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On July 26, the U.S. District Court for the Northern District of California granted preliminary approval of a proposed supplemental class settlement, adding new class members who were not part of the list of borrowers included in the court’s October 2020 original settlement order. The supplemental settlement provides more than $21.8 million for additional class members who lost their homes after allegedly being denied loan modifications from a national bank. Class members include borrowers who allegedly should have qualified for loan modifications but were not offered a home loan modification or repayment plan “due to excessive attorney’s fees being included in the loan modification decisioning” and “whose home[s] [the bank] sold in foreclosure.” According to the court’s order granting class certification, a software glitch allegedly caused a calculation error, which resulted in certain fees being misstated and led to incorrect mortgage modification denials. The original settlement set aside $1 million to compensate borrowers who endured “severe emotional distress” as a result of the error, and the supplemental settlement will provide new class members the same opportunity to apply for additional settlement amounts.
On June 29, the CFPB released its summer 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto loan servicing, consumer reporting, debt collection, deposits, fair lending, mortgage origination and servicing, payday lending, private education loan origination, and student loan servicing. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between January and December of 2020. Highlights of the examination findings include:
- Auto Loan Servicing. Bureau examiners identified unfair acts or practices related to lender-placed collateral protection insurance (CPI), including instances where servicers charged unnecessary CPI or charged for CPI after repossession. Examiners also identified unfair acts or practices related to payoff amounts where consumers had ancillary product rebates due, and also found unfair or deceptive acts or practices related to payment application.
- Consumer Reporting. The Bureau found deficiencies in consumer reporting companies’ (CRCs) FCRA compliance related to the following requirements: (i) accuracy; (ii) security freezes applicable to certain CRCs; and (iii) ID theft block requests. Specifically, examiners found that CRCs continued to include information from furnishers despite receiving furnisher dispute responses that “suggested that the furnishers were no longer sources of reliable, verifiable information about consumers.” Additionally, the report noted instances where furnishers failed to update and correct information or conduct reasonable investigations of direct disputes.
- Debt Collection. The report found that examiners found instances of FDCPA violations where debt collectors (i) made calls to a consumer’s workplace; (ii) communicated with third parties; (iii) failed to stop communications after receiving a written request or a refusal to pay; (iv) harassed consumers regarding their inability to pay; (v) communicated, and threatened to communicate, false credit information to CRCs; (vi) made false representations or used deceptive collection means; (vii) entered inaccurate information regarding state interest rate caps into an automated system; (viii) unlawfully initiated wage garnishments; and (ix) failed to send complete validation notices.
- Deposits. The Bureau discussed violations related to Regulation E and Regulation DD, including error resolution violations, issues with provisional credits, failure to investigate, failure to remediate errors, and overdraft opt-in and disclosure violations.
- Fair Lending. The report noted instances where examiners cited violations of HMDA/ Regulation C involving HMDA loan application register inaccuracies, and instances where lenders, among other things, violated ECOA/Regulation B “by engaging in acts or practices directed at prospective applicants that would have discouraged reasonable people in minority neighborhoods in Metropolitan Statistical Areas (MSAs) from applying for credit.”
- Mortgage Origination. The Bureau cited violations of Regulation Z and the CFPA related to loan originator compensation, title insurance disclosures, and deceptive waivers of borrowers’ rights in security deed riders and loan security agreements.
- Mortgage Servicing. The Bureau cited violations of Regulation X, including those related to dual tracking violations, misrepresentations regarding foreclosure timelines, and PMI terminations.
- Payday Lending. The report discussed violations of the CFPA for payday lenders, including falsely representing an intent to sue or that a credit check would not be run, and presenting deceptive repayment options to borrowers that were contractually eligible for no-cost repayment plans.
- Private Education Loan Origination. Bureau examiners identified deceptive acts or practices related to the marketing of private education loan rates.
- Student Loan Servicing. Bureau examiners found several types of misrepresentations servicers made regarding consumer eligibility for the Public Service Loan Forgiveness (PSLF) program, and identified unfair acts or practices related to a servicer’s “failure to reverse negative consequences of automatic natural disaster forbearances.” Additionally, examiners identified unfair act or practices related to failing to honor consumer payment allocation instructions or providing inaccurate monthly payment amounts to consumers after a loan transfer.
The report also highlights recent supervisory program developments and enforcement actions.
Special Alert: CFPB specifies pandemic foreclosure protections and signals tight supervision and enforcement around servicer efforts
The Consumer Financial Protection Bureau’s Covid-relief mortgage servicing rule issued yesterday steered away from a nationwide foreclosure freeze as initially proposed, instead creating heightened protections for those borrowers who became seriously delinquent during the pandemic. The distinction may not prove to be a game-changer for servicers, however, which will be obligated to carefully document outreach efforts and decisions to advance borrowers into foreclosure — with little margin for error.
The bureau’s final rule, which takes effect Aug. 31, obligates a servicer to continue specifying, with substantial detail, any loss mitigation options that may help the borrower resolve their delinquency. It also largely preserves the proposed streamline modification option on the basis of an incomplete loss mitigation application, although most servicers already have been offering many of these modifications since the early days of the pandemic.
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.”
