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FHA reinstates HAMP loss mitigation for exempted transfers
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.
Treasury awards $1.7 billion in CDFI grants
On April 10, Vice President Kamala Harris and Deputy Secretary of the Treasury Wally Adeyemo announced that the U.S. Treasury Department’s Community Development Financial Institutions (CDFIs) Fund has awarded more than $1.73 billion in grants to 603 CDFIs to help low- and moderate-income communities recover from the Covid-19 pandemic. Financial institutions that received grants through the CDFI Equitable Recovery Program include banks, holding companies, and credit unions, as well as CDFI-designated non-depository loan funds and venture funds. Treasury noted that the recipients of the grants are “mission-driven financial institutions [that] specialize in delivering responsible capital, credit, and financial services to underserved communities.” The CDFI grants “may be used to support lending related to small businesses and microenterprises, community facilities, affordable housing, commercial real estate, and intermediary lending to nonprofits and CDFIs,” Treasury explained, adding that funds may also go towards financial and developmental services to support borrowers, as well as operational support for grant recipients.
HUD extends Covid-19 forbearance through May
On April 7, HUD issued Mortgagee Letter 2023-08, which extends through May 31 the final date for borrowers to request Covid-19 forbearance and home equity conversion mortgage (HECM) extensions. The extension is intended to allow ample time for affected borrowers to submit requests and for mortgagees to offer and process the requests in the event that the presidentially-declared national emergency ends earlier than originally expected. As stated in the letter, HUD determined that providing a short period beyond the expiration of the national emergency will be beneficial to both FHA borrowers and mortgagees. The extension will also align Covid-19 forbearance and HECM extension requests with the monthly billing cycle. The letter stated that no Covid-19 forbearance period may extend beyond November 30.
FHFA expands deferral policies for hardships
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.
FHA reminds servicers of HAF disclosure obligations
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.
FHA expands Covid-19 loss mitigation options
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.
CFPB releases data on pandemic credit scores
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.
CFPB says servicers should suggest sales over foreclosures for some borrowers
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.
CFPB updates Mortgage Servicing Examination Procedures
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.
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.