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CFPB analyzes effects of Covid-19 on the housing market
On March 1, the CFPB released a report, Housing Insecurity and the COVID-19 Pandemic, analyzing the effects of the Covid-19 pandemic on the housing market, particularly with respect to low-income and minority households. According to the Bureau, as of December 2020, more than 11 million households were overdue on their rent or mortgage payments, placing them at heightened risk of losing their homes to foreclosure or eviction as Covid-19 relief programs expire in the upcoming months. Of these households, the Bureau noted that Black and Hispanic households bear a disproportionate financial burden and “were more than twice as likely to report being behind on housing payments than white families.” Additional statistics include: (i) 2.1 million households are more than 90 days behind on their payments; (ii) roughly 263,000 families noted as being “seriously behind” on their mortgages (and not enrolled in forbearance plans) will have limited options to avoid foreclosure once relief programs end; (iii) an estimated 8.8 million tenant households are behind on their rent, with 9 percent of renters reporting that they are likely to be evicted in the next two months; and (iv) of the 2.7 million borrowers noted as being in active forbearance as of January 2021, more than 900,000 of these borrowers will have been in forbearance for more than a year as of April 2021. The Bureau noted most borrowers that have exited forbearance after six or fewer months “have been able to resume payments without any issue.” However, borrowers who have been in forbearance longer are more likely to have difficulties resuming payments.
In a blog post released the same day, acting Director Dave Uejio acknowledged that mortgage servicers and landlords have been working to help keep borrowers and renters in their homes, noting that “[m]ost mortgage servicers are working hard to engage with the record number of homeowners in forbearance and the many other homeowners struggling to make payments.”
FinCEN issues warning about fraud targeting Covid-19 economic impact payments
On February 24, the Financial Crimes Enforcement Network (FinCEN) issued an advisory alerting financial institutions to potential fraud and other financial crimes targeting Covid-19 economic impact payments (EIP). The advisory is based on FinCEN’s analysis of Covid-19 related information obtained from Bank Secrecy Act data, public reporting, and law enforcement partners, and outlines potential methods of EIP fraud, associated red flags, and information for reporting suspicious activity related to such fraud. According to FinCEN, U.S. authorities have detected a wide range of EIP-related fraud, including (i) fraudulent, altered, or counterfeit checks; (ii) theft of EIPs; (iii) phishing schemes using EIPs as a lure, in which emails, letters, phone calls, and text messages are used by fraudsters in order to obtain personal information such as account numbers and passwords; and (iv) private companies with control over a person’s finances that seize a person’s EIP for wage garnishment or debt collection and do not return the inappropriately-seized payment.
FinCEN also issued a notice for filing suspicious activity reports (SAR) related to Covid-19. The notice consolidates filing instructions and key terms for fraudulent activities, crimes, and cyber/ransomware attacks related to the pandemic. FinCEN reminded financial institutions to consult previously issued advisories and notices to access additional SAR filing instructions and other Covid-19-related advisories and alerts (available here).
FHFA further extends foreclosure moratorium
On February 25, the FHFA announced that Fannie Mae and Freddie Mac (GSEs) will extend their moratorium on single-family foreclosures and real estate owned (REO) evictions until June 30. The foreclosure moratorium applies only to homeowners with a GSE-backed, single-family mortgage, and the REO eviction moratorium applies only to properties that were acquired by the GSEs through foreclosure or deed-in-lieu of foreclosure transactions. Additionally, FHFA announced that borrowers may be eligible for up to a three-month forbearance extension so long as they are on a Covid-19 forbearance plan as of February 28 (details on the Covid-19 forbearance covered by InfoBytes here), and that the Covid-19 payment deferral may now cover up to 18 months of missed payments (previously covering up to 15 months of missed payments, additional details covered by InfoBytes here). The extensions are implemented in Fannie Mae Lender Letter LL-2021-07 and Freddie Mac Guide Bulletin 2021-8.
House discusses lending discrimination, proposed fair lending legislation
On February 24, the House Financial Services Committee’s Subcommittee on Oversight and Investigations held a hearing entitled “How Invidious Discrimination Works and Hurts: An Examination of Lending Discrimination and Its Long-term Economic Impacts on Borrowers of Color.” The subcommittee’s memorandum regarding the hearing discussed the importance of exploring “available tools and potential legislative solutions to detect hidden discrimination and deter discrimination in lending and housing,” and addressed topics such as modern-day redlining, racial wealth gaps, and matched-pair testing (a method for detecting impermissible differences in treatment based on protected classes).
Subcommittee members also discussed recently introduced H.R. 166, the “Fair Lending for All Act,” which would, among other things: (i) direct the CFPB to establish an Office of Fair Lending Testing charged with testing creditors’ ECOA compliance, and permit the Bureau to refer ECOA violations to the attorney general for appropriate action; (ii) extend the protected classes under the law to sexual orientation, gender identity, and an applicant’s location based on zip code or census tract; (iii) establish criminal penalties under ECOA for knowing and willful violations of prohibited credit discrimination, including personal liability for executive officers and directors; (iv) require the Bureau to review loan applications for compliance with ECOA and other federal consumer laws; and (v) amend HMDA Section 304(b)(4) to add the new prohibited credit discrimination categories.
