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CFPB examines pandemic’s effects on consumer finances
On December 21, the CFPB released a data point report discussing the results of a Making Ends Meet survey, which examined consumers’ financial health during the Covid-19 pandemic. Using the results from the survey as well associated credit bureau data, the Bureau found that while consumers “were much more likely to face income drops during the pandemic,” their “financial well-being scores improved on average through the end of the survey period (February 2021).” The Bureau reported that this may be attributed to pandemic-assistance policies, including unemployment insurance and pandemic-specific loan and rent flexibilities, many of which have ended or will end soon. Among the report’s observations, the Bureau noted a pattern between credit card debt and credit card utilization rates, where “credit card debt increased and decreased as cash assistance policies started and stopped.” Additionally, with the exception of federal student loan borrowers who received an automatic zero-payment-due plan, the Bureau found that roughly “80 percent of consumers who received rent, mortgage, credit card, or other forbearance suffered a significant income drop.” Recognizing that these policies helped protect consumers impacted by pandemic, the Bureau cautioned that “their expiration may lead to increased consumer distress unless the economic recovery is strong and equitable enough to make up for the loss of protections.”
CFPB, DOJ remind on servicemember protections
On December 20, the CFPB and the DOJ issued two joint letters reminding mortgage servicers and landlords to ensure that military homeowners and tenants are safeguarded during the Covid-19 pandemic and benefit equally as the U.S. economically recovers. One letter was sent to landlords and other housing providers on protections for military tenants, reminding property owners of the critical housing protections for military tenants, some of whom may have had to make alterations to their housing arrangements in response to the pandemic. The other letter was sent to mortgage servicers regarding military borrowers who have exited or will be exiting Covid-19 mortgage forbearance programs. The letter comes in response to complaints from military families and veterans on possible mortgage servicing violations, which include, among other things, inaccurate credit reporting and misleading communications to borrowers. According to the second letter, the CFPB and the DOJ warned, “[s]uch actions, if true, may be in violation of the legal protections under the CARES Act or contrary to administrative guidance issued by federal housing agencies,” and that the Bureau “is currently reviewing these complaints to determine if further investigation is warranted.” The announcement also reminded landlord and servicers that “[s]ervicemembers have several legal protections under the SCRA that are designed to enable them to devote their entire energy to the national defense,” which include, among other things, “a prohibition on foreclosing on certain servicemembers’ mortgages without court orders, the ability for military families to terminate residential leases early, and without penalty, upon receipt of military orders, and a prohibition on evicting military families from their homes without court orders. In addition, under the CARES Act and Regulation X, servicemembers and veterans have the same protections available to all mortgage borrowers.” The announcement also noted that approximately 7.6 million homeowners entered forbearance during the Covid-19 pandemic and 1.25 million borrowers, many of whom are military borrowers, are still currently in forbearance programs that will expire at the end of the year.
New York AG warns mortgage servicers of obligation to help homeowners affected by Covid-19
On December 13, New York Attorney General Letitia James sent a letter warning mortgage servicers operating in the state of their obligation to help homeowners impacted by the Covid-19 pandemic. The letter, which was also sent to mortgage industry trade associations, reiterated that mortgage servicers are expected to comply with New York law and federal regulations and guidelines when providing long-term relief to affected homeowners. James also announced “that the Office of the Attorney General’s (OAG) Mortgage Enforcement Unit (MEU) will be helping to oversee the distribution of New York state’s Homeowner Assistance Fund (HAF) announced last week by New York Governor Kathy Hochul.” According to the letter, HAF funds “may be used to pay off arrears or reduce mortgage principal so that homeowners can qualify for an affordable loan modification.” However, James stressed that these funds “must supplement rather than replace the mortgage industry’s own efforts,” adding that mortgage servicers must “play their part by offering homeowners all available loss mitigation options before that homeowner seeks an outside HAF grant, in order to help the program save as many homes as possible.” MEU will contact the mortgage industry, including New York legal services and housing counseling agencies, to provide additional information on the HAF application process. MEU will also be responsible for reviewing HAF applications to determine whether homeowners have been presented all available and affordable loan modification options.
