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FHFA announces that multifamily property owners in forbearance must inform tenants of tenant protections
On August 6, the Federal Housing Finance Agency (FHFA) announced that multifamily property owners with mortgages backed by Fannie Mae or Freddie Mac (the Enterprises) who enter into a new or modified forbearance agreement must inform tenants in writing about tenant protections during the multifamily property owner's forbearance and repayment periods. Landlords with Enterprise-backed mortgages can enter new, or if qualified, modified forbearance if they experienced or continue to experience a financial hardship due to the Covid-19 emergency. While in forbearance, the property owners must agree not to evict tenants solely for the nonpayment of rent. The announcement notes that the Enterprises are modifying online multifamily property loan look-up tools to make it easier for tenants to find the tenant protections and to find out if the multifamily property in which they reside has an Enterprise-backed mortgage.
FHFA extends policy allowing GSEs to buy mortgages in forbearance
On July 31, the Federal Housing Finance Agency (FHFA) announced an extension of a temporary policy that allows Fannie Mae and Freddie Mac (GSEs) to purchase “certain single-family mortgages in forbearance that meet specific eligibility criteria” due to the Covid-19 pandemic. The temporary policy is extended for loans originated through August 31 from the original deadline of May 31. As previously covered by InfoBytes, standard policies dictate that the GSEs do not purchase loans that are in forbearance; however, due to the economic effects of Covid-19, and in an effort to provide liquidity to ensure continued lending, FHFA allowed the GSEs to buy certain mortgages that enter forbearance within the first month after loan closing, prior to delivery to the GSEs. The extension of the policy is reflected in Fannie Mae’s updated Lender Letter 2020-06 and Freddie Mac’s Guide Bulletin 2020-30.
Kraninger discusses semi-annual report and pandemic response at congressional hearings
On July 29, CFPB Director Kathy Kraninger testified at a hearing held by the Senate Banking Committee on the CFPB’s Semi-Annual Report to Congress, which covers the Bureau’s work from October 1, 2019, through March 31, 2020. (Covered by InfoBytes here.) Kraninger’s testimony identified four key areas of focus for the Bureau: (i) providing financial education resources to prevent consumer harm; (ii) implementing “clear rules of the road” to encourage “competition, increase transparency, and preserve fair markets for financial products and services”; (iii) ensuring a “culture of compliance” through supervision; and (iv) following a consistent, purposeful enforcement regime. Kraninger also highlighted Bureau efforts to address discrimination, consumer confusion regarding forbearance options under the CARES Act, and a legislative proposal that would authorize the Bureau to award whistleblowers who report federal consumer financial law violations.
During the hearing, committee members focused on, among other things, the Bureau’s response to the Covid-19 pandemic and the agency’s recent repeal of certain underwriting provisions of its 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (covered by InfoBytes here). In response to Democratic criticism regarding the repeal of the underwriting provisions, Kraninger reiterated that a Bureau analysis of the provisions in the 2017 final rule revealed it would reduce the availability of small-dollar credit “by at least 70 percent,” and denied claims that the rulemaking process had been impacted by political appointees at the agency. Additionally, Kraninger said she intends to move ahead with putting the payment provisions of the payday rule into effect and is currently “working through” a pending legal challenge to the provisions.
Democratic committee members also questioned Kraninger regarding temporary regulatory relief to mortgage servicers and other financial services companies (covered by InfoBytes here) and the Bureau’s policy statement providing Fair Credit Reporting Act and Regulation V compliance flexibility for consumer reporting agencies and furnishers during the pandemic (covered by InfoBytes here). With regard to the U.S. Supreme Court’s June ruling in Seila Law v. CFPB (covered by a Buckley Special Alert), Committee Chairman Mike Crapo (R-ID) noted he is still advocating for “a bipartisan board of directors to oversee the CFPB” and for subjecting the Bureau to the annual appropriations process.
The next day, Kraninger appeared before the House Financial Services Committee’s hearing to discuss the semi-annual report. Similar to the Senate hearing, committee members questioned Kraninger on the payday rule, the revision to the HMDA rule, the Bureau’s pandemic-related initiatives for consumers, and on ways the Bureau is protecting struggling consumers during the pandemic, particularly with respect to the agency’s supervisory and enforcement work.
