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VA clarifies Covid-19 forbearance timeline
On September 19, the Department of Veterans Affairs issued a change to Circular 26-21-20 extending the rescission date to align with the end of Covid-19 pandemic, including conforming changes to VA’s expectation as to the completion of a forbearance period. As previously covered by InfoBytes, the VA issued Circular 26-21-20 in September 2021 to clarify timeline expectations for forbearance requests submitted by affected borrowers. The September 2021 Circular stated thar “[f]or 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,” and that all Covid-19 related forbearances would end by September 30, 2022. However, Change 1 stated that “September 30, 2022” should be replaced with “six months after the end of the National Emergency Concerning the Novel COVID-19 Pandemic.” The circular is rescinded March 1, 2023.
States request extension of PSLF forgiveness waiver
On July 29, a coalition of state attorneys general sent a letter to President Biden and Department of Education Secretary Miguel Cardona, requesting the extension of the deadline for individuals to file claims under the Public Service Loan Forgiveness (PSLF) program. As previously covered by InfoBytes, in October 2021, the Department announced several significant changes to its PSLF program, including that approximately 22,000 borrowers with consolidated loans (including loans previously ineligible) may be immediately eligible to have their loans forgiven automatically, and another 27,000 borrowers could have their balances forgiven if they are able to certify additional periods of public service employment. According to the AGs, “it is critically important to extend the waiver at least until new PSLF regulations take effect and to grandfather in waiver benefits for borrowers who miss administrative deadlines.” The AGs also asked the Biden administration to count all forbearance periods toward loan forgiveness, rather than making exceptions for servicemembers and longer periods of forbearance for everyone else. The letter stated that “[f]ailure to automatically count periods of forbearance toward loan forgiveness ignores pervasive and well-established servicing problems and inappropriately shifts the burden to borrowers to identify and prove that they were victims of servicer misconduct.” The AGs urged the Biden administration “to exercise its authority to synchronize the One-Time Adjustment and Limited PSLF Waiver into a unified adjustment policy.” The letter specifically stated that the “simplest way of doing so may be to incorporate certain critical aspects of the waiver into the One-Time Adjustment, including that qualifying employment at the time of forgiveness is not necessary and that consolidations (whether of FFEL or Direct Loans) occurring prior to the completion of the One-Time Adjustment do not negate past qualifying employment periods for PSLF.”
District Court issues judgment against student debt relief operation
On May 24, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against an individual defendant who participated in a deceptive debt-relief enterprise operation. As previously covered by InfoBytes, in 2019, 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 student loan debt relief operation for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees. In the third amended complaint, the Bureau and the states alleged that since at least 2015 the debt relief operation violated the CFPA, TSR, FDCPA, 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. In addition, the Bureau and the states claimed that the debt relief operation engaged in deceptive practices by misrepresenting, among other things: (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness for borrowers; and (iii) their ability to actually lower borrowers’ monthly payments. Moreover, the debt relief operation allegedly failed to inform borrowers that it was their practice to request that the loans be placed in forbearance and also submitted false information to student loan servicers to qualify borrowers for lower payments. Under the terms of the final judgment, the individual defendant must pay a $483,662 civil money penalty to the Bureau.
CFPB report finds variance in mortgage servicers’ pandemic response
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.
CFPB exposes private loan servicers’ unfair practices
On May 5, the CFPB discussed examination findings related to private student loan servicers’ alleged failure to follow through with promised loan offers or modifications. The Bureau directed servicers found to have breached their commitments to make “significant remediation amounts” for failing to make promised payments to customers. The Bureau found some servicers offered financial incentives to recruit new customers, but then failed to make the promised payments. In certain instances, servicers’ systems failed to identify customers who earned incentives, and in others, payments were denied based on terms that were not included in the original deal, the Bureau claimed. The Bureau also found that while many servicers offered payment relief options to pause or reduce payments to customers impacted by the Covid-19 pandemic, at least one servicer failed to deliver promised refunds to customers who modified their agreements to allow them to backdate forbearance after making a payment. The Bureau documented two examples of servicers committing unfair acts or practices in this space in its recent spring Supervisory Highlights (covered by InfoBytes here) and warned servicers that it is “closely monitoring” companies that break the law.
CFPB reports cover mortgage challenges, emergency savings
On March 23, the CFPB released two reports, New Data on the Characteristics of Mortgage Borrowers During the COVID-19 Pandemic and Emergency Savings and Financial Security: Insights from the Making Ends Meet Survey and Consumer Credit Panel. As previously covered by InfoBytes, the CFPB first released Characteristics of Mortgage Borrowers During the COVID-19 Pandemic in May 2021, which analyzed mortgage borrowers’ challenges due to the ongoing Covid-19 pandemic. The recently released report explores the characteristics of borrowers who are delinquent or in forbearance based a sample of more than 2 million loans for owner-occupied properties. The report shows, among other things, that Black and Hispanic borrowers are more at risk of poor outcomes than others, as they comprised 31.2 percent of borrowers in forbearance while only constituting 18.2 percent of the overall sample of mortgage borrowers. The report also found that single borrower loans were approximately 1.6 times more likely to be in forbearance through January 2022, compared to loans with a co-borrower, which is an increase relative to March 2021, where single borrowers were only 1.4 times more likely to be in forbearance compared to co-borrowers.
The Emergency Savings and Financial Security Insights from the Making Ends Meet Survey and Consumer Credit Panel report examines how consumers’ financial profiles vary by levels of emergency savings. Using the Making Ends Meet survey and pairing it with credit bureau data from our Consumer Credit Panel, the report found that, among other things: (i) approximately 24 percent of consumers do not have savings set aside for emergencies, “while 39 percent have less than a month of income saved for emergencies and 37 percent have at least a month of income saved for emergencies,” and (ii) “41 percent of consumers with no more than a high school or vocational degree have no emergency savings, [while] the share is 6 percent for those with a college degree.”
FTC settles with remaining student debt relief defendants
On January 26, the FTC announced settlements with the remaining participants in a student loan debt relief operation. As previously covered by InfoBytes, the FTC filed a complaint against the defendants for allegedly using telemarketing calls, as well as media advertisements, to enroll consumers in student debt relief services in violation of the FTC Act and the Telemarketing Sales Rule (TSR). The defendants allegedly misrepresented that they were affiliated with the U.S. Department of Education and misrepresented “material aspects of their debt relief services,” including by promising to enroll consumers in repayment programs to reduce or eliminate payments and balances. Additionally, the defendants allegedly charged illegal upfront fees, and often placed the consumers’ loans into temporary forbearance or deferments with their student loan servicers, without the consumer’s authorization. A $43 million settlement was reached in 2020 with certain of the defendants that was partially suspended conditioned upon the surrender of at least $835,000, as well as additional assets.
The FTC entered two settlements against the remaining defendants. The first settlement imposes a roughly $7.5 million monetary judgment, which is partially suspended after the individual defendant pays $743,386. The second settlement includes a $22 million monetary judgment, which is also partially suspended based on the defendants’ inability to pay. The settlement also requires the defendants to forfeit all frozen funds held by the receiver. Monies recovered in the action will go towards consumer refunds. Additionally, the defendants are banned from providing any debt relief products and services in the future, and are prohibited from making misrepresentations in connection with the sale of any products or services or from making any unsubstantiated claims. Defendants are also enjoined from violating the TSR.
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.
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.