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Financial Services Law Insights and Observations


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  • FHA expands Covid-19 loss mitigation options

    Federal Issues

    On February 13, HUD issued Mortgagee Letter 2023-03, which makes technical corrections to Mortgagee Letter 2023-02 issued in January that expanded and enhanced loss mitigation options for borrowers struggling to make payments on FHA-insured mortgages. The enhancements extend FHA’s Covid-19 loss mitigation options to all eligible borrowers, including non-occupant borrowers, who fall behind on mortgage payments, regardless of the cause of delinquency. Mortgage servicers must use FHA’s Covid-19 recovery loss mitigation “waterfall” of options to assess all borrowers who are in default (or at risk of imminent default). The enhancements also raise the maximum partial claim amount from 25 percent of the mortgage’s unpaid principal balance to the maximum 30 percent allowed by statute to help increase home retention. Mortgage servicers can also offer loss mitigation options to borrowers who qualified for or used homeowner assistance funds who may no longer technically be delinquent but require further assistance to avoid redefault. Additionally, the enhancements provide incentive payments to mortgage servicers when Covid-19 recovery options are successfully completed.

    The availability of FHA’s Covid-19 loss mitigation options are extended for 18 months beyond the April 30 mandatory effective date for servicers to remove “uncertainties associated with the timing of the end of the National Emergency,” HUD explained, adding that “FHA is temporarily suspending the use of its FHA-Home Affordable Modification (FHA-HAMP) options concurrent with [Mortgagee Letter 2023-02]” in order to simplify loss mitigation options. Mortgage servicers may begin offering these options to borrowers immediately.

    Federal Issues HUD FHA Consumer Finance Mortgages Covid-19 Loss Mitigation Mortgage Servicing

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  • CFPB releases data on pandemic credit scores

    Federal Issues

    On January 25, the CFPB released a blog post on credit score transitions during the Covid-19 pandemic. Using data available to the Bureau, the agency examined the transitions of consumers across credit score tiers using a commercially available credit score. According to the Bureau, the data used quarterly snapshots from June 2010 through June 2022 of the Consumer Credit Panel (CCP), which is a 1-in-48 deidentified longitudinal sample of credit records from one of the nationwide consumer reporting agencies. The Bureau assigned consumers to five credit score bins : deep subprime (300-579); subprime (580-619); near-prime (620-659); prime (660-719); and superprime (720-850). For each quarter of the CCP through June 2021, the Bureau assigned consumers a credit score bin reflecting their credit score, and a score bin reflecting their credit score 12 months in the future. The Bureau reported that transitions out of the subprime credit score tier was more common during the pandemic. Before the pandemic, 37 percent of consumers with subprime credit scores remained in the subprime tier after one year, and 26 percent dropped to the deep subprime tier. The Bureau also found that of consumers with near-prime credit scores, 24 percent transitioned to a lower tier before the pandemic, compared to 21 percent after the pandemic. Because prime credit scores are important to access lower-cost credit, the increasing number of transitions out of subprime credit scores is one factor that led to increased access to credit during the pandemic. Nevertheless, the Bureau warned that a higher credit score may not be enough to offset rising costs for goods purchased on credit.

    Federal Issues CFPB Consumer Finance Credit Scores Covid-19

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  • CFPB says servicers should suggest sales over foreclosures for some borrowers

    Federal Issues

    On January 20, the CFPB encouraged mortgage servicers to advise homeowners struggling to pay their mortgages that a traditional sale may be better than foreclosure. The Bureau reported that due to the Covid-19 pandemic many homeowners are facing foreclosure, especially consumers who were delinquent when the pandemic began. The Bureau pointed out that while foreclosure rates are relatively low compared to pre-pandemic levels, mortgage data from November 2022 shows an increase of 23,400 foreclosure starts. “Often, the mortgage servicer’s phone representatives are the first line of communication with homeowners,” the Bureau said, reminding servicers to provide training to their representatives so they are prepared to provide information to equity-positive homeowners about selling their home as a potential option. “Of course, conversations about selling the home cannot substitute for the Regulation X requirement that mortgage servicers present all available loss mitigation alternatives to borrowers,” the Bureau stated, explaining that Appendix MS-4(B) to Regulation X contains sample language that can be used to inform homeowners of the option to sell their home. Additionally, the Bureau advised servicers to refer homeowners to HUD-approved housing counseling agencies to discuss their options.

