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CFPB says it wants to simplify rules on mortgage servicing
On June 15, CFPB Director Rohit Chopra said the Bureau is considering whether to streamline mortgage servicing rules. Last September, the Bureau requested input from the public on mortgage refinance and forbearance standards and sought feedback on ways to reduce risks for borrowers who experience disruptions in their ability to make mortgage payments. (Covered by InfoBytes here.) Specifically, the Bureau sought ways to: (i) “facilitate mortgage refinances for consumers who would benefit from refinancing, especially consumers with smaller loan balances”; and (ii) “reduce risks for consumers who experience disruptions in their financial situation that could interfere with their ability to remain current on their mortgage payments.”
Chopra flagged several issues raised by commenters, including that borrowers seeking loss mitigation options can face a “paperwork treadmill” that disadvantages both homeowners and mortgage servicers. Commenters also reported that borrowers often incur servicing fees and experience negative credit reporting when waiting for servicers to review their options, Chopra said, explaining that even after a loss mitigation option has been implemented, these penalties can continue to negatively impact borrowers (such as preventing loan modifications and other interventions designed to allow borrowers to keep their homes).
Chopra said the Bureau intends to use the feedback to propose ways to streamline servicing standards but noted that the agency “will propose streamlining only if it would promote greater agility on the part of mortgage servicers in responding to future economic shocks while also continuing to ensure they meet their obligations for assisting borrowers promptly and fairly.”
11th Circuit: ECOA anti-discrimination provision against requiring spousal signature does not apply to defaulted mortgage during loan modification offer
On April 27, the U.S. Court of Appeals for the Eleventh Circuit affirmed a lower court’s decision to enter judgment in favor of a defendant national bank following a bench trial related to claims arising from foreclosure proceedings on the plaintiff’s home. The plaintiff executed a promissory note secured by a mortgage signed by both the plaintiff and her husband. After the borrowers defaulted on the mortgage, the defendant filed a foreclosure action and approved the plaintiff for a streamlined loan modification while the foreclosure action was pending. One of the conditions of the streamlined loan modification was that the plaintiff had to make required trial period plan payments and submit signed copies of the loan modification agreement within 14 days. Both individuals were expressly required to sign the modification agreement as borrowers on the mortgage. However, should one of the borrowers not sign, the bank required documentation as to why the signature is not required, as well as a recorded quit claim deed and a divorce decree. The plaintiff acknowledged that she refused to return a fully signed loan modification agreement or provide alternative supporting documentation, and during trial, both individuals admitted that the husband refused to sign. The borrowers eventually consented to final judgment in the foreclosure action and the property was sold.
The plaintiff then brought claims under ECOA and RESPA. The district court granted summary judgment to the defendant on the ECOA discrimination claim and the RESPA claim. After a bench trial on the ECOA notice claim, the district court determined that because the defendant gave proper notice to the plaintiff as required by ECOA (i.e., she was provided required written notices within 30 days after being verbally informed that her modification agreement was not properly completed), plaintiff’s claim failed on the merits.
On appeal, plaintiff argued, among other things, that the district court erred in granting summary judgment in favor of the defendant on her ECOA discrimination claim. The 11th Circuit explained that under ECOA it is unlawful for a creditor to discriminate against an applicant on the basis of marital status. However, ECOA and Regulation B also establish “exceptions for actions that are not considered discrimination, including when a creditor may require a spouse’s signature,” and include additional exceptions to creditor conduct constituting “adverse action” (i.e. “any action or forbearance taken with respect to an account that is delinquent or in default is not adverse action”). The appellate court held that because the plaintiff had defaulted on the mortgage at the time the loan modification was offered, ECOA and Regulation B’s anti-discrimination provision against requiring spousal signatures did not apply to her. Moreover, even if the provision was applicable in this instance, the appellate court held that “the district court correctly concluded that it was reasonable for [defendant] to require either [plaintiff’s] signature or a divorce decree in light of Florida’s homestead laws,” and that such a requirement does not constitute discrimination under ECOA.
