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VA issues circular on pandemic-affected borrowers
On June 25, the Department of Veterans Affairs issued Circular 26-21-10, which provides an update for servicers on assisting borrowers who are affected by the Covid-19 pandemic. According to the circular, servicers should continue reporting the Electronic Default Notification with “National Emergency Declaration” as the default reason in cases that involve borrowers who are financially affected by the pandemic. In addition, “servicers are to continue to make every reasonable effort to assist borrowers who are experiencing financial difficulties due to the national emergency.” These efforts must be documented in servicers’ loan systems and are to include a servicer review of relevant loan files and consideration of all possible home retention options and alternatives to foreclosure. For borrowers who have not received a Covid-related forbearance, servicers should allow these borrowers to receive a such forbearance if the borrower makes the request by September 30. The circular also establishes that all properties securing VA-guaranteed loans are subject to moratoriums on foreclosures and evictions through July 31, 2021. excluding vacant or abandoned properties. The circular is rescinded effective July 1, 2023.
FHFA further extends foreclosure moratorium
On June 24, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will extend their moratorium on single-family foreclosures and real estate owned (REO) evictions until July 31. The current moratoriums were set to expire 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 have been acquired by the GSEs through foreclosure or deed-in-lieu of foreclosure transactions. Additional details on Covid-19 forbearance plan terms and payment deferrals are covered by InfoBytes here and here. The extensions are implemented in Fannie Mae Lender Letter LL-2021-02 and Freddie Mac Guide Bulletin 2021-23. The same day, the CDC also announced an extension of its current moratorium on residential evictions for non-payment of rent through July 31, also stating in the announcement that “this is intended to be the final extension of the moratorium.”
CFPB provides update on housing insecurity during pandemic
On June 22, the CFPB issued a release with data updating its March report on the effects of the Covid-19 pandemic on housing insecurity, finding some improvement but still elevated risks for borrowers relative to prior periods. The report summarized data and research regarding the impact of the pandemic on the rental and mortgage market, and specifically its effects on low income and minority households. According to the report, as of December 2020, 11 million renter and homeowner households were significantly overdue on their regular housing payments, which placed them, especially Black and Hispanic households, at a heightened risk of their homes being subjected to foreclosure or eviction. The report also indicated that as of January 2021, there were 2.7 million borrowers in active forbearance. As of June 2021, 600,000 fewer consumers were in mortgage forbearance than in January 2021, with forbearance rates significantly decreasing in April when many borrowers exited forbearance after reaching 12 months. According to the CFPB, this was a positive indication because many of these borrowers would have qualified for longer extensions of total forbearance. The release also notes, however, that for borrowers who have exited forbearance, payment deferrals or partial claims were the most common repayment option, and that “[o]f the borrowers still in forbearance, many may face a precarious financial situation upon exiting.” Additionally, while indicating that foreclosure rates remained at historic lows during the first quarter of 2021, with 0.54 percent of mortgages in foreclosure, the release also notes that the CARES Act and direction from Fannie Mae and Freddie Mac (GSEs), FHA, VA, and USDA “have prohibited lenders and servicers of GSE and federally-backed loans from beginning or proceeding with foreclosures.” Seriously delinquent mortgage borrowers remain approximately three times higher than before the pandemic, with 1.9 million mortgage borrowers over three months behind on mortgage payments or in active foreclosure, with more than one in 10 borrowers with an FHA loan remaining seriously delinquent on their mortgage, a rate higher than the peak during the Great Recession. The release also notes that during the pandemic, mortgage forbearance and delinquency have been significantly more common in communities of color and lower-income communities (covered by Infobytes here).
VA updates loan repayment relief for Covid-19 borrowers
On June 3, the Department of Veterans Affairs (VA) issued changes updating Circular 26-21-07 to address loan repayment relief for borrowers affected by Covid-19. The circular provides servicers with information regarding home retention options and foreclosure alternatives to use to assist borrowers affected by the pandemic. The guidance stems from the extended duration of the pandemic and developments in the VA’s program. According to the changes, “servicers should not require a borrower to make a lump sum payment to bring the loan current.” Additionally, the VA will allow “for Disaster Extend Modifications to extend the loan’s original maturity date for up to 18 months, in cases where the loan is modified not later than the date that is 18 months after the date on which the COVID-19 national emergency ends.” The circular is effective until April 1, 2022.