    Federal Issues CFPB Consumer Finance Mortgages Servicing Mortgages Foreclosure Covid-19 Regulation X

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  • CFPB updates Mortgage Servicing Examination Procedures

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance CFPB Federal Issues Supervision Examination Mortgages Mortgage Servicing Covid-19 Consumer Finance

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  • States file brief in support of Biden’s student loan debt-relief program


    On January 11, a coalition of 22 state attorneys general from Massachusetts, California, Colorado, Connecticut, Delaware, the District Of Columbia, Hawaii, Illinois, Maryland, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, and Wisconsin, filed an amicus brief with the U.S. Supreme Court in two pending actions concerning challenges to the Department of Education’s student loan debt relief program. At the beginning of December, the Supreme Court agreed to hear the Biden administration’s appeal of an injunction entered by the U.S. Court of Appeals for the Eighth Circuit that temporarily prohibits the Secretary of Education from discharging any federal loans under the agency’s student debt relief plan (covered by InfoBytes here). In a brief unsigned order, the Supreme Court deferred the Biden administration’s application to vacate, pending oral argument. Shortly after, the Supreme Court also granted a petition for certiorari in a challenge currently pending before the U.S. Court of Appeals for the Fifth Circuit, announcing it will consider whether the respondents (individuals whose loans are ineligible for debt forgiveness under the plan) have Article III standing to bring the challenge, as well as whether the Department of Education’s debt relief plan is “statutorily authorized” and “adopted in a procedurally proper manner” (covered by InfoBytes here). Oral arguments in both cases are scheduled for February 28.

    The states first pointed out that under the Higher Education Act, Congress gave the Secretary “broad authority both to determine borrowers’ loan repayment obligations and to modify or discharge these obligations in myriad circumstances.” The Secretary was also later granted statutory authority under the HEROES Act to take action in times of national emergency, which includes allowing “the Secretary to ‘waive or modify any statutory or regulatory provision applicable to the student financial assistance programs’ if the Secretary ‘deems’ such actions ‘necessary’ to ensure that borrowers affected by a national emergency ‘are not placed in a worse position financially’ with respect to their student loans.” The states stressed that while “the magnitude of the national emergency necessitating this relief is unprecedented, the relief offered to borrowers falls squarely within the authority Congress gave the Secretary to address such emergencies and is similar in kind to relief granted pursuant to other important federal student loan policies that have concomitantly advanced our state interests.”

    The states went on to explain that the Secretary tailored the limited debt relief using income thresholds to ensure that “the borrowers at greatest risk of pandemic-related defaults receive critical relief, either by eliminating their loan obligations or reducing them to a more manageable level,” thus meeting the express goal of the HEROES Act to “prevent[] affected borrowers from being placed in a worse position because of a national emergency.” The states also stressed that the Secretary reasonably concluded that targeted relief is necessary to address the impending rise in pandemic-related defaults once repayment restarts. The HEROES Act expressly permits the Secretary to “exercise his modification and waiver authority ‘notwithstanding any other provision of law, unless enacted with specific reference to [20 U.S.C. § 1098bb(a)(1)],” the states asserted, noting that “relevant statutory and regulatory provisions related to student loan repayment and cancellation contain no such express limiting language.”

    Secretary Miguel Cardona issued the following statement in response to the filing of more than a dozen amicus curiae briefs: “The broad array of organizations and experts—representing diverse communities and different perspectives—supporting our case before the Supreme Court today reflects the strength of our legal positions versus the fundamentally flawed lawsuits aimed at denying millions of working and middle-class borrowers debt relief.” A summary of the briefs can be accessed here.

    Courts State Issues State Attorney General Department of Education Student Lending Debt Relief Consumer Finance U.S. Supreme Court Biden Covid-19 HEROES Act Higher Education Act Appellate Fifth Circuit Eighth Circuit

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  • CFPB says EFTA applies to pandemic assistance prepaid cards


    On January 10, the CFPB filed an amicus brief in a case before the U.S. Court of Appeals for the Fourth Circuit concerning the scope of accounts covered under EFTA and Regulation E. (See also CFPB blog post here.) As previously covered by InfoBytes, last August the U.S. District Court for the District of Maryland dismissed a putative class action alleging violations of EFTA and state privacy and consumer protection laws brought against the national bank on behalf of consumers who were issued prepaid debit cards providing pandemic unemployment benefits. The named plaintiff alleged that he lost nearly $15,000 when an unauthorized user fraudulently used a prepaid debit card containing Pandemic Unemployment Assistance (PUA) funds that were intended for him. However, the district court dismissed the class claims with respect to EFTA and Regulation E, finding that the PUA payments were “qualified disaster relief payments” and, as such, they were excluded from Regulation E’s definition of a “prepaid account.”

    The Bureau disagreed. In its amicus brief, it argued that a prepaid debit card loaded with PUA funds is a “government benefit account” subject to EFTA and Regulation E and their error resolution requirements, which apply to alleged unauthorized transfers such as the one at issue in the case. Writing that the district court erred by applying “a regulatory exclusion to hold that prepaid accounts loaded with pandemic unemployment benefits were excluded from coverage,” the Bureau claimed that the holding is not supported by statutory and regulatory text and “undermines the primary purpose of EFTA to provide individual rights to consumers.” According to the Bureau, a “prepaid account” under Regulation E includes specific categories of accounts, including a “government benefit account,” which is not subject to the prepaid account exclusions.

