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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.
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.
HUD issues mortgagee letter on Covid-19 forbearance
On September 27, HUD issued Mortgagee Letter 2021-24, which extends and adds Covid-19 relief options for borrowers who are struggling with mortgage payments due to the pandemic and for senior homeowners with Home Equity Conversion Mortgages (HECM) who require assistance to stay in their homes. According to HUD, these actions are in response to the impact of the pandemic and “are part of FHA’s continuing evolution of its COVID-19 policies so that the right tools are in place to help borrowers.” FHA is now providing: (i) “up to six months of COVID-19 Forbearance for borrowers requesting an initial COVID-19 Forbearance or HECM Extension from their mortgage servicer between October 1, 2021, and the end of the COVID-19 National Emergency, and an additional six months if the COVID-19 Forbearance or HECM Extension is exhausted and expires before the end of the COVID-19 National Emergency”; and (ii) “up to six months of additional forbearance for borrowers who requested or will request an initial COVID-19 Forbearance or HECM Extension from their mortgage servicer between July 1, 2021, and September 30, 2021, allowing these borrowers up to a maximum of 12 months of COVID-19 Forbearance or HECM Extension.”
FHFA extends Covid-19 multifamily forbearance
On September 24, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will continue to offer Covid-19 forbearance to qualified multifamily property owners. The forbearance options for GSE-backed multifamily mortgages were set to expire September 30, but have been extended for the fourth time. Eligible multifamily property owners that enter into new or modified forbearance agreements are required to (i) “[i]nform tenants in writing about tenant protections available during the property owner’s forbearance and repayment periods”; and (ii) “[a]gree not to evict tenants solely for the nonpayment of rent while the property is in forbearance.” Additionally, property owners must also provide a tenant at least 30-days’ notice to vacate, may not charge a tenant late fees or penalties for nonpayment of rent, and must allow a tenant flexibility to repay back rent over time and not in a lump sum.
CFPB finds varying pandemic response among servicers
On August 10, the CFPB released an overview report of Covid-19 pandemic responses from 16 large mortgage servicers (servicers). The CFPB used supervisory data from the servicers to understand how they are interacting with homeowners throughout the pandemic and if those interactions are effective. The CFPB’s observations include the following:
- According to the report, most servicers reported abandonment rates, a measure of how many borrowers disconnected from servicing calls before completion, of less than 5 percent during the reporting period, while others exceeded 20 percent, and one peaked at 34 percent.
- Many servicers saw increased rates of borrowers who were delinquent upon exiting pandemic hardship forbearance programs in March and April 2021 compared to previous months. According to the report, these borrowers “may be at risk of harm from advanced delinquency, foreclosure and foreclosure-related costs, and negative credit reporting.”
- Delinquency rates ranged from about 1 percent to 26 percent for federally-backed and private loans. According to the report, “[d]elinquency rates increased sharply around March 2020 and remain elevated.”
- According to the CFPB, “[n]early half of servicers in the report clearly stated that they did not collect or maintain information about borrowers’ LEP [limited English proficiency] status, which may lead to borrowers not receiving needed language assistance. Some of the servicers also reported not maintaining data on borrowers’ race, which may raise the risk of fair lending violations.”
- The report found that denial rates for Covid-19 hardship forbearance requests were consistently low for both federally-backed loans and private loan forbearance programs.
According to the CFPB, the Bureau “will continue its oversight work through examinations and enforcement, and it will hold servicers accountable for complying with existing regulatory requirements, as well as the amended Mortgage Servicing Rules that take effect August 31, 2021.”
Agencies announce additional actions to prevent Covid-19 foreclosures
On July 23, President Biden announced additional actions taken by HUD, the VA, and USDA, which are intended to ensure stable and equitable recovery from disruptions caused by the Covid-19 pandemic and prepare homeowners to exit mortgage forbearance. According to the Biden administration, the goal of these new measures is to bring homeowners with HUD-, VA-, and USDA-backed mortgages closer in alignment with options provided for homeowners with Fannie Mae- and Freddie Mac-backed mortgages (covered by InfoBytes here). Specifically, mortgage servicers will be required or encouraged to offer new payment reduction offers to assist borrowers.
- HUD. FHA announced enhanced Covid-19 recovery loss mitigation options to help homeowners with FHA-insured mortgages who have been financially impacted by the pandemic. Mortgagee Letter (ML) 2021-18 supersedes previously issued FHA-loss mitigation options, and will, among other things, require mortgage servicers to offer a zero-interest subordinate lien option to eligible homeowners who can resume their existing mortgage payments under the “COVID-19 Recovery Standalone Partial Claim” option. For borrowers that are unable to resume their monthly mortgage payments, FHA established the “COVID-19 Recovery Modification” option, which extends the term of a mortgage to 360 months at market rate and targets a 25 percent principal and interest (P&I) reduction for all eligible borrowers. Servicers may start offering the options as soon as operationally feasible but must begin using the new options within 90 days. These additional options supplement FHA Covid-19 protections published last June (covered by InfoBytes here), which extended the foreclosure and eviction moratorium, expanded the Covid-19 forbearance and home equity conversion mortgage extension, and established the Covid-19 advance loan modification.
- VA. The VA also announced it will offer a new “COVID-19 Refund Modification” option to assist veterans impacted by the pandemic who need a significant reduction in their monthly mortgage payments. Under the plan, the VA will be able to purchase a veteran’s past-due payments and unpaid principal—subject to certain limits—“depending on how much assistance is necessary,” and, in certain circumstances, veterans will be able to receive a 20 percent payment reduction (certain borrowers may be eligible to receive a larger reduction). Mortgage servicers will modify the loan to ensure veterans can afford future mortgage payments. Similar to the VA’s “COVID–19 Veterans Assistance Partial Claim Payment” (covered by InfoBytes here), the deferred indebtedness will be established as a junior lien, which will not accrue interest, will not require monthly payments, and will only become due once the property is sold or the guaranteed loan is paid off or refinanced. The option is available through September 30, 2021.
- USDA. The agency announced new Covid-19 special relief measures, as well as clarifications to existing policies, for servicing borrowers impacted by the pandemic. USDA noted that Chapter 18 Section 5 of Handbook-1-3555 will be expanded to include “COVID-19 Special Relief Alternatives,” which includes an option that targets a 20 percent reduction in a borrower’s monthly P&I payments and offers “a combination of interest rate reduction, term extension and mortgage recovery advance.” These measures are immediately available and will be effective through December 31, 2022. Eligible borrowers must occupy the property, must not be more than 120 days past due on March 1, 2020, and must have received an initial forbearance due to a pandemic-related hardship before September 30, 2021.