On June 21, Chairwoman of the House Financial Services Committee Maxine Waters (D-CA) sent a letter to several federal agencies “urging them to administratively extend their moratoria on foreclosures at least until the CFPB is able to finalize and implement its pandemic recovery mortgage servicing rule.” As previously covered by a Buckley Special Alert, the Bureau issued a proposed rule in April that would broadly halt foreclosure initiations on principal residences from August 31, 2021 until 2022, and change servicing rules to promote consumer awareness and processing of Covid-relief loss mitigation options. The proposed rule also would create new and detailed obligations for communicating with borrowers to ensure they are aware of their loss mitigation options for pandemic-related hardships.
The letter, which was sent to the secretaries of HUD, the Department of Agriculture, the Department of Veterans Affairs, as well as the director of FHFA and the acting director of the CFPB, stresses that many homeowners will face the risk of foreclosure when the emergency federal foreclosure mortarium expires on June 30, as the Bureau’s proposed rule is not expected to take effect until August. This gap in critical protections, Waters cautions, “could result in servicers expediting efforts to initiate foreclosures before a final rule takes effect, especially for borrowers who have not been able to access forbearance options during the pandemic[.]” The letter requests not only an extension of the current foreclosure moratoriums but also urges the Bureau to finalize the rule (or issue an interim final rule if necessary) as soon as possible to prevent unnecessary foreclosures and ensure homeowners have the opportunity to finalize affordable loan modifications. Additionally, Waters urges the Bureau to alert servicers of the consequences should they, among other things, fail to notify homeowners about their post-forbearance options, unnecessarily delay reviewing loan modification applications, engage in improper foreclosure-related activity, unlawfully discriminate against borrowers, or provide inaccurate, adverse information to credit reporting agencies.
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.”
On June 8, the U.S. Court of Appeals for the 1st Circuit stated that Fannie Mae and Freddie Mac (GSEs) can continue non-judicial foreclosures in states that permit them, holding that the GSEs are not “government actors” despite being controlled by FHFA. According to the opinion, the plaintiffs obtained mortgages that were later sold to Fannie Mae. After the borrowers defaulted on their loans, Fannie Mae, consistent with Rhode Island law, conducted non-judicial foreclosure sales of the properties. The plaintiffs filed suit, arguing that Fannie Mae and FHFA (which acts as Fannie Mae’s conservator) are government actors and that the nonjudicial foreclosure sales violated their Fifth Amendment procedural due process rights. The district court disagreed, however, and granted the defendants’ motion to dismiss on the grounds that “because FHFA stepped into Fannie Mae’s shoes as its conservator and its ability to foreclose was a ‘contractual right inherited from Fannie Mae by virtue of its conservatorship,’ FHFA was not acting as the government when it foreclosed on the plaintiffs’ mortgages and was not subject to the plaintiffs’ Fifth Amendment claims.” The court further determined that FHFA’s conservatorship over Fannie Mae did not make Fannie Mae a government actor subject to the plaintiffs’ constitutional claims because FHFA “does not exercise sufficient control” over the GSE. The plaintiffs appealed, arguing, among other things, that the FHFA’s nearly 13-year conservatorship of the GSEs makes its control permanent and renders them governmental actors.
On appeal, the appellate court concluded that in its role as conservator, “FHFA is not a government actor because it has ‘stepped into the shoes’ of the private GSEs” and assumed all of their private contractual rights, including the right to perform non-judicial foreclosures. The appellate court also refuted the plaintiffs’ argument that FHFA’s 13-year conservatorship made its control permanent, pointing out that the “housing and mortgage financial markets are highly complex, as are the various indicators of their financial health, so the fact that FHFA has maintained the conservatorship for almost thirteen years does not mean that the government’s control is permanent.” As such, because the GSEs are not government actors they are also not subject to the plaintiffs’ due process claims, the appellate court concluded.
On June 1, the U.S. District Court for the Northern District of Illinois denied a national bank’s motion to dismiss claims that its allegedly discriminatory mortgage lending practices violated the Fair Housing Act. According to a complaint filed by the County of Cook in Illinois (County), the increase in foreclosures during the relevant time period were proximately caused by the bank’s mortgage practices, and caused the County to incur financial injury, including foreclosure-related and judicial proceeding costs and municipal expenses due to an increase in vacant properties. The bank filed a motion to dismiss, arguing that that the County did not have standing to sue because “the judicial proceedings and other activities associated with the additional foreclosures” actually “yielded a net benefit to the County.” The court disagreed, ruling that all the County had to do was show a reasonable argument that the bank’s lending practices resulted in foreclosures. The bank “does not dispute that the County has properly alleged in its complaint a financial injury sufficient, at least at the pleading stage, to support standing,” the court wrote.
On April 28, the Maryland commissioner of financial regulation issued guidance that extends the “re-start date” for the ability to initiate residential foreclosures to July 1, 2021 (prior guidance has been discussed here and here.) The guidance is issued pursuant to the Maryland governor’s executive order 20-12-17-02, which amended and restated previous executive orders covered here and here.
- Jeffrey P. Naimon to provide “Fair lending update” at the Colorado Mortgage Lenders Association Operational and Compliance Forum
- Jonice Gray Tucker to discuss “Justice for all: Achieving racial equity through fair lending” at CBA Live
- Warren W. Traiger to discuss “On the horizon for CRA modernization” at CBA Live
- APPROVED Webcast: Strategy & Technology: A dynamic duo for successful regulatory exams
- Daniel R. Alonso to discuss “Primer on cross-border prosecutions in Argentina, Brazil, Colombia, and Mexico for U.S. criminal lawyers” at a New York City Bar Association webinar
- Jonice Gray Tucker to discuss "Fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss “State law regulatory and enforcement trends” at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute