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On December 21, the Department of Veterans Affairs (VA) issued Circular 26-21-27 to extend the suspension of certain inspection requirements for properties purchased with loans guaranteed by the VA where the borrower has been negatively impacted by Covid-19. In 2020, the VA temporarily suspended its requirement to conduct a property inspection before the 60th day of delinquency for borrowers whose loans are currently in forbearance and were current or had not reached the 60th day of delinquency when the borrower requested CARES Act forbearance. Circular 26-21-27 sunsets on October 1, 2022.
On November 8, Federal Reserve Board Governor, Michelle W. Bowman, spoke at the “Women in Housing and Finance Public Policy Luncheon” regarding U.S. housing and the mortgage market. Bowman observed that home prices have increased in the past year and a half, stating that “[i]n September, about 90 percent of American cities had experienced rising home prices over the past three months, and the home price increases were substantial in most of these cities,” which “raise[s] the concern that housing is overvalued and that home prices may decline.” She discussed several factors leading to the demand for housing as including (i) low interest rates; (ii) accumulated savings; and (iii) increased income growth. Additionally, she pointed out that mortgage refinancing has surged due to the decrease in long-term interest rates, and that nonbank servicers utilized the proceeds from the “refinacings to fund the advances associated with forbearance.” However, Bowman added that higher home prices and rising rents contributed to inflationary pressures in the economy. Bowman stated that the “multifamily rental market is at historic levels of tightness, with over 95 percent occupancy in major markets,” and she anticipates that these housing supply issues are unlikely to reverse materially in the short term, suggesting that there will be higher levels of inflation caused by housing. With respect to forbearance, Bowman said, “1.2 million borrowers were still in forbearance, down from a peak of 4.7 million in June 2020” on mortgage payments. Bowman stated that, “[f]orbearance, foreclosure moratorium, and fiscal support have kept distressed borrowers in their homes.” Bowman warned that transitioning borrowers from mortgage forbearance to modification may be a “heavy lift” for some servicers. Bowman disclosed that the Fed will be monitoring what happens as borrowers reach the end of the forbearance on mortgage payments and estimates that 850,000 of those in forbearance will reach the end of their forbearance period in January 2022, and “the temporary limitations on foreclosures put in place by the Consumer Financial Protection Bureau will expire at the end of the year.” Bowman recommended that state and federal regulators collaborate to collect data, identify risks, and strengthen oversight of nonbank mortgage companies.
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.
On September 29, the Department of Veterans Affairs issued circulars providing updates for servicers on assisting borrowers who continue to be affected by the Covid-19 pandemic. According to Circular 26-21-19, servicers may continue to offer loan deferments as a home retention option to borrowers exiting a Covid-19 forbearance period. Servicers who select this option will defer repayment of principal, interest, taxes, and insurance “to the loan maturity date or until the borrower refinances the loan, transfers the property, or otherwise pays off the loan (whichever occurs first) and with no added costs, fees, or interest to the borrower, and with no penalty for early payment of the deferred amount.” The VA’s Covid-19 Home Retention Waterfall and Covid-19 Refund Modification guidance, issued in July (covered by InfoBytes here), provides that the loan deferment option may be used in situations where a borrower indicates that he or she can resume normal monthly guaranteed loan payments but cannot repay the arrearages. Additionally, the VA notes that in order “to relieve undue prejudice to a debtor, holder, or other person,” it is “temporarily waiving the requirement that the final installment on any loan shall not be in excess of two times the average of the preceding installments.” This waiver, the agency notes, is applicable only to VA’s Covid-19 Home Retention Waterfall cases. The Circular is rescinded July 1, 2023.
The same day, the VA also issued Circular 26-21-20 to clarify timeline expectations for forbearance requests submitted by affected borrowers. “For borrowers who have not received a COVID-related forbearance as of the date of this Circular, servicers should approve requests from such borrowers provided that the borrower makes the request during the National Emergency Concerning the Novel Coronavirus Disease 2019 (COVID-19) Pandemic.” The VA states that it expects all Covid-19 related forbearances to end no later than September 30, 2022.
On September 27, HUD issued Mortgagee Letter 2021-24, which extends and adds Covid-19 relief options for borrowers who are struggling with mortgage payments due to the pandemic and for senior homeowners with Home Equity Conversion Mortgages (HECM) who require assistance to stay in their homes. According to HUD, these actions are in response to the impact of the pandemic and “are part of FHA’s continuing evolution of its COVID-19 policies so that the right tools are in place to help borrowers.” FHA is now providing: (i) “up to six months of COVID-19 Forbearance for borrowers requesting an initial COVID-19 Forbearance or HECM Extension from their mortgage servicer between October 1, 2021, and the end of the COVID-19 National Emergency, and an additional six months if the COVID-19 Forbearance or HECM Extension is exhausted and expires before the end of the COVID-19 National Emergency”; and (ii) “up to six months of additional forbearance for borrowers who requested or will request an initial COVID-19 Forbearance or HECM Extension from their mortgage servicer between July 1, 2021, and September 30, 2021, allowing these borrowers up to a maximum of 12 months of COVID-19 Forbearance or HECM Extension.”
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.