FHA mortgagee letter announces temporary guidance on self-employment and rental income and flexibility on disbursement of 203(k) rehabilitation escrow account funds
On July 28, FHA issued Mortgagee Letter 2020-23, which provides temporary guidance for self-employment income verification, rental income requirements, and approval of extension requests under the 203(k) rehabilitation mortgage insurance program. With respect to income verification, the guidance: (i) requires mortgagees relying on self-employment income to verify that the borrower’s business is open and operating within 10 calendars prior to the date of the note with one of the enumerated forms of evidence, and (ii) modifies the requirements for mortgagees to calculate and verify rental income. These changes are in effect for cases with note dates from July 28 through November. 30. The guidance also provides for temporary flexibility to allow 203(k) rehabilitation projects to continue where a borrower receives a Covid-19 forbearance under certain circumstances, effective immediately through November 30.
House hearing on mortgage servicers’ implementation of CARES Act
On July 16, the House Financial Services Committee’s Subcommittee on Oversight and Investigations held a hearing entitled “Protecting Homeowners During the Pandemic: Oversight of Mortgage Servicers’ Implementation of the CARES Act.” The subcommittee’s memorandum regarding the hearing discussed, among other things, the HUD Office of Inspector General’s report of its review of the type of forbearance information accessible to borrowers on the top 30 mortgage servicers’ websites. The report highlighted concerns that 10 of the servicers failed to have forbearance information “‘readily available’ on their websites,” 14 servicers’ websites did not provide information about the length of the forbearance period to which borrowers are entitled under the CARES Act, and certain servicers “included information giving the impression that lump sum payments were required at the end of the forbearance period.”
Witnesses discussed widespread issues in CARES Act-related mortgage servicing, with several witnesses and lawmakers highlighting how preexisting inequalities have especially imperiled black and Latinx home ownership during the Covid-19 pandemic. One witness suggested that servicers should be required to provide written notice to borrowers of their options and rights under the CARES Act and should be held accountable for failing to provide consistent, accurate forbearance information to borrowers in a timely manner. Another witness noted that housing counselors have reported servicers providing misinformation on payment and deferral options, and stressed the need for coordinated efforts between the CFPB, FHFA, and HUD, in addition to strong supervisory and enforcement activity.
Other topics discussed during the hearing included (i) the importance of providing clear guidance for borrowers, as well as the importance of loan modifications, loss mitigation options, and long term solutions once forbearance has ended; (ii) understanding what servicers of non-federally backed mortgages not covered by the CARES Act are doing to assist borrowers, and whether there should be a safe harbor for these mortgage servicers from investor liability; and (iii) the CFPB’s responsibility for overseeing servicers. One of the witnesses noted during the hearing, however, that many mortgage servicers offered homeowners forbearance options before the CARES Act, provided forbearance to homeowners with non-federally backed mortgages, and have responded to “an evolving series of program and regulatory announcements from various programs and agencies.”
Fannie Mae updates Lender Letter 2020-02 to address impact of Covid-19 on disbursing insurance loss proceeds and HAMP incentives.
On July 15, Fannie Mae updated Lender Letter 2020-02 to include information on servicer requirements related to disbursing insurance loss proceeds for borrowers impacted by Covid-19 as well as Home Affordable Modification Program (HAMP) “Pay for Performance” incentives. For purposes of disbursing insurance loss proceeds, the servicer must consider a loan to be current or less than 31 days delinquent if the borrower has experienced a Covid-19 related hardship and certain criteria are met. Separately, the guidance clarifies the impact of Covid-19 on HAMP “Pay for Performance” incentives. Specifically, the mortgage loan does not lose good standing and the borrower will not lose any “pay for performance” incentives if the borrower (i) immediately reinstates the mortgage loan upon expiration of the Covid-19 related forbearance plan or (ii) transitions directly from a Covid-19 related forbearance plan to a repayment plan.
FHA expands Covid-19 loss-mitigation options
On July 8, the FHA announced additional home retention measures to assist homeowners with FHA-insured mortgages who are financially impacted by the Covid-19 pandemic. According to Mortgagee Letter 2020-22, effective immediately, mortgage servicers are able to offer a new suit of loss mitigation “waterfall” options to homeowners whose mortgages were current or less than 30 days past due as of March 1. ML 2020-22 updates existing options previously outlined in ML 2020-06 (covered by InfoBytes here) and introduces several new measures including (i) a standalone partial claim, not to exceed the 30 percent maximum statutory value; (ii) an owner-occupant loan modification (for homeowners who do not qualify for a standalone partial claim) that will modify the rate and term of the existing mortgage at the end of the Covid-19 forbearance period; (iii) a combination partial clam and loan modification (for homeowners who are ineligible for either of the first two options); and (iv) a FHA Home Affordable Modification Program combination loan modification and partial claim with reduced documentation, which may include principal deferment and is for homeowners who are ineligible for the other home retention solutions. ML 2020-22 also provides that borrowers who do not currently occupy their FHA-insurance single family property may obtain a modification to their mortgage rates and terms under a Covid-19 non-occupant loan modification.
