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VA seeks comments on loss-mitigation options for guaranteed loans
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.
Agencies instruct servicers to pause foreclosures while HAF assistance is available
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.
HUD offers 40-year mortgage modification
On April 18, HUD issued Mortgagee Letter 2022-07, which establishes a 40-year loan modification as part of the Covid-19 Recovery Loss Mitigation Options. According to HUD, the new option is “designed to help those borrowers who cannot achieve a minimum targeted 25 percent reduction in the Principal and Interest portion of their mortgage payment through FHA’s existing 30-year mortgage modification with a partial claim.” Mortgage servicers may start implementing the new 40-year modification with partial claim option immediately; however, servicers must offer this solution to eligible borrowers with FHA-insured Title II forward mortgages, except those funded through Mortgage Revenue Bonds under certain circumstances, within 90 calendar days. As previously covered by InfoBytes, HUD published a proposed rule to increase the maximum term limit allowable on loan modifications for FHA-insured mortgages from 360 to 480 months. Comments are due by May 31.
District Court denies defendants summary judgment over FCA violations
On March 16, the U.S. District Court for the Eastern District of Texas denied a motion for summary judgment by a mortgage servicer relating to False Claims Act (FCA) claims alleging false certifications of compliance to obtain payment under three different government programs: Treasury’s Home Affordable Modification Program (HAMP), FHA HAMP, and VA HAMP. According to the memorandum opinion and order, the relator, a former loss-mitigation specialist at the mortgage servicer, alleged that the mortgage servicer engaged in widespread dual tracking, continuously moving homeowners’ mortgages through the foreclosure process even as the defendants were supposed to be evaluating the mortgages for loss mitigation options and HAMP. The plaintiff further alleged that “the dual tracking led many homeowners to lose their homes in foreclosure when foreclosure should have been suspended during the resolution of modification and other workout processes,” and that the defendants “knowingly lacked adequate HAMP systems, processes, staffing, and training.”
The defendants argued that, “notwithstanding industrywide difficulties, publicly available service assessments and third-party reviews show that [the mortgage servicer was] one of the highest-rated servicers participating in HAMP []. Further, though Treasury had the power to withhold incentives for HAMP non-compliance, Treasury never did so and consistently paid HAMP incentive payments to [the mortgage servicer] until the program expired.” The mortgage servicer also argued that summary judgment was appropriate for several reasons; (i) the court lacks jurisdiction to consider any of the relator’s claims under the FCA’s first-to-file bar; (ii) the relator’s claims fail because he cannot establish one or more of the required elements as to each claim; and (iii) the relator’s VA claim fails because the he cannot cite to any evidence of a certification by the mortgage servicer to the VA, and thus cannot demonstrate a false statement or fraudulent conduct. The court held that, pursuant to Fifth Circuit precedent, the first-to-file rule is inapplicable here because this case was filed by the same relator in a New York district court. With respect to the remaining claims, the court held that summary judgment is inappropriate where, as here, there exist genuine issues of material fact.
4th Circuit affirms district court’s decision in lone class member's appeal
On February 10, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s approval of a $3 million class action settlement between a class of consumers (plaintiffs) and a national mortgage lender (defendant), resolving allegations arising from a foreclosure suit. In 2014, the lead plaintiffs alleged that the defendants violated federal and Maryland state law by failing to; (i) timely acknowledge receipt of class members’ loss mitigation applications; (ii) respond to the applications; and (iii) obtain proper documentation. After the case was litigated for six years, a settlement was reached that required the defendant to pay $3 million towards a relief fund. The district court approved the settlement and class counsel’s request for $1.3 million in attorneys’ fees and costs, but an absent class member objected to the settlement, arguing that “the class notice was insufficient; the settlement was unfair, unreasonable, and inadequate; the release was unconstitutionally overbroad; and the attorneys’ fee award was improper.” A magistrate judge overruled the plaintiff’s objections, finding that “both the distribution and content of the notice were sufficient because over 97% of the nearly 350,000 class members received notice,” and that “class members ‘had information to make the necessary decisions and . . . the ability to even get more information if they so desired.’”
On the appeal, the 4th Circuit rejected the class member’s argument that the magistrate judge lacked jurisdiction to approve the settlement where she had not consented to have the magistrate hear the case. The 4th Circuit noted that only “parties” are required to consent to have a magistrate hear a case and held that absent class members are not “parties,” noting that “every other circuit to address the issue has concluded that absent class members aren’t parties.” The appellate court also upheld the adequacy of the class notice, and held that the magistrate judge did not abuse his discretion in finding that the settlement agreement was fair, reasonable, and adequate.