James’ announcement stated that mortgages servicers are also expected to comply with streamlined modification programs offered by various federal agencies, Fannie Mae, and Freddie Mac, and must also “provide comparable relief (pursuant to New York state Banking Law § 9-x and New York’s mortgage servicing regulations) to homeowners whose mortgages are owned by private investors through private label securities or by banks in their own portfolios.” Mortgage servicers should also prepare for surges in requests for assistance, and will be held responsible for staffing shortages and poor customer communications, James warned. She noted in her letter that the OAG is “currently investigating whether certain servicers of privately-owned mortgages have failed to offer homeowners the forbearance relief and post-forbearance modifications required by New York Banking Law § 9-x,” and emphasized that the OAG “will continue to monitor compliance and initiate enforcement actions against individual mortgage servicers as needed to protect New York homeowners.”
CFPB supervisory highlights cover wide range of violations
On December 8, the CFPB released its fall 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of credit card account management, debt collection, deposits, fair lending, mortgage servicing, payday lending, prepaid accounts, and remittance transfers. The report’s findings cover examinations that were completed between January and June of 2021 in addition to prior supervisory findings that led to public enforcement actions in the first half of 2021. Highlights of the examination findings include:
- Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) reimburse late fees after determining a missed payment was not credited to a consumer’s account; and (iii) conduct reasonable investigations into billing error notices concerning missed payments and unauthorized transactions. Examiners also identified deceptive acts or practices related to credit card issuers’ advertising practices.
- Debt Collection. The Bureau found instances of FDCPA violations where debt collectors represented to consumers that their creditworthiness would improve upon final payment under a repayment plan and the deletion of the tradeline. Because credit worthiness is impacted by numerous factors, examiners found “that such representations could lead the least sophisticated consumer to conclude that deleting derogatory information would result in improved creditworthiness, thereby creating the risk of a false representation or deceptive means to collect or attempt to collect a debt in violation of Section 807(10).”
- Deposits. The Bureau discussed violations related to Regulation E, including error resolution violations related to misdirected payment transfers and failure to investigate error notices where consumers alleged funds were sent via a person-to-person payment network but the intended recipient did not receive the funds.
- Fair Lending. The report noted instances where examiners cited violations of ECOA and Regulation B by lenders "discriminating against African American and female borrowers in the granting of pricing exceptions based upon competitive offers from other institutions,” which led to observed pricing disparities, specifically as compared to similarly situated non-Hispanic white and male borrowers. Among other things, examiners also observed that lenders’ policies and procedures contributed to pricing discrimination, and that lenders improperly inquired about small business applicants’ religion and considered religion in the credit decision process.
- Mortgage Servicing. The Bureau noted that it is prioritizing mortgage servicing supervision attributed to the increase in borrowers needing loss mitigation assistance due to the Covid-19 pandemic. Examiners found violations of Regulations Z and X, as well as unfair and deceptive acts and practices. Unfair acts or practices included those related to (i) charging delinquency-related fees to borrowers in CARES Act forbearances; (ii) failing to terminate preauthorized EFTs; and (iii) assessing fees for services exceeding the actual cost of the performed services. Deceptive acts or practices found by examiners related to mortgage servicers included incorrectly disclosed transaction and payment information in a borrower’s online mortgage loan account. Mortgage servicers also allegedly failed to evaluate complete loss mitigation applications within 30 days, incorrectly handled partial payments, and failed to automatically terminate PMI in a timely manner. The Bureau noted in its press release that it is “actively working to support an inclusive and equitable economic recovery, which means ensuring all mortgage servicers meet their homeowner protection obligations under applicable consumer protection laws,” and will continue to work with the Federal Reserve Board, FDIC, NCUA, OCC, and state financial regulators to address any compliance failures (covered by InfoBytes here).
- Payday Lending. The report identified unfair and deceptive acts or practices related to payday lenders erroneously debiting consumers’ loan balances after a consumer applied and received confirmation for a loan extension, misrepresenting that consumers would only pay extension fees on the original due dates of their loans, and failing to honor loan extensions. Examiners also found instances where lenders debited or attempted one or more duplicate unauthorized debits from a consumer’s bank account. Lenders also violated Regulation E by failing “to retain, for a period of not less than two years, evidence of compliance with the requirements imposed by EFTA.”
- Prepaid Accounts. Bureau examiners found violations of Regulation E and EFTA related to stop-payment waivers at financial institutions, which, among other things, failed to honor stop-payment requests received at least three business days before the scheduled date of the transfer. Examiners also observed instances where service providers improperly required consumers to contact the merchant before processing a stop-payment request or failed to process stop-payment requests due to system limitations even if a consumer had contacted the merchant. The report cited additional findings where financial institutions failed to properly conduct error investigations.