As to the notice claim, the appellate court found no error in the district court’s conclusion that the defendant had satisfied applicable notice requirements by timely sending a letter to the plaintiff that (i) specified the information needed from the plaintiff; (ii) designated a reasonable amount of time within which to provide the information; and (iii) informed the plaintiff that failure to do so would result in cancellation of the modification. This letter satisfied the “notice of incompleteness” requirements of 12 C.F.R. § 202.9(c)(2).
HUD extends Covid-19 forbearance through May
On April 7, HUD issued Mortgagee Letter 2023-08, which extends through May 31 the final date for borrowers to request Covid-19 forbearance and home equity conversion mortgage (HECM) extensions. The extension is intended to allow ample time for affected borrowers to submit requests and for mortgagees to offer and process the requests in the event that the presidentially-declared national emergency ends earlier than originally expected. As stated in the letter, HUD determined that providing a short period beyond the expiration of the national emergency will be beneficial to both FHA borrowers and mortgagees. The extension will also align Covid-19 forbearance and HECM extension requests with the monthly billing cycle. The letter stated that no Covid-19 forbearance period may extend beyond November 30.
States support DOE’s overhaul of IDR plans
On February 13, a coalition of state attorneys general led by California and Massachusetts submitted a letter in support of the Department of Education’s (DOE) proposed changes to income-driven repayment plans (IDR) for federal student loan borrowers. As previously covered by InfoBytes, last month the DOE announced a notice of proposed rulemaking (NPRM) designed to reduce the cost of federal student loan payments. According to the NPRM, the DOE is proposing to amend the regulations governing income-contingent repayment plans by amending the Revised Pay as You Earn (REPAYE) repayment plan, and is looking to restructure and rename the repayment plan regulations under the William D. Ford Federal Direct Loan Program, including combining the Income-Contingent Repayment and the Income-Based Repayment (IBR) plans under the umbrella term of IDR plans. The NPRM would ensure that a borrower’s balance would not grow due to accumulation of unpaid interest if the borrower otherwise makes the monthly payments, and would also establish that for individuals who borrow $12,000 or less, loan forgiveness can occur after making the equivalent of 10 years of payments. That period increases by one year for each additional $1,000 that is borrowed.
In their letter, the states expressed support for the DOE’s NPRM, but urged the department to take further steps to support struggling borrowers. The states urged the DOE to expand the scope and reach of the proposed reforms by, among other things, creating a simple path for borrowers in default to enroll in IBR or REPAYE, counting all past forbearance and repayment periods and certain deferment periods towards borrowers’ loan forgiveness, making Parent PLUS loans eligible for REPAYE, and expanding the reach of its reforms to “provide more retroactive relief” to borrowers impacted by widespread servicing errors that prevented them from enrolling in IDR. According to the letter, the DOE should also raise the discretionary income threshold to make debt more manageable for borrowers with the greatest need, eliminate the reverse amortization of IDR loan balances, shorten the period in which borrowers must make payments to receive forgiveness under REPAYE, provide viable repayment options, and automatically enroll delinquent borrowers in IDR plans before they face negative credit reporting and default, among other measures.
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.
CFPB to issue $95 million in redress to victims of student loan debt relief operation
On December 13, the CFPB announced that it will distribute more than $95 million in redress to over 87,000 consumers harmed by a student loan debt relief operation. As previously covered by InfoBytes, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against the defendants for allegedly deceiving thousands of student loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21, 2019, and unsealed on October 29, 2019 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015, the defendants have violated the CFPA, the TSR, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. The CFPB also claimed that the defendants automatically put loans in forbearance and submitted false information to loan servicers to qualify customers for lower monthly payments.
