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California’s new mortgage servicer during a “state of emergency” to be effective
Recently, California enacted SB 455 to address mortgage servicing during a state of emergency. SB 455 will require a mortgage servicer (transferring a mortgage secured by a property within a proclaimed emergency zone) to provide the new servicer with written records between the borrower and the old servicer on the borrower’s election to use insurance proceeds to repair or replace property damaged by a disaster. Additionally, SB 455 prevents the new servicer from disregarding any prior written agreements between the original servicer and the borrower regarding property repairs that were approved by the owner of the promissory note. The SB 455 bill will be effective January 1, 2024.
CFPB says servicers should suggest sales over foreclosures for some borrowers
On January 20, the CFPB encouraged mortgage servicers to advise homeowners struggling to pay their mortgages that a traditional sale may be better than foreclosure. The Bureau reported that due to the Covid-19 pandemic many homeowners are facing foreclosure, especially consumers who were delinquent when the pandemic began. The Bureau pointed out that while foreclosure rates are relatively low compared to pre-pandemic levels, mortgage data from November 2022 shows an increase of 23,400 foreclosure starts. “Often, the mortgage servicer’s phone representatives are the first line of communication with homeowners,” the Bureau said, reminding servicers to provide training to their representatives so they are prepared to provide information to equity-positive homeowners about selling their home as a potential option. “Of course, conversations about selling the home cannot substitute for the Regulation X requirement that mortgage servicers present all available loss mitigation alternatives to borrowers,” the Bureau stated, explaining that Appendix MS-4(B) to Regulation X contains sample language that can be used to inform homeowners of the option to sell their home. Additionally, the Bureau advised servicers to refer homeowners to HUD-approved housing counseling agencies to discuss their options.
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.
VA extends suspension of certain property inspection requirements for Covid-19 forbearance cases
On December 21, the Department of Veterans Affairs (VA) issued Circular 26-21-27 to extend the suspension of certain inspection requirements for properties purchased with loans guaranteed by the VA where the borrower has been negatively impacted by Covid-19. In 2020, the VA temporarily suspended its requirement to conduct a property inspection before the 60th day of delinquency for borrowers whose loans are currently in forbearance and were current or had not reached the 60th day of delinquency when the borrower requested CARES Act forbearance. Circular 26-21-27 sunsets on October 1, 2022.
FHA extends Covid-19 flexibilities
Recently, FHA announced the extension of several Covid-19-related flexibilities for single-family lenders and servicers. Specifically, Mortgagee Letter 2021-16 will “allow industry partners additional opportunity to utilize flexible guidance related to” self-employment and rental income verification for case numbers assigned on or before September 30. Both extensions are applicable to Single Family Title II forward and Home Equity Conversion Mortgages. FHA is also extending temporary flexibilities for “the administration of 203(k) Rehabilitation Escrow guidance for borrowers in forbearance” for open escrow accounts through September 30. Additionally, Mortgagee Letter 2021-17 updates Single Family Quality Control (QC) requirements for appraisal field reviews and evaluation of property and appraisal documentation. FHA notes that the updated guidance applies to mortgages selected for Property and Appraisal QC review on or after July 1.
Arkansas amends FMLA mortgage licensing provisions
On April 1, the Arkansas governor signed SB 149, which amends provisions related to licensing requirements under the state’s Fair Mortgage Lending Act (FMLA). Among other things, the act (i) modifies certain definitions, including expanding the definition of a mortgage servicer to include a person that makes a payment to a borrower in the case of a home equity conversion mortgage or a reverse mortgage; (ii) clarifies the qualifications for licensure under the FMLA and outlines licensing renewal requirements; (iii) provides a process for the Arkansas Securities Commissioner to allow loan officers to work from a location that is not licensed as the principal place of business or branch office; (iv) modifies the process concerning notice of a change in name or address; and (v) requires licensees to establish and enforce written cybersecurity policies and procedures that comply with the FMLA and any regulations or orders promulgated thereunder. The act takes effect 90 days after adjournment of the legislature.