- Remittance Transfers. Bureau examiners identified violations of Regulation E related to the Remittance Rule, in which providers “received notices of errors alleging that remitted funds had not been made available to the designated recipient by the disclosed date of availability” and then failed to “investigate whether a deduction imposed by a foreign recipient bank constituted a fee that the institutions were required to refund to the sender, and subsequently did not refund that fee to the sender.”
The report also highlights recent supervisory program developments and enforcement actions.
OCC warns of key cybersecurity and climate-related banking risks
On December 6, the OCC reported in its Semiannual Risk Perspective for Fall 2021 the key issues facing national banks and federal savings associations and the effects of Covid-19 on the federal banking industry. The agency reported that although banks showed resilience in the current environment with satisfactory credit quality and strong earnings, weak loan demand and low net interest margins continue to affect performance.
The OCC identified elevated operational risk as banks continue to face increasingly complex cyberattacks, pointing to an increase in ransomware attacks across financial services. While innovation and technological advances can help counter such risks, the OCC warned they also come with additional concerns given the expansion of remote financial services offered through personally owned computers and mobile devices, remote work options due to the Covid-19 pandemic, and the reliance on third-party providers and cloud-based environments. “The adoption of innovative technologies to facilitate financial services can offer many benefits to both banks and their customers,” the report stated. “However, innovation may present risks. Risk management and control environments should keep pace with innovation and emerging trends and a comprehensive understanding of risk should be achieved to preserve effective controls. Examiners will continue to assess how banks are managing risks related to changes in operating environments driven by innovative products, services, and delivery channels.”
The report calls on banks to “adopt robust threat and vulnerability monitoring processes and implement stringent and adaptive security measures such as multi-factor authentication or equivalent controls” to mitigate against cyber risks, adding that critical systems and records must be backed up and stored in “immutable formats that are isolated from ransomware or other destructive malware attacks.”
The report further highlighted heightened compliance risks associated with the changing environment where banks serve consumers in the end stages of various assistance programs, such as the CARES Act’s PPP program and federal, state, and bank-initiated forbearance and deferred payment programs, which create “increased compliance responsibilities, high transaction volumes, and new types of fraud.”
The report also discussed credit risks, strategic risk challenges facing community banks, and climate-related financial risks. The OCC stated it intends to request comments on its yet-to-be-published climate risk management framework for large banks (covered by InfoBytes here) and will “develop more detailed expectations by risk area” in 2022.
Agencies end Covid mortgage servicing flexibility
On November 10, the OCC, Federal Reserve Board, CFPB, FDIC, NCUA, and state financial regulators issued a joint statement announcing the end to temporary supervisory and enforcement flexibility provided to mortgage servicers due to the Covid-19 pandemic by the agencies’ April 3, 2020 joint statement. As previously covered by InfoBytes, the April 2020 joint statement provided mortgage servicers greater flexibility to provide CARES Act forbearance of up to 180 days and other short-term options upon the request of borrowers with federally backed mortgages without having to adhere to otherwise applicable rules. The April 2020 joint statement also announced that agencies would not take supervisory or enforcement action against mortgage servicers for failing to meet certain timing requirements under the mortgage servicing rules provided that servicers made good faith efforts to provide required notices or disclosures and took related actions within a reasonable time period.
The agencies noted in their announcement that while the pandemic continues to affect consumers and mortgage servicers, servicers have had sufficient time to take measures to assist impacted consumers and develop more robust business continuity and remote work capabilities. Accordingly, the agencies “will apply their respective supervisory and enforcement authorities, when appropriate, to address any noncompliance or violations of the Regulation X mortgage servicing rules that occur after the date of this statement.” However, the agencies will take into consideration, when appropriate, “the specific impact of servicers’ challenges that arise due to the COVID-19 pandemic and take those issues in account when considering any supervisory and enforcement actions,” including factoring in the time it may take “to make operational adjustments in connection with this joint statement.”