On September 24, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will continue to offer Covid-19 forbearance to qualified multifamily property owners. The forbearance options for GSE-backed multifamily mortgages were set to expire September 30, but have been extended for the fourth time. Eligible multifamily property owners that enter into new or modified forbearance agreements are required to (i) “[i]nform tenants in writing about tenant protections available during the property owner’s forbearance and repayment periods”; and (ii) “[a]gree not to evict tenants solely for the nonpayment of rent while the property is in forbearance.” Additionally, property owners must also provide a tenant at least 30-days’ notice to vacate, may not charge a tenant late fees or penalties for nonpayment of rent, and must allow a tenant flexibility to repay back rent over time and not in a lump sum.
On August 10, the CFPB released an overview report of Covid-19 pandemic responses from 16 large mortgage servicers (servicers). The CFPB used supervisory data from the servicers to understand how they are interacting with homeowners throughout the pandemic and if those interactions are effective. The CFPB’s observations include the following:
- According to the report, most servicers reported abandonment rates, a measure of how many borrowers disconnected from servicing calls before completion, of less than 5 percent during the reporting period, while others exceeded 20 percent, and one peaked at 34 percent.
- Many servicers saw increased rates of borrowers who were delinquent upon exiting pandemic hardship forbearance programs in March and April 2021 compared to previous months. According to the report, these borrowers “may be at risk of harm from advanced delinquency, foreclosure and foreclosure-related costs, and negative credit reporting.”
- Delinquency rates ranged from about 1 percent to 26 percent for federally-backed and private loans. According to the report, “[d]elinquency rates increased sharply around March 2020 and remain elevated.”
- According to the CFPB, “[n]early half of servicers in the report clearly stated that they did not collect or maintain information about borrowers’ LEP [limited English proficiency] status, which may lead to borrowers not receiving needed language assistance. Some of the servicers also reported not maintaining data on borrowers’ race, which may raise the risk of fair lending violations.”
- The report found that denial rates for Covid-19 hardship forbearance requests were consistently low for both federally-backed loans and private loan forbearance programs.
According to the CFPB, the Bureau “will continue its oversight work through examinations and enforcement, and it will hold servicers accountable for complying with existing regulatory requirements, as well as the amended Mortgage Servicing Rules that take effect August 31, 2021.”
On June 29, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will not be permitted to make a first notice or filing for foreclosure that would be prohibited by the CFPB’s “Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X” final rule prior to the rule’s effective date. As previously covered by a Buckley Special Alert, the Bureau’s final rule, which takes effect August 31, obligates a servicer to continue specifying, with substantial detail, any loss mitigation options that may help borrowers resolve their delinquencies. GSEs are required to follow the CFPB’s new protections a month before the CFPB rule takes effect, which will protect borrowers from foreclosure and provide certainty for servicers regarding GSE expectations. According to FHFA, “[s]ervicers will still be able to make a notice or filing for foreclosure on abandoned properties and those that had a foreclosure referral prior to March 2020, along with certain other exceptions.” FHFA’s action eliminates the gap between the expiration of its current moratoriums for single family foreclosures and real estate owned (REO) evictions that will expire on July 31 (covered by InfoBytes here) and the effective date of the CFPB’s rule, which is a month later.
On June 25, FHA announced the extension of several Covid-19-related flexibilities in Mortgagee Letter 2021-15, which extends the foreclosure and eviction moratorium in connection with the Covid-19 pandemic, expands the Covid-19 forbearance and the home equity conversion mortgage (HECM) extension, and establishes the Covid-19 advance loan modification (Covid-19 ALM). As previously covered by InfoBytes, in December 2020, FHA first extended its foreclosure and eviction moratorium through February 28. In the most recent extension, FHA further extended its foreclosure and eviction moratorium for all FHA-insured single family mortgages, excluding vacant or abandoned properties, through July 31. For FHA’s Covid-19 forbearance policy, FHA expanded the date to request an initial Covid-19 forbearance from June 30 to September 30 and provided an additional three-month extension to the forbearance for borrowers who began their initial forbearance between July 1, 2020, and September 30, 2020. FHA also established the Covid-19 ALM, which, among other things, “offers borrowers who are currently 90 or more days delinquent, or at the end of their COVID-19 forbearance, the opportunity for a 30-year rate and term mortgage modification that will bring their mortgage current and reduce the principal and interest portion of their monthly mortgage payment by at least 25 percent” and establishes a Default Code. FHA also expanded the HECM Covid-19 extensions by “providing an additional three-month extension to HECM borrowers, where an initial HECM extension period began between July 1, 2020, and September 30, 2020.”
- Jonice Gray Tucker to discuss “Be Your Compliance Best in 2022” at the California Mortgage Bankers Association webinar
- Lauren R. Randell to discuss “Significant legal developments in the Northeast” at the 37th Annual National Institute on White Collar Crime
- Jonice Gray Tucker to discuss “Small business & regulation: How fair lending has evolved & where it is heading?” at the Consumer Bankers Association Live program
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek
- Jonice Gray Tucker and Kari Hall to discuss “Equity, equality, regulation and enforcement – The evolving regulatory landscape of fair lending, redlining, and UDAAP” at the ABA Business Law Committee Hybrid Spring Meeting