CFPB issues fall supervisory highlights
On November 15, the CFPB released its fall 2022 Supervisory Highlights, which summarizes its supervisory and enforcement actions between January and June 2022 in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, mortgage servicing, and payday lending. Highlights of the findings include:
- Auto Servicing. Bureau examiners identified instances of servicers engaging in unfair, deceptive, or abusive acts or practices connected to add-on product charges, loan modifications, double billing, use of devices that interfered with driving, collection tactics, and payment allocation. For instance, examiners identified occurrences where consumers paid off their loans early, but servicers failed to ensure consumers received refunds for unearned fees related to add-on products.
- Consumer Reporting. The Bureau found deficiencies in credit reporting companies’ (CRCs) compliance with FCRA dispute investigation requirements and furnishers’ compliance with FCRA and Regulation V accuracy and dispute investigation requirements. Examples include: (i) NCRCs that failed to report the outcome of complaint reviews to the Bureau; (ii) furnishers that failed to send updated information to CRCs following a determination that the information reported was not complete or accurate; and (iii) furnishers’ policies and procedures that contained deficiencies related to the accuracy and integrity of furnished information.
- 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) conduct reasonable investigations into billing error notices due to human errors and system weaknesses; and (iii) provide explanations to consumers after determining that no billing error occurred or that a different billing error occurred from that asserted. Examiners also identified Regulation Z violations where credit card issuers improperly mixed original factors and acquisition factors when reevaluating accounts subject to a rate increase, and identified deceptive acts or practices related to credit card issuers’ advertising practices.
- Debt Collection. The Bureau found instances of FDCPA violations where debt collectors engaged in conduct that harassed, oppressed, or abused the person with whom they were communicating. The report findings also discussed instances where debt collectors communicated with a person other than the consumer about the consumer’s debt when the person had a name similar or identical to the consumer, in violation of the FDCPA.
- Deposits. The Bureau discussed how it conducted prioritized assessments to evaluate how financial institutions handled pandemic relief benefits deposited into consumer accounts. Examiners identified unfairness risks at multiple institutions due to policies and procedures that may have resulted in, among other things, (i) garnishing protected economic impact payments funds in violation of the Consolidated Appropriations Act of 2021; or (ii) failing to apply the appropriate state exemptions to certain consumers’ deposit accounts after receiving garnishment notice.
- Mortgage Origination. Bureau examiners identified Regulation Z violations and deceptive acts or practices prohibited by the CFPA. An example of this is when the settlement service had been performed and the loan originator knew the actual costs of those service, but entered a cost that was completely unrelated to the actual charges that the loan originator knew had been incurred, resulting in information being entered that was not consistent with the best information reasonably available. The Bureau also found that the waiver language in some loan security agreements was misleading, and that a reasonable consumer could understand the provision to waive their right to bring a class action on any claim in federal court.
- Mortgage Servicing. Bureau examiners identified instances where servicers engaged in abusive acts or practices by charging sizable fees for phone payments when consumers were unaware of those fees. Examiners also identified unfair acts or practices and Regulation X policy and procedure violations regarding failure to provide consumers with CARES Act forbearances.
- Payday Lending. Examiners found lenders failed to maintain records of call recordings necessary to demonstrate full compliance with conduct provisions in consent orders generally prohibiting certain misrepresentations.
DOE announces final rules for targeted debt relief programs
On October 31, the Department of Education (DOE) announced final rules to streamline and improve targeted debt relief programs. (See DOE fact sheet here.) The final rules implement several changes to protect student borrowers, including:
- Borrower defense to repayment and arbitration. The final rules establish a strong framework for borrowers to raise a defense to repayment if their post-secondary institution misleads or manipulates them. Claims pending on or received on or after July 1, 2023, can be decided individually or as a group, and may be based on one of the following categories of actionable circumstances: substantial misrepresentation, substantial omission of fact, breach of contract, aggressive and deceptive recruitment, or judgments or final secretarial actions. The final rules will only provide full relief (partial discharges will not be considered), with approved claims requiring “that the institution committed an act or omission which caused the borrower detriment of such a nature and degree that warrant full relief” based upon a preponderance of the evidence. Additionally, the final rules establish certain recoupment processes for DOE to pursue institutions for the cost of approved claims, and will allow borrowers to litigate their case “by preventing institutions that participate in the Direct Loan program from requiring borrowers to engage in pre-dispute arbitration or sign class action waivers.”