    Courts CFPB Appellate Fourth Circuit EFTA Regulation E Class Action Covid-19 Consumer Finance

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  • FHA extends some pandemic-related waivers

    Federal Issues

    On December 20, FHA published FHA INFO 2022-107, which extends temporary regulatory and Single Family Housing Policy Handbook 4000.1 waivers, and permits mortgagees to use alternative methods for conducting face-to-face interviews with borrowers in accordance with FHA’s early default intervention requirements. FHA initially published temporary partial waivers of these requirements on March 13, 2020, and previously extended them through December 31, 2022, in response to the Covid-19 pandemic. FHA is further extending the waivers due to the Covid-19 pandemic, the spread of the Respiratory Syncytial Virus and seasonal flu, and current staffing and resource constraints affecting mortgage servicers. The waivers are now effective through December 31, 2023.

    Federal Issues FHA Covid-19 Consumer Finance Mortgages Mortgage Servicing

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  • OCC reports on third quarter mortgage performance

    On December 15, the OCC announced the release of OCC Mortgage Metrics Report, Third Quarter 2022, in which it reported that “97.2 percent of mortgages included in the report were current and performing at the end of the quarter, compared to 95.6 percent a year earlier.” As explained in the report, servicers initiated 9,835 new foreclosures in the third quarter of 2022—a decrease from the previous quarter but an increase from a year ago. The foreclosure volume in this reporting period is lower than pre-Covid-19 pandemic foreclosure volumes, the OCC said. Servicers also completed 16,160 mortgage modifications in the third quarter—a 42.5 percent decrease from the previous quarter. Of these modifications, 72.4 percent reduced a loan’s pre-modification monthly payment, and 93.1 percent consisted of a combination modification containing multiple actions such as interest rate reductions and term extensions. Additionally, the OCC found that during the reporting period, first-lien mortgages represented 22 percent of all outstanding residential mortgage debt (or approximately 12 million loans equaling $2.7 trillion in principal balances).

    Bank Regulatory Federal Issues OCC Mortgages Mortgage Servicing Covid-19 Consumer Finance

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  • FHA announces pandemic assistance on reverse mortgages

    Federal Issues

    On December 15, FHA published Mortgagee Letter 2022-23, COVID-19 Home Equity Conversion Mortgage (HECM) Property Charge Repayment Plan, which provides requirements for a new property charge repayment plan option for senior homeowners with HECMs who have gotten behind on their property charge payments as a result of the Covid-19 pandemic. The eligibility policies of the new repayment plan include, among other things:

    • Making the plan available to borrowers who have applied for Homeowner Assistance Fund (HAF) assistance, if the HAF funds combined with the borrower’s ability to repay will satisfy the servicer’s advances for the delinquent property charges;
    • Permitting the Covid-19 HECM Repayment Plan regardless of whether the borrower has been unsuccessful on a prior repayment plan and whether the borrower owes over $5,000 in property charge advances; and
    • Requiring a verbal attestation from the borrower that they have been impacted by Covid-19.

    Additionally, borrowers may receive a repayment plan regardless of the dollar amount of property charge payments owed. Further, servicers can offer homeowners a repayment plan of up to five full years (60 months) regardless of whether a prior repayment plan has been used.

    Federal Issues Agency Rule-Making & Guidance FHA HECM Mortgages Mortgage Servicing Covid-19 Consumer Finance

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  • CFPB and FHFA release updated loan-level mortgage data on borrowers’ pandemic experiences

    Federal Issues

    On December 13, the CFPB and FHFA published updated loan-level data from the National Survey of Mortgage Originations. (See also FHFA announcement here.) The publicly available data highlights borrowers’ experiences when obtaining a mortgage during the Covid-19 pandemic. Key highlights from the updated data include: (i) in 2020 a higher percentage (48 percent) of borrowers reported that a paperless online mortgage process was important; (ii) 21 percent of borrowers reported that their mortgage closing did not occur as originally scheduled (up from 17 percent in 2019); (iii) an increased number of borrowers reported that they were very familiar with available interest rates, with 78 percent of borrowers (up from 67 percent in 2019) stating that they were very satisfied with the interest rate that they qualified for; and (iv) borrowers who refinanced in 2020 versus 2019 were better off financially, with 76 percent of borrowers who refinanced reporting that they were not concerned about qualifying for a mortgage in 2020.

    “The data released today provide a clear view of borrower sentiment about the mortgage process during the COVID pandemic in 2020,” said Saty Patrabansh, FHFA Associate Director for the Office of Data and Statistics. “This data should be helpful to analysts and policymakers in understanding the complete experience of mortgage borrowers and identifying what challenges may still exist in mortgage lending.”

    Federal Issues CFPB FHFA Mortgages Mortgage Origination Covid-19 Consumer Finance

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