VA establishes VAPCP requirements
On May 28, the Department of Veterans Affairs (VA) published a final rule in the Federal Register, which establishes the “COVID–19 Veterans Assistance Partial Claim Payment” (VAPCP) program to help veterans resume making normal loan payments on VA-guaranteed loans after exiting forbearance due to the Covid-19 pandemic. The final rule incorporates several revisions in response to comments submitted by veterans, lenders, servicers, consumer groups, and trade associations on the VA’s proposed rule published last December (covered by InfoBytes here). Under the final rule, the partial claim maximum limit is increased from the proposed 15 percent to 30 percent of the unpaid principal balance of the guaranteed loan as of the date the veteran entered into a Covid-19 forbearance. The timeframe for servicers to submit partial claim payment requests to the VA also was increased from 90 to 120 days. Additionally, the final rule will allow servicers to use the Covid-VAPCP program “even if other home retention options are feasible, provided the partial claim payment option is in the veteran’s financial interest.” For a loan to qualify for a Covid-VAPCP, among other things, (i) the guaranteed loan must have been either current or less than 30 days past due on March 1, 2020, or made on or after March 1, 2020; (ii) the veteran must have received a Covid-19 forbearance and missed at least one scheduled monthly payment; (iii) at least one unpaid scheduled monthly payment must remain that the veteran did not make while under a Covid-19 forbearance; (iv) the veteran must indicate the ability to “resume making scheduled monthly payments, on time and in full, and that the veteran occupies, as the veteran’s residence, the property securing the guaranteed loan for which the partial claim is requested”; and (v) the veteran must timely execute all necessary loan documents in order to establish an obligation to repay the partial claim payment.
Notably, the final rule strikes the following requirements that were included in the proposed rule: (i) veterans will not be required to repay the partial claim within 120 months; (ii) interest will not be charged on the Covid-VAPCP; and (iii) servicers will not have to complete financial evaluations of veterans in the program.
The rule is effective July 27.
California regulator reminds mortgage lenders and servicers of pandemic-related relief
On April 9, the California Department of Financial Protection and Innovation issued guidance to mortgage lenders and servicers to remind them of state law protections for homeowners and encourage them to work with impacted borrowers to avoid foreclosure. The regulator noted that, under California’s Homeowner Relief Act, if a mortgage servicer denies a forbearance request between August 31, 2020 and September 1, 2021, the servicer must provide written notice to the borrower that specifies why relief was not provided, and provide certain information to assist the borrower with defects in the application. The regulator also encouraged mortgage services to work with their customers to propose solutions to avoid foreclosure and stated that prudent efforts to do so will not be criticized by examiners.
CFPB urges servicers to stave off foreclosure wave
On April 1, the CFPB urged mortgage servicers “to take all necessary steps to prevent a wave of avoidable foreclosures this fall.” Citing to the millions of homeowners currently in forbearance due to the Covid-19 pandemic, the Bureau’s compliance bulletin warns servicers that consumers will need assistance when pandemic-related federal emergency mortgage protections begin to expire later this year. The Bureau notes that it “will closely monitor how servicers engage with borrowers, respond to borrower requests, and process applications for loss mitigation,” and “will consider a servicer’s overall effectiveness in helping consumers when using its discretion to address compliance issues that arise.” According to the Bureau, industry data suggests that almost 1.7 million borrowers will exit forbearance programs starting in September, many of whom will be a year or more behind on mortgage payments. The Bureau cautions servicers to take proactive measures to prevent avoidable foreclosures, including by (i) contacting borrowers before the end of the forbearance period; (ii) working with borrowers to ensure they obtain all necessary information; (iii) addressing language access and maintaining compliance with ECOA and other applicable laws; (iv) evaluating income fairly when determining loss mitigation options; (v) handling inquiries promptly; and (vi) preventing avoidable foreclosures through compliance with foreclosure restrictions under Regulation X and other federal and state restrictions.
FHA: Temporary endorsement of mortgages under forbearance will expire March 31
On March 23, FHA issued a reminder regarding the upcoming expiration of the temporary guidance concerning endorsement processes for mortgages where a borrower was granted a forbearance related to the Covid-19 pandemic prior to the loan being endorsed for FHA insurance. As previously covered by InfoBytes, the temporary guidance—announced last June in Mortgagee Letter (ML) 2020-16—granted mortgagees the ability to submit a mortgage for insurance endorsement involving a borrower who is experiencing financial hardships due to the Covid-19 pandemic, provided the mortgagee “executes a two-year partial indemnification agreement.” The temporary guidance was last extended in ML 2020-45, and is set to expire March 31.
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.”
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.