFA Director Sandra Thompson said, adding that this need arose from the foreclosure crisis and Covid-19 response.

    Agency Rule-Making & Guidance Federal Issues FHFA Fair Lending Mortgages Mortgage Servicing Fannie Mae Freddie Mac GSEs Consumer Finance

  • CFPB releases HAF flyers in multiple languages

    Federal Issues

    On June 9, the CFPB released Homeowner Assistance Fund (HAF) informational flyers in English, Spanish, Chinese, Vietnamese, Korean, Tagalog, and Arabic. As previously covered by InfoBytes, the HAF program was created to provide direct assistance to consumers for mortgage payments, property insurance, utilities, and other housing-related costs to help prevent delinquencies, defaults, and foreclosures after January 21, 2020 related to the Covid-19 pandemic. Mortgage servicers may voluntarily provide these flyers to their borrowers and are advised that the flyer is not required by regulation. Additional HAF program information is available in multiple languages on the Bureau’s website.

    Federal Issues CFPB Mortgages Mortgage Servicing Consumer Finance Covid-19

  • VA eliminates pre-approval process for certain loans

    Federal Issues

    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.

    Federal Issues Agency Rule-Making & Guidance Department of Veterans Affairs Consumer Finance Mortgages Mortgage Servicing

  • FDIC approves final rule for trust, mortgage servicing account insurance

    On May 18, the FDIC published a final rule that amends the deposit insurance regulations for trust accounts and mortgage servicing accounts. According to the FDIC, the final rule is “intended to make the deposit insurance rules easier to understand for depositors and bankers, facilitate more timely insurance determinations for trust accounts in the event of a bank failure, and enhance consistency of insurance coverage for mortgage servicing account deposits.”

    The final rule, among other things: (i) establishes updates to the Banker Resources Guide Deposit Insurance Page with the Small Entity Compliance Guide (Community Bank Information) to promote understanding of the regulations; (ii) amends the deposit insurance regulations by merging the revocable and irrevocable trusts categories; (iii) “amends the regulation to expand the current per-borrower coverage of up to $250,000 to include any funds paid into the account to satisfy the principal and interest obligation of the mortgagors to the lender”; and (iv) establishes that certain “depositors within excess of $1.25 million in trusts deposits at a particular IDI may want to make changes given the new coverage limits” effective April 1, 2024.

    Bank Regulatory Federal Issues FDIC Agency Rule-Making & Guidance Mortgages Mortgage Servicing Deposit Insurance

  • CFPB report finds variance in mortgage servicers’ pandemic response

    Federal Issues

    On May 16, the CFPB released a report examining data collected across 16 large mortgage servicers from May through December 2021 on the servicers’ responses to the Covid-19 pandemic. According to the Bureau, there is significant variation in how servicers collected information on borrowers’ language preference, stating that “the substantial lack of information about borrowers’ language preference and varying data quality made it challenging to make any comparison between servicers.” However, the report also found that “the number of non-[limited English proficiency] borrowers who were delinquent without a loss mitigation option after forbearance declined over time, with the greatest decrease between October and November 2021, while the number of unknown and limited English proficiency (LEP) borrowers did not reflect the same decrease.” The report noted that servicer response to the Bureau’s requests for borrower demographics, including “a breakdown of the total loans they service by race, and race information for forbearances, delinquencies, and forbearance exits” was limited, precluding comparisons. The report encouraged "servicers to ensure that they are preventing discrimination in the provision of loss mitigation assistance.” Other key findings from the report included: (i) by the end of 2021, more than 330,000 borrowers’ loans remained delinquent – with no loss mitigation solution in place; (ii) the average hold times of more than ten minutes and call abandonment rates exceed 30 percent for certain servicers; (iii) the percentage of borrowers in delinquency and who had a non-English language preference increased during the reviewed period, but the percentage decreased for borrowers in delinquency and who identified English as their preferred language; (iv) more than half of the borrowers in the data received are categorized as race “unknown”; and (v) most borrowers exiting Covid forbearance exited with a loan modification (27 percent), while 15.2 percent exited in a state of delinquency.

