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Financial Services Law Insights and Observations


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  • CFPB says it wants to simplify rules on mortgage servicing

    Federal Issues

    On June 15, CFPB Director Rohit Chopra said the Bureau is considering whether to streamline mortgage servicing rules. Last September, the Bureau requested input from the public on mortgage refinance and forbearance standards and sought feedback on ways to reduce risks for borrowers who experience disruptions in their ability to make mortgage payments. (Covered by InfoBytes here.) Specifically, the Bureau sought ways to: (i) “facilitate mortgage refinances for consumers who would benefit from refinancing, especially consumers with smaller loan balances”; and (ii) “reduce risks for consumers who experience disruptions in their financial situation that could interfere with their ability to remain current on their mortgage payments.”

    Chopra flagged several issues raised by commenters, including that borrowers seeking loss mitigation options can face a “paperwork treadmill” that disadvantages both homeowners and mortgage servicers. Commenters also reported that borrowers often incur servicing fees and experience negative credit reporting when waiting for servicers to review their options, Chopra said, explaining that even after a loss mitigation option has been implemented, these penalties can continue to negatively impact borrowers (such as preventing loan modifications and other interventions designed to allow borrowers to keep their homes). 

    Chopra said the Bureau intends to use the feedback to propose ways to streamline servicing standards but noted that the agency “will propose streamlining only if it would promote greater agility on the part of mortgage servicers in responding to future economic shocks while also continuing to ensure they meet their obligations for assisting borrowers promptly and fairly.”

    Federal Issues CFPB Consumer Finance Mortgages Mortgage Servicing Forbearance Loss Mitigation

  • FHA reinstates HAMP loss mitigation for exempted transfers

    Agency Rule-Making & Guidance

    HUD recently released Mortgage Letter (ML) 2023-11 to update previously issued guidance on loss mitigation options for non-borrowers who acquire a title through an exempted transfer. The provisions apply to all FHA Title II Single Family forward mortgage programs and may be implemented immediately but no later than July 21. Previously, ML 2023-03 (which expanded Covid-19 recovery loss mitigation options) temporarily suspended the use of FHA Home Affordable Modification Program (HAMP) loss mitigation for all borrowers. As a result, mortgagees were no longer able to review non-borrowers who acquired a title through an exempted transfer for FHA-HAMP loss mitigation. With the issuance of ML 2023-11, FHA has reinstated FHA-HAMP loss mitigation to allow mortgagees to review non-borrowers who acquired a title through an exempted transfer and are in default or imminent default.

    Agency Rule-Making & Guidance Federal Issues HUD Mortgages Loss Mitigation Consumer Finance FHA Covid-19

  • FHFA expands deferral policies for hardships

    Federal Issues

    On March 29, FHFA announced enhanced payment deferral policies for borrowers facing financial hardships. Under the newly enhanced policies, Fannie Mae and Freddie Mac will allow borrowers to defer up to six months of mortgage payments, enabling borrowers “to keep the same monthly mortgage payment by moving past-due amounts to the end of the loan as a non-interest bearing balance, due and payable at maturity, sale, refinance, or payoff.” Fannie and Freddie will work with servicers to implement the enhanced payment deferral policies, which carry a voluntary adoption date of July 1, and a mandatory adoption date of October 1.

    Recognizing that the more than one million Covid-19 payment deferrals completed by Fannie and Freddie during the pandemic helped borrowers stay in their homes, FHFA Director Sandra L. Thompson said the agency is making the payment deferral policies a key part of its standard loss mitigation toolkit that is available to all borrowers with eligible hardships.