CFPB, states sue defendants for predatory immigrant-services scam
On February 22, the CFPB and state attorneys general from Massachusetts, New York, and Virginia filed a complaint against a group of defendants that provide immigration bond products or services for non-English speaking U.S. Immigration and Customs Enforcement (ICE) detainees. The Bureau alleges that the defendants engaged in deceptive and abusive acts and practices in violation of the CFPA, while the states bring related claims that the defendants violated their respective consumer-protection laws, by, among other things, (i) representing that they paid the detainees’ bonds and that monthly payments go towards repaying the defendants for doing so (the Bureau and states allege that the monthly payments are actually “rental fees for a GPS device that do not go to repaying consumers’ bonds”); (ii) making false threats that detainees will be re-arrested, detained, or deported if they do not make the monthly payments or remove the defendants’ GPS devices, many of which, the complaint claims, do not actually work; (iii) threatening to send detainees’ accounts to collection, representing that failing to make payments could harm their credit, or threatening to sue detainees or their families for non-payment; (iv) representing that collateral payments would be refunded once the detainees’ proceedings were resolved but in many cases failing to do so; (v) presenting detainees, most of whom cannot read or understand English, with a series of English-only contracts requiring the payment of large upfront fees plus $420 per month to “lease” GPS-tracking ankle monitors until their cases are resolved; (vi) creating the illusion that defendants are affiliated with ICE, even though they have no affiliation with authorities; and (vii) offering financial rewards to employees who sign up new customers and collect payments. The Bureau is seeking an injunction, as well as damages, redress, disgorgement, and civil money penalties.
Agencies provide Texas winter storm guidance
On February 22, the Federal Reserve Board, OCC, FDIC, NCUA, and the Conference of State Bank Supervisors issued a joint statement covering supervisory practices for financial institutions affected by winter storms in Texas. Among other things, the agencies called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust or alter loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas. Institutions are also encouraged to monitor municipal securities and loans impacted by the winter storms.
Additionally, HUD announced it will make disaster assistance available to Texas by providing foreclosure relief and other assistance to homeowners living in counties affected by the severe winter storms. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties in the affected counties and is making mortgage insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house along with the costs of repair, through a single mortgage. The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes.
OCC releases recent enforcement actions
On February 18, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included among the actions is a January 8 civil money penalty order against an Illinois-based bank, which requires the payment of $193,105 for an alleged pattern or practice of violations of the Flood Disaster Protection Act and its implementing regulations.
Brainard addresses financial institutions’ role in tackling climate change
On February 18, Federal Reserve Governor Lael Brainard spoke before the 2021 Institute of International Finance U.S. Climate Finance Summit to discuss the role financial institutions play in addressing the challenges of climate change. Noting that both physical risks from climate shifts and transition risks resulting from a shift to a low-carbon economy “create both risks and opportunities for the financial sector,” Brainard stressed that “[f]inancial institutions that do not put in place frameworks to measure, monitor, and manage climate-related risks could face outsized losses on climate-sensitive assets caused by environmental shifts, by a disorderly transition to a low-carbon economy, or by a combination of both.” She emphasized that financial institutions should engage in robust risk management, scenario analyses, and forward planning to ensure they can withstand such climate-related risks and support the transition to a low-carbon economy.
Brainard also emphasized that given the uncertainty in estimating climate risks, a scenario analysis that takes into account climate-related physical and transition risks and their potential effects on individual firms and the financial system as a whole “may be a helpful tool to assess the microprudential and macroprudential implications of climate-related risks under a wide range of assumptions.” However, Brainard clarified that a scenario analysis is distinct from a regulatory stress test, adding that “[i]t will be important to. . .consider how stress testing and scenario analysis may complement one another.” While acknowledging that a highly prescriptive approach to model development and scenario analysis may not be the most effective way to ensure financial institutions are prepared for the possible impacts of climate change and that “leverag[ing] a range of complementary approaches being developed in both the private and the public sectors” may produce more robust outcomes, Brainard noted that “we should strive for an appropriate balance that allows for innovation and learning across the public and private sectors, iterating in the most effective way possible.”
FHA extends Covid-19 origination and 203(k) servicing flexibilities
On February 23, FHA announced the extension of several Covid-19-related flexibilities for single-family lenders and servicers through June 30, generally to continue to limit face-to-face contact as part of the mortgage origination process for FHA loans. Specifically, Mortgagee Letter 2021-06 extends the re-verification of employment guidance and the exterior-only appraisal scope of work option, while Mortgagee Letter 2021-07 will “allow industry partners additional opportunity to utilize flexible guidance related to” self-employment and rental income verification. Both extensions are applicable to Single Family Title II forward and Home Equity Conversion Mortgages. Additionally, FHA is extending temporary flexibilities “for the administration of 203(k) Rehabilitation Mortgage Insurance Program escrow accounts for borrowers in forbearance” for Single Family Title II forward 203(k) rehabilitation mortgages only.
Biden announces measures to ensure PPP loan access to "mom and pop" businesses
On February 22, the Biden administration announced measures to ensure the smallest businesses have access to Paycheck Protection Program (PPP) loans. (See also SBA press release here.) Specifically, the Biden administration has directed the Small Business Administration (SBA) to (i) provide an exclusive 14-day application window, starting Wednesday, February 24, during which only businesses with fewer than 20 employees are eligible to apply; (ii) set aside $1 billion for PPP loans for sole proprietors, independent contractors, and self-employed individuals in low- and moderate-income areas, and revise the loan calculation formula for these applicants to offer more relief; (iii) eliminate an exclusion that prevented small businesses owned at least 20 percent by an individual who was arrested for or convicted of a felony unrelated to financial assistance fraud within the previous year from applying for a PPP loan; (vi) eliminate the student loan delinquency restriction, which currently prevents small businesses owned at least 20 percent by an individual who is delinquent or has defaulted on student debt from receiving PPP loans; and (v) ensure non-citizen small business owners who are lawful U.S. residents may apply for PPP loans using individual taxpayer identification numbers.
Additionally, the Biden administration stated that SBA “is launching a new initiative to deepen its relationships with lenders” in order to facilitate communication regarding the PPP. The current round of PPP funding expires March 31 (covered by InfoBytes here).