Fed releases CARES Act credit reporting, mortgage servicing examination procedures
On July 7, the Federal Reserve Board (Fed) released CA 20-11 and related examination procedures for the credit reporting and mortgage servicing provisions of the CARES Act. The procedures apply to CARES Act provisions that created new requirements for furnishers of credit information and mortgage servicers of certain mortgage loans for consumers impacted by the Covid-19 pandemic. The CARES Act amended the FCRA and required that consumer accounts be reported by furnishers as current if the consumer was current prior to the grant of a CARES Act accommodation. For mortgage servicers, the CARES Act generally required servicers of federally backed mortgage loans to grant forbearance requests toCovid-19-impacted borrowers. Servicers of these mortgages were also prohibited from initiating foreclosures through May 17, 2020. Structured as a series of modules with similar requirements grouped together, the examination procedures are intended to provide the framework for an institution’s examination, including an evaluation of the adequacy of an institution’s compliance management system. The examination procedures’ credit reporting provisions apply to supervised institutions with total consolidated assets of $10 billion or less, whereas the mortgage servicing provisions apply to all supervised institutions, including those with total consolidated assets of $10 billion or less.
The Fed advised that in exercising supervisory and enforcement responsibilities it intends to take into account the unique circumstances impacting borrowers and institutions resulting from the Covid-19 pandemic. As such, the Fed does not expect to initiate a public enforcement action against an institution provided the circumstances were related to Covid-19, and the institution demonstrated good faith efforts to support borrowers and comply with consumer protection laws.
VA issues lender guidance on Covid-19
On June 30, the Department of Veterans Affairs issued Circular 26-20-25 (and subsequently issued Circular 26-20-25, Change 1), which provides guidance on the impact of the CARES Act foreclosure protections on VA-guaranteed purchase and refinance transactions. The circular states that for purchase and cash-out refinance loans, the “VA will not consider a Veteran as an unsatisfactory credit risk, based solely upon the fact that the Veteran received some type of credit forbearance or experienced some type of deferred payment during the COVID-19 national emergency.” With regard to Interest Rate Reduction Refinance Loans (IRRRL), the Circular notes that the VA is waiving certain prior approval requirements for delinquent loans if (i) the lender is approved to close loans on an automatic basis; (ii) the loan being refinanced is under CARES Act forbearance protections; (iii) the borrower is no longer experiencing the financial hardship caused by the Covid-19 pandemic; and (iv) the borrower qualifies for other IRRRL credit standards. Moreover, the Circular details additional IRRRL considerations for lenders, including maximum loan amounts, loan seasoning, and valuation requirements. Lastly, the Circular encourages lenders to waive origination fees and consider discount points and premium pricing offsets for veterans impacted by the Covid-19 pandemic.
OCC highlights key risks for federal banking system, says compliance risk elevated due to Covid-19
On June 29, the OCC released its Semiannual Risk Perspective for Spring 2020, which reports on key risk areas that pose a threat to the safety and soundness of national banks and federal savings associations. In particular, the OCC focused this report on the financial impacts of the Covid-19 pandemic on the federal banking industry, emphasizing that weak economic conditions stemming from the shutdown will stress financial performances in 2020, and that banks should monitor elevated compliance risks that may occur as a result of their responses to the pandemic, including participating in the Paycheck Protection Program as well as forbearance and deferred payment programs. The report highlighted that the surge in consumer demands, government programs, and the modifications to operations due to remote work and the “short timelines for implementing changes placed additional strains on banks already operating in a stressed environment.” However, the report noted that, “[s]ome banks are leveraging innovative technologies and third parties, including fintech firms, to help manage these challenges,” and that “[b]ank risk management programs should maintain effective controls for third-party due diligence and monitoring and other oversight processes, operational errors, heightened cyber security risks, and potential fraud related to stimulus programs.” The report highlighted several areas of concern for banks, including (i) credit risk increases; (ii) interest rate risk, including risks related to the LIBOR cessation; (iii) operational risks related to banks’ Covid-19 response; (iv) heightened cyber risks; and (v) compliance risks related to Bank Secrecy Act/anti-money laundering laws, consumer compliance, and fair lending.