    Federal Issues FHFA Consumer Finance Mortgages Covid-19 Loss Mitigation Fannie Mae Freddie Mac Mortgage Servicing

  • FHA reminds servicers of HAF disclosure obligations

    Federal Issues

    On March 24, FHA reminded servicers about their obligation to inform distressed homeowners about the availability of financial assistance for FHA-insured mortgages, including single-family forward mortgages and home equity conversion mortgages (HECM), through the Homeowner Assistance Fund (HAF). HAF was established in 2021 to provide financial support to eligible homeowners who suffered financial hardship during Covid-19. HAF funds may be used to bring a mortgage current or be used in combination with certain available FHA-loss mitigation options for single family forward mortgages or with the Covid-19 HECM Property Charge Repayment Plan. HAF funds also may be used to reduce the balance or pay off a borrower’s outstanding loss mitigation partial claim, even if a borrower’s mortgage payments are now current. Additionally, as permitted, HAF funds may be used to pay for delinquent property tax and homeowners insurance charges on defaulted HECMs. FHA noted in its announcement that the definition of “imminent default” also has been expanded to include homeowners who qualify for HAF. Consequently, “servicers will be able to offer additional loss mitigation options to borrowers who qualified for or used HAF funds and may no longer technically be delinquent but require further assistance to avoid redefault,” FHA explained.

    Federal Issues FHA Mortgages Consumer Finance Loss Mitigation Covid-19

  • HUD establishes 40-year loss-mit option

    Agency Rule-Making & Guidance

    On March 8, HUD published a final rule in the Federal Register to allow mortgagees to increase the maximum term of a loan modification from 360 to 480 months for FHA-insured mortgages after a borrower defaults. HUD explained that “[i]ncreasing the maximum term limit will allow mortgagees to further reduce the borrower’s monthly payment as the outstanding balance would be spread over a longer time frame, providing more borrowers with FHA-insured mortgages the ability to retain their homes after default.” The change also aligns FHA with modifications made available to borrowers with mortgages backed by Fannie Mae and Freddie Mac, both of which provide a 40-year loan modification option. HUD considered public comments in response to a proposed rule published last April (covered by InfoBytes here), and noted that commenters said a 40-year loan modification option would provide significant relief to struggling borrowers. Concurrently, HUD published Mortgagee Letter 2023-06 to establish the standalone 40-year loan modification policy. The final rule is effective May 8.

    Agency Rule-Making & Guidance Federal Issues FHA Mortgages Consumer Finance HUD Loss Mitigation Fannie Mae Freddie Mac

  • 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

  • FHA extends temporary partial waivers for specific HECM policies

    Agency Rule-Making & Guidance

    On November 28, FHA announced FHA INFO 2022-98 to extend two temporary partial waivers to its Home Equity Conversion Mortgage (HECM) loss mitigation policies for senior borrowers impacted by the Covid-19 pandemic who continue to experience significant financial difficulties. The first temporary partial waiver concerns Mortgagee Letter 2015-11. FHA notes that the waiver “allows mortgagees to offer repayment plans to HECM borrowers with unpaid property charges regardless of their total outstanding arrearage.” The second waiver—concerning Mortgagee Letter 2016-07—“permits mortgagees to seek assignment of a HECM immediately after using their own funds to pay property taxes and insurance on or after March 1, 2020, by temporarily eliminating the three-year waiting period for such assignments.” Both waivers were set to expire at the end of December, but are now effective through December 31, 2023.

    Agency Rule-Making & Guidance FHA HECM Mortgages Consumer Finance HUD Loss Mitigation Covid-19