The same day, the Bureau released a report titled Mortgage Servicing Efforts in Response to the Covid-19 Pandemic, summarizing efforts taken by the Bureau since the start of the pandemic to respond to the evolving needs of homeowners and CFPB-supervised entities. These responses include: (i) conducting prioritized assessments and targeted supervisory reviews; (ii) issuing reminders to servicers that being “unprepared is unacceptable”; (iii) implementing temporary procedural safeguards to allow borrowers time to explore options before foreclosure; (vi) analyzing consumer complaint data and conducting targeted reviews of high-risk complaints related to pandemic forbearances; (v) analyzing and releasing information relating to mortgage servicers’ pandemic responses; (vi) documenting research on the pandemic’s disproportionate impact on Black, Hispanic, and low-income communities; and (vii) partnering with other federal agencies to create online tools to provide information on CARES Act assistance and protections, as well as providing homeowner outreach materials. The Bureau noted it “will continue to monitor closely the performance of mortgage servicers to prevent avoidable foreclosures to the maximum extent possible and will not hesitate to take supervisory or enforcement action if warranted.”
Fed cites need to increase oversight of nonbank mortgage companies
On November 8, Federal Reserve Board Governor, Michelle W. Bowman, spoke at the “Women in Housing and Finance Public Policy Luncheon” regarding U.S. housing and the mortgage market. Bowman observed that home prices have increased in the past year and a half, stating that “[i]n September, about 90 percent of American cities had experienced rising home prices over the past three months, and the home price increases were substantial in most of these cities,” which “raise[s] the concern that housing is overvalued and that home prices may decline.” She discussed several factors leading to the demand for housing as including (i) low interest rates; (ii) accumulated savings; and (iii) increased income growth. Additionally, she pointed out that mortgage refinancing has surged due to the decrease in long-term interest rates, and that nonbank servicers utilized the proceeds from the “refinacings to fund the advances associated with forbearance.” However, Bowman added that higher home prices and rising rents contributed to inflationary pressures in the economy. Bowman stated that the “multifamily rental market is at historic levels of tightness, with over 95 percent occupancy in major markets,” and she anticipates that these housing supply issues are unlikely to reverse materially in the short term, suggesting that there will be higher levels of inflation caused by housing. With respect to forbearance, Bowman said, “1.2 million borrowers were still in forbearance, down from a peak of 4.7 million in June 2020” on mortgage payments. Bowman stated that, “[f]orbearance, foreclosure moratorium, and fiscal support have kept distressed borrowers in their homes.” Bowman warned that transitioning borrowers from mortgage forbearance to modification may be a “heavy lift” for some servicers. Bowman disclosed that the Fed will be monitoring what happens as borrowers reach the end of the forbearance on mortgage payments and estimates that 850,000 of those in forbearance will reach the end of their forbearance period in January 2022, and “the temporary limitations on foreclosures put in place by the Consumer Financial Protection Bureau will expire at the end of the year.” Bowman recommended that state and federal regulators collaborate to collect data, identify risks, and strengthen oversight of nonbank mortgage companies.
Education Dept. to expand PSLF program
On October 6, the Department of Education announced several significant changes to its Public Service Loan Forgiveness (PSLF) program that will be implemented over the next year. According to the Department, approximately 22,000 borrowers with consolidated loans (including loans previously ineligible) may be immediately eligible to have their loans forgiven automatically. Another 27,000 borrowers could have their balances forgiven if they are able to certify additional periods of public service employment.
The changes will now give qualifying borrowers a time-limited PSLF waiver, which will allow all payments to count towards PSLF regardless of loan program or payment plan. These include payments made on loans under the Federal Family Education Loan (FFEL) Program or Perkins Loan Program. Restrictions will also be waived on the type of repayment plan as well as the requirement that payments be made in the full amount and on-time in order to count. Additionally, the Department states that all months a servicemember spent on active duty will now count toward PSLF, even if a borrower’s loans were in deferment or forbearance and were not actively being repaid. A fact sheet states that the Department is also, among other things, reviewing previously disqualified loan payments for errors and providing borrowers the opportunity to have their PSLF determinations reconsidered. Counting prior payments on additional types of loans will also help borrowers who have or had loans from the FFEL Program, many of whom, the Department says, reported receiving inaccurate information from their servicers about how to make progress toward PSLF. The Department will also “start automatically adjusting payment counts for borrowers who have already consolidated their loans into the Direct Loan Program and certified some employment for PSLF.” Waiver requests must be submitted by October 31, 2022.
In addition to these changes, the Department says it has started its first session of negotiated rulemaking, which includes PSLF. Future changes “would make it easier for borrowers to make progress toward forgiveness, including simplifying qualifying payment rules and allowing certain types of deferments and forbearances to count toward PSLF,” the Department explains.
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.