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Colorado amends executive order regarding eviction protections
On June 1, the Colorado governor issued Executive Order 2021 110, which amends Executive Order 2021 088, as extended by Executive Order 2021 105. The amendment provides that an individual is prohibited from filing or initiating actions for forcible entry and detainer (i.e., eviction), including any demand for rent, unless the individual has notified the tenant in writing of the resources available to tenants and landlords, including a copy of the Department of Local Affairs resources. The Executive Order also directs the Executive Officer of the Department of Local Affairs to continue working with landlords to implement the model rent repayment agreements, to assist individuals who are unable to pay rent. Executive Order 2021 110 is set to expire on June 30. Previous coverage relating to Colorado’s eviction orders can be found here, here, here, and here.
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.
Maine to establish program to assist homeowners impacted by Covid-19
On May 28, Maine’s Bureau of Consumer Protection announced the Maine Homeowner Assistance Fund (HAF) Program to mitigate financial hardship for certain homeowners resulting from the Covid-19 pandemic. The details of the program are still in development as the superintendent holds meetings with stakeholders.
Texas amends wrap mortgage loan provisions and various licensing requirements
On May 24, the Texas governor signed SB 43, which amends various provisions related to residential mortgage loans, including those related to the financing of residential real estate purchases through the use of wrap mortgage loans, as well as various licensing and registration requirements. The act adds a new section related to wrap mortgage loan financing that will subject wrap loans to regulation like other mortgage loan products in order to provide certain protections for buyers and sellers, including written disclosures, tolling of limitations, closing requirements, and fiduciary duties. Among other things, the act defines certain terms, outlines exemptions, and will (i) prohibit a person from originating or making a wrap mortgage loan unless the person is licensed or registered to originate or make residential mortgage loans under certain statutory provisions, unless exempt; (ii) mandate specific disclosures related to wrap mortgages; (iii) authorize the savings and mortgage lending commissioner (commissioner) to conduct an inspection or investigation of a registered wrap lender; and (iv) authorize the commissioner to issue subpoenas and cease-and-desist orders to wrap lenders or wrap mortgage loan originators reasonably believed to have violated these provisions, and, if a violation is determined to have occurred, permits the commissioner to impose an administrative penalty of no more than $1,000 for each day of the violation. The commissioner may also seek injunctive relief. The act takes effect January 1, 2022.
FHFA studies the evolution of mortgage risk
On May 20, FHFA released a comprehensive dataset on ways mortgage risk has evolved over time. The revised staff working paper, “A Quarter Century of Mortgage Risk,” provides an account of the evolution of default risk for newly originated home mortgages over the past 25 years. As FHFA explained in its press release, reviewing a comprehensive dataset containing “aggregated results using more than 200 million purchase-money and refinance mortgages from 1990 to 2019” has led researchers to “challenge some long-held assumptions about the impetus of the 2008 financial crisis.” Key findings presented in the working paper include: (i) new data shows that increased mortgage risk in the 1990s “was a precursor to the market failing in 2008,” whereas “previous research could not identify the fact that a refinance boom from 2000-2003 masked the mortgage risk accumulation”; (ii) prior to the 2008 financial crisis, “mortgage risk accumulated across the full spectrum of borrowers, not just those with low credit scores as some have previously asserted”; (iii) “[m]ortgage rate spreads between ‘not risky loans’ and ‘very risky loans’” tightened for portfolio and private-label securities mortgages in the mid-2000s—an indication of expanded credit supply directly prior to the Great Recession; and (iv) during the current era, “sustained house price appreciation is leading mortgage risk to increase.”
New York to make $3 billion available to assist renters and small businesses
On May 25, New York’s Governor Cuomo announced that up to $2.7 billion in emergency rental assistance and $800 million in small business recovery grants will be available to New Yorkers impacted by Covid-19. The rental assistance program will prioritize the unemployed, those with income at or below 50% of the area median income, and other vulnerable populations for the first 30 days and then be open to other applicants so long as funds remain available.
CFPB releases TRID FAQs
On May 14, the CFPB released five new FAQs regarding housing assistance loans to assist with TILA-RESPA Integrated Disclosure Rule (TRID Rule) compliance. Highlights from the FAQs are listed below:
- The TRID Rule covers a loan if it: “[i] is made by a creditor as defined in § 1026.2(a)(17); [ii] is secured in full or in part by real property or a cooperative unit; [iii] is a closed-end, consumer credit (as defined in § 1026.2(a)(12)) transaction; [iv] is not exempt for any reason listed in § 1026.3; and [v] is not a reverse mortgage subject to § 1026.33.”
- Regulation Z exempts certain mortgage loans from the TRID disclosure requirements (i.e., providing the LE and CD) (the “Partial Exemption”). This exemption covers certain subordinate housing assistance loans. To qualify, “a transaction must meet all of the following criteria: [i] the transaction is secured by a subordinate-lien; [ii] the transaction is for the purpose of a down payment, closing costs, or other similar home buyer assistance, such as principal or interest subsidies; property rehabilitation assistance; energy efficiency assistance; or foreclosure avoidance or prevention; [iii] the credit contract provides that it does not require the payment of interest; [iv] the credit contract provides that repayment of the amount of credit extended is: forgiven either incrementally or in whole, deferred for at least 20 years after the transaction, or until the sale of the property, or until the property securing the transaction is no longer the consumer’s principal dwelling; [v] the total of costs payable by the consumer in connection with the transaction only include recording fees, transfer taxes, a bona fide and reasonable application fee, and a bona fide and reasonable fee for housing counseling services[;] the application fee and housing counseling services fee must be less than one percent of the loan amount; [and] [iv] the creditor provides either the Truth-in-Lending (TIL) disclosures or the Loan Estimate and Closing Disclosure[.] Regardless of which disclosures the creditor chooses to provide, the creditor must comply with all Regulation Z requirements pertaining to those disclosures.”