  • District Court denies dismissal of RESPA "dual-tracking" suit


    On November 1, the U.S. District Court for the Northern District of Ohio declined to grant summary judgment in favor of a mortgage servicer defendant in a Regulation X, RESPA, and Ohio Residential Mortgage Lending Act (RMLA) suit against the mortgage servicer and a law firm (collectively, “defendants”). The case concerned a loan modification that plaintiff had allegedly sought from defendants, for which the defendant mortgage servicer ultimately denied, and the defendant law firm initiated a foreclosure action. The defendant mortgage servicer challenged the count in the complaint alleging that the defendant mortgage servicer’s moving for summary judgment in the state foreclosure action violated Regulation X and RESPA’s prohibition on dual tracking. Dual tracking “occurs when a lender ‘actively pursues foreclosure while simultaneously considering the borrower for loss mitigation options.’” The defendant mortgage servicer argued that the prohibition on moving for summary judgment found in Regulation X did not apply because the plaintiff rejected the loan modification. The defendant mortgage servicer based this argument on the fact that it did not receive the plaintiff’s executed modification by a certain date. Because of this, the defendant mortgage servicer argued that it was permitted to move forward with a foreclosure judgment, and its decision to reverse the denial of the modification was at its discretion and not subject to the requirements of 12 C.F.R.1024.41(g).

    The court found, however, that there was a genuine dispute as to whether the plaintiff returned the loan modification agreement by the designated date. The court continued, “[the defendant mortgage servicer’s] explanation regarding all three of the exceptions found at §41(g) subsections (1) through (3) each expressly depend upon the factual assertion that [the plaintiff] did not return a signed modification agreement and thereby rejected same. Inasmuch as there is evidence that [the plaintiff] did so, the court cannot conclude that [the defendant mortgage servicer] is entitled to judgment as a matter of law regarding the exceptions in §41(g) of Regulation X.” Among other things, the court also found that the defendant mortgage servicer “failed to act with reasonable care and diligence, in good faith, to safeguard and account for money tendered by [the plaintiff].” The court concluded by finding that the plaintiff sufficiently identified plausible damages as a result of a RESPA violation, further permitting her claims to stand.

    Courts Mortgages Foreclosure Loss Mitigation Mortgage Servicing RESPA Regulation X State Issues Ohio Consumer Finance

  • VA seeks comments on loss-mitigation options for guaranteed loans

    Federal Issues

    On October 17, the Department of Veterans Affairs published a proposed rule in the Federal Register related to the Department’s Loan Guaranty Service. The proposed rule requests public comments regarding the expansion of the VA’s incentivized loss mitigation options that are available to servicers assisting veterans whose VA-guaranteed loans are in default. Specifically, the VA encourages comments regarding “any other topic that will help VA as it explores whether to expand the incentivized loss-mitigation options outlined in VA regulation.” Comments are due by January 17.

    Federal Issues Agency Rule-Making & Guidance Department of Veterans Affairs Mortgages Mortgage Servicing Loss Mitigation Consumer Finance

  • Agencies instruct servicers to pause foreclosures while HAF assistance is available

    Federal Issues

    On May 6, the Secretaries of HUD, Department of Veterans Affairs, Department of Agriculture, and Treasury announced that servicers of federally-backed mortgages should pause pending foreclosure proceedings while assistance is available under the Homeowner Assistance Fund (HAF). President Biden’s American Rescue Plan established HAF to provide approximately $10 billion in financial support for families affected by the Covid-19 pandemic. According to the announcement, pausing pending proceedings is considered “a vital step towards keeping families in their homes as they receive assistance through the HAF program and is consistent with Congress’s intent in putting in place the HAF program to protect vulnerable homeowners.” The Secretaries encourage homeowners and servicers to continue collaborating on loss mitigation options so that homeowners eligible for assistance can choose “the best path to staying in their homes and fully utilize available resources.” They also “strongly encourage servicers to offer these loss mitigation options to borrowers who are struggling to make their mortgage payments, including those who are eligible for HAF funding.” The announcement further noted that, among other things, Treasury is urging HAF program administrators to ensure that their programs expedite handling of applications from homeowners with pending foreclosure proceedings, and to develop expedited procedures for handling homeowners with immediate threats to housing stability, in addition to supporting homeowners who may benefit from the agencies’ loss mitigation options.

    Federal Issues Covid-19 HUD Department of Veterans Affairs Department of Agriculture Department of Treasury Loss Mitigation Foreclosure Mortgages American Rescue Plan Act of 2021 Consumer Finance


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