States say FHA must require servicers to comply with Covid-19 loss mitigation options
On December 21, a coalition of attorneys general from 20 states and the District of Columbia sent a letter to the FHA urging the agency to address mortgage servicers’ alleged failure to adequately implement Covid-19 recovery loss mitigation options for eligible borrowers. As previously covered by InfoBytes, FHA issued Mortgagee Letter 2021-18 in July, which required 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 extended the term of a mortgage to 360 months at market rate and targeted a 25 percent principal and interest reduction for all eligible borrowers. At the time, FHA informed servicers that they could start offering the options as soon as operationally feasible but were required to use the new options within 90 days.
The AGs alleged in their letter that several servicers of FHA-insured loans are reportedly failing to adequately implement these Covid-19 relief programs, and are instead “routinely sending borrowers letters that fail to include the Covid-19 Recovery Modification as an available option, are requiring paperwork and imposing qualifications that are not necessary under the FHA’s guidelines, and are instructing borrowers during customer-service phone calls that this option does not exist.” The AGs expressed deep concerns over these reports and requested that FHA take immediate action to ensure that FHA’s loss mitigation options, including the Covid-19 Recovery Modification, are fully implemented, and that borrowers receive accurate, up-to-date information. The AGs asked that FHA-approved lenders and servicers be required to demonstrate that they are taking affirmative actions to implement these Covid-19 relief options and requested training for all customer service staff to ensure borrowers receive the necessary information.
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.
Pennsylvania adopts mortgage servicing regulations
On September 25, the Pennsylvania Department of Banking and Securities adopted provisions regarding mortgage servicing regulations. Among other things, the regulations clarify the definition of a “COVID-19 related hardship,” establish general disclosure requirements, and provide early intervention and loss mitigation procedures and options. Specifically, the regulations establish that until October 22, 2022, a servicer must, after establishing live contact for borrowers not in forbearance programs, inform them that forbearance programs are available for those experiencing a “COVID-19-related hardship” and must list and describe these forbearance programs and the actions the borrower must take to be evaluated for the programs, among other things. Additionally, for borrowers in forbearance programs at the time of live contact, servicers, until October 22, 2022, must provide the end date of the borrower’s current forbearance program, a list and description of the types of forbearance extensions, and a way that the borrower can find contact information for homeownership counseling services, among other things. The regulations also establish loss mitigation procedures in that a servicer may offer a borrower a loss mitigation option based upon evaluation of an incomplete application, provided that certain criteria are met. In addition, the regulations create certain Covid-19-related loan modification options, such as a loan modification can be made available to borrowers experiencing a Covid-19-related hardship. The regulations are effective immediately.
DFPI issues mortgage servicer requirements
On September 13, the California Department of Financial Protection and Innovation (DFPI) issued a notice detailing a new requirement that mortgage servicers provide information to DFPI describing the actions servicers are taking to help homeowners avoid foreclosure. According to the announcement, DFPI intends to “ensure that licensees tell consumers about assistance that is or will soon be available to delinquent mortgage borrowers and document their good faith efforts toward screening borrowers for applicable loan modifications, mortgage relief funds and other protections, including the upcoming federal Homeowner Assistance Fund,” which licensees are strongly encouraged to participate in. To protect vulnerable homeowners, DFPI will require licensees handling residential mortgages, either directly or through sub-servicers, to provide information describing the servicer’s: (i) screening process for determining borrower eligibility for foreclosure aid; (ii) compliance policies and procedures regarding loss mitigation; and (iii) assessment of the “magnitude of foreclosure risk among the loans they service.”
The same day, DFPI released a social media campaign designed to educate consumers about the California Homeowner Bill of Rights, the availability of HUD-certified housing counselors, and foreclosure options, among other things. The announcement also notes that DFPI recently launched a multi-pronged communications campaign to educate consumers and protect homeowners from foreclosure.
OCC issues cease and desist order and $250 million penalty against national bank
On September 9, the OCC announced a cease-and-desist and consent order and a $250 million civil money penalty against a national bank for alleged unsafe or unsound practices related to deficiencies in its home lending loss mitigation program and for violations of a 2018 consent order. According to the OCC, the bank, among other things: (i) failed to fully implement and maintain adequate loss mitigation practices; (ii) had mitigation decisioning tools and operational deficiencies that caused errors in loss mitigation processes; (iii) failed to timely detect, prevent, and quantify inaccurate loan modification decisions, due to inadequate controls, insufficient independent oversight, and ineffective governance related to loss mitigation activities; and (iv) had deficient internal auditing, which failed to consider aspects of previously identified issues. The cease and desist order requires the bank, among other things, to establish significant improvements to its loss mitigation program and cease taking on certain new bulk residential mortgage servicing rights from third parties. The September 9 civil money penalty order, which notes that the bank has taken steps to comply with the 2018 consent order but failed to effectively implement corrective actions, requires the bank to pay a civil penalty of $250 million.