    Federal Issues Mortgages Mortgage Servicing Covid-19 CFPB Forbearance Consumer Finance

  • HUD offers 40-year mortgage modification

    Agency Rule-Making & Guidance

    On April 18, HUD issued Mortgagee Letter 2022-07, which establishes a 40-year loan modification as part of the Covid-19 Recovery Loss Mitigation Options. According to HUD, the new option is “designed to help those borrowers who cannot achieve a minimum targeted 25 percent reduction in the Principal and Interest portion of their mortgage payment through FHA’s existing 30-year mortgage modification with a partial claim.” Mortgage servicers may start implementing the new 40-year modification with partial claim option immediately; however, servicers must offer this solution to eligible borrowers with FHA-insured Title II forward mortgages, except those funded through Mortgage Revenue Bonds under certain circumstances, within 90 calendar days. As previously covered by InfoBytes, HUD published a proposed rule to increase the maximum term limit allowable on loan modifications for FHA-insured mortgages from 360 to 480 months. Comments are due by May 31.

    Agency Rule-Making & Guidance Federal Issues HUD FHA Mortgages Federal Register Covid-19 Loss Mitigation Mortgage Servicing Consumer Finance

  • States urge CFPB to prohibit mortgage servicers from charging convenience fees

    State Issues

    On April 11, a coalition of state attorneys general, led by Illinois Attorney General Kwame Raoul, announced that they are urging the CFPB to prohibit mortgage servicers from charging convenience fees, which the AGs also referred to as “junk fees” or “pay-to-pay” fees. As previously covered by InfoBytes, the CFPB announced an initiative to reduce “exploitative” fees charged by banks and financial companies and requested comments from the public on fees that are associated with consumers’ bank accounts, prepaid or credit card accounts, mortgages, loans, payment transfers, and other financial products that are allegedly not subject to competitive processes that ensure fair pricing. In the letter, the AGs expressed their support for the Bureau’s request for information on the various fees imposed on consumers generally, but called attention to a specific type of fees imposed by mortgage servicers – the “pay-to-pay fees” – which, notwithstanding that consumers can pay using numerous free mechanisms, the AGs find to be “unfair and abusive” to consumers. The AGs called the fees “particularly insidious in the mortgage industry” because, unlike other markets in which such fees are imposed, “homeowners have no choice in their mortgage servicer.” Because of the nature of the secondary mortgage market, homeowners’ expectations of entering into a long-term relationship with their originating institution are misplaced and they cannot know in advance or determine which company will service their loans – even if they choose to refinance. The AGs also warned that the choice to make payments by an alternative method with no fee (such as online or by check instead of over the phone) may be illusory in the face of pending payment posting deadlines and threatened late fees. In such scenarios, the AGs asserted that the convenience fee operates as an alternative late fee “cheaper, but with a shorter grace period, and in contravention to the contractual terms in most mortgages that outline the specific amount and timing” of late fees. The AGs also took umbrage to mortgage servicers charging fees for the very service they are expected to perform, stating that “[t]he most basic function of a mortgage servicer is to accept payments. The concept that a servicer ought to be able to impose an additional charge for performing its core function is fundamentally flawed.”

    Ultimately, the AGs suggested that the Bureau prohibit mortgage servicers from imposing convenience fees on consumers, but, alternatively, the AGs encouraged the Bureau to prohibit servicers from charging convenience fees that exceed the actual cost of processing a borrower’s payment. Furthermore, the AGs requested that the Bureau require servicers to fully document their costs supporting the imposition of convenience fees.

    The same day, a group of AGs from 16 Republican-led states released a letter, arguing that more federal oversight would be “duplicative or unwarranted,” given that states already regulate many fees for consumer financial products and services. According to the letter, the AGs noted that “state legislatures and regulators have carefully weighed consumer protection interests and the open and transparent operation of markets in a manner intended to deliver the maximum benefit to the interests of their states,” and argued that they “are much better positioned to understand and assess the diverse interests of their states.” In addition, the letter argued that the Bureau has “limited authority to regulate” fees in consumer financial services markets. The AGs mentioned that the Bureau “may seek to use its authority to prohibit unfair, deceptive or abusive acts or practices to regulate fees,” but considered it “unclear” “that fees disclosed in accordance with state or federal law, in some cases authorized by state law, and agreed to by a consumer in writing constitute ‘unfair, deceptive or abusive’ fees, notwithstanding the CFPB’s characterization of some fees as ‘not meaningfully avoidable or negotiable” at the time they are assessed.’” The letter further characterized the Bureau’s approach as “uncooperative,” “top-down,” and “an unfounded expansion of its authority” that may infringe upon state law.

    State Issues State Attorney General CFPB Mortgages Mortgage Servicing Fees Consumer Finance

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