- Closed school discharges. The final rules provide an automatic discharge of a borrower’s loan “one year after a college’s closure date for borrowers who were enrolled at the time of closure or left 180 days before closure and who do not accept an approved teach-out agreement or a continuation of the program at another location of the school.” Borrowers who accept but do not complete a teach-out agreement or program continuation will receive a discharge one year after the last date of attendance.
- Total and permanent disability discharge. The final rules include new options for borrowers who have had a total and permanent disability to receive a discharge, including borrowers (i) who receive additional types of disability review codes from the Social Security Administration (SSA); (ii) who later aged into retirement benefits and are no longer classified by one of SSA’s codes; (iii) who have an established disability onset date determined by SSA to be at least 5 years in the past; and (iv) whose first continuing disability review is scheduled at three years. The final rules also eliminate a three-year income monitoring requirement.
- Interest capitalization. Under the final rules, “interest will no longer be added to a borrower’s principal balance the first time a borrower enters repayment, upon exiting a forbearance, and leaving any income-driven repayment plan besides Income-Based Repayment.” Specifically, the final rules eliminate all instances where interest capitalization—which occurs when a borrower has outstanding unpaid interest added to the principal balance—is not required by law.
- Public Service Loan Forgiveness. As previously covered by InfoBytes, the final rules will provide benefits for borrowers seeking Public Service Loan Forgiveness, including providing credit toward the program for borrowers who have qualifying employment.
- False certification. The final rules will provide borrowers with an easier path to discharge when a college falsely certifies a borrower’s eligibility for a student loan. This includes expanding allowable documentation, clarifying applicable discharge dates, and allowing for the consideration of group discharges.
The final rules are effective July 1, 2023.
DOE announces PSLF changes
On October 25, the Department of Education (DOE) announced executive actions intended to bring loans managed by the DOE closer to forgiveness, including credit toward the Public Service Loan Forgiveness (PSLF) Program for borrowers who have qualifying employment. According to the DOE, these actions will provide borrowers with many of the same benefits already going to those who have applied for PSLF under temporary changes (known as the Limited PSLF Waiver), before its October 31, 2022 end date. The announcement further noted that borrowers with Direct Loans or DOE-managed Federal Family Education Loans (FFEL) will receive credit toward forgiveness on income-driven repayment (IDR) for all months spent in repayment, including payments prior to consolidation, regardless of whether they made partial or late payments or are on a repayment plan. Borrowers will also receive credit for specific periods in deferment and forbearance. Even with these actions, the DOE encouraged borrowers to take the necessary steps to apply for the Limited PSLF Waiver by October 31. The DOE also released a Fact Sheet outlining benefits for borrowers who have Direct or DOE-managed FFEL loans as well as Direct Loan borrowers seeking PSLF.
CFPB seeks comments on mortgage refinance and forbearance standards
On September 27, the CFPB issued a notice in the Federal Register requesting input from the public regarding (i) the availability of refinance loans for borrowers with smaller mortgage loan balances, and (ii) options for mortgage forbearance. Specifically, the Bureau sought ways to: (i) “facilitate mortgage refinances for consumers who would benefit from refinancing, especially consumers with smaller loan balances”; and (ii) “reduce risks for consumers who experience disruptions in their financial situation that could interfere with their ability to remain current on their mortgage payments.” The Bureau also noted that some stakeholders have suggested that changes to the Bureau’s ability-to-repay/qualified mortgage rule (ATR–QM rule) may play a role in facilitating beneficial refinances through targeted and streamlined programs, noting that the current rule references “frictions” in the refinance process tied to QM standards. Comments are due by November 28.