- The BUILD Act includes a partial statutory exemption from the TRID disclosure requirements for similar transactions. To qualify for the Partial Exemption from the TRID disclosure requirements under the BUILD Act, the loan must be a residential mortgage loan, offered at a 0 percent interest rate, have only bona fide and reasonable fees, and be primarily for charitable purposes and be made by an organization described in Internal Revenue Code section 501(c)(3) and exempt from taxation under section 501(a) of that Code.
- If a housing assistance loan creditor opts for one of the partial exemptions under either the Regulation Z Partial Exemption or under the BUILD Act, they are excused from the requirement to provide the Loan Estimate and Closing Disclosure for that transaction. The Partial Exemption under Regulation Z does not excuse the creditor from providing certain other disclosures required by Regulation Z. If the creditor qualifies for the exemption under the BUILD Act, they have the option to provide the GFE, HUD-1 and Truth In Lending disclosures in lieu of the LE and CD at the creditor’s discretion.
Illinois passes emergency rental assistance legislation
On May 17, Illinois enacted the Emergency Housing Rental Assistance Program Act. Among other things, the law details how the state will distribute funds received through the Federal Emergency Rental Assistance program. The law also provides for the sealing of residential eviction records through August 2022 and places judicial sales of property on hold until July 31, 2021.
2nd Circuit affirms borrower standing in mortgage recordation delay suit
On May 10, the U.S. Court of Appeals for the Second Circuit determined that class members have constitutional standing to sue a national bank for allegedly violating New York’s mortgage-satisfaction-recording statutes, which require lenders to record borrowers’ repayments within 30 days. The plaintiffs filed a class action suit alleging the bank’s recordation delay harmed their financial reputations, impaired their credit, and limited their borrowing capacity. The district court agreed, ruling that the plaintiffs had Article III standing to sue because the bank’s alleged violation of the mortgage-satisfaction-recording statutes created a “material risk of harm” to them.
On appeal, the majority opinion first determined, among other things, that “state legislatures may create legally protected interests whose violation supports Article III standing, subject to certain federal limitations.” The alleged state law violations in this matter, the majority wrote, constitute a concrete and particularized harm to the plaintiffs in the form of both reputational injury and limitations in borrowing capacity during the recordation delay period. Moreover, the majority concluded that the bank’s alleged failure to report the plaintiffs’ mortgage discharge “posed a real risk of material harm” because the public record reflected an outstanding debt of over $50,000, which could “reasonably be inferred to have substantially restricted” the plaintiffs’ borrowing capacity. The dissenting judge argued, however, that the plaintiffs “never suffered a cloud on title prohibiting them from selling their property, or adverse effects on their credit, or an inability to finance another property, or even a risk of these harms,” and that the “trivial nature of a recordation delay is reflected in the 30-day delay that is tolerated without penalty, and by the small penalty exacted even after 90 days.”
The 2nd Circuit joined the Third, Seventh, Ninth, and Tenth circuits in holding that state legislatures have the power to “create ‘legally protected interests’” that, when violated, satisfy Article III injury-in-fact requirement, noting that it is “aware of no Circuit holding to the contrary.”
9th Circuit: Federal Foreclosure Bar preempts Nevada HOA law, maintaining Fannie Deed of Trust
On May 5, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of a mortgage servicer in an action asserting claims arising from a homeowners’ association’s (HOA) nonjudicial foreclosure on real property in Nevada. According to the opinion, Fannie Mae originally purchased the loan on the property (secured by a Deed of Trust), which was eventually assigned to the mortgage servicer. Following the homeowners’ failure to pay their HOA dues, a foreclosure sale was held, and the property was conveyed to a limited liability company. The mortgage servicer filed a quiet title suit against the company, and the district court granted summary judgment in its favor on the basis that the Federal Foreclosure Bar (which prohibits the foreclosure of FHFA property without FHFA’s consent) “prevented the extinguishment of Fannie Mae’s Deed.”
In agreeing with the district court, the 9th Circuit first rejected two threshold challenges raised by the company, holding that the mortgage servicer “properly and timely” raised its claims under the Federal Foreclosure Bar. Specifically, the appellate court determined that the mortgage servicer “presented ample evidence of its servicing relationship with Fannie Mae,” and that this relationship, along with authority delegated to Fannie Mae loan servicers to protect its mortgage loans, “was more than sufficient to establish” that the mortgage servicer was Fannie Mae’s loan servicer and, therefore “had the authority to assert the Federal Foreclosure Bar” in quiet title action. The 9th Circuit also concluded that the mortgage servicer filed the action within the applicable six-year statute of limitations. In holding that the Federal Foreclosure Bar preempted Nevada’s HOA law and prevented the extinguishment of Fannie Mae’s Deed of Trust, the appellate court noted, among other things, that the mortgage servicer demonstrated that Fannie Mae retained an enforceable interest in the loan at the time of the HOA foreclosure sale. The 9th Circuit rejected the company’s argument that the mortgage servicer “failed to produce a ‘signed writing’ evincing such interest as required by the Nevada statute of frauds.” According to the appellate court, given that the company “was not a party to the underlying loan agreement pursuant to which Fannie Mae acquired the loan,” the company could not raise the statute of frauds.