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Waters urges foreclosure moratoria extension
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.
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).
Department of Education discharges roughly $500 million in student loan debt
On June 16, the Department of Education announced the approval of 18,000 borrower defense to repayment claims for individuals who attended a now-defunct for-profit educational institution, providing borrowers with 100 percent loan discharges and providing approximately $500 million in relief. The educational institution has been subject to several investigations and settlements related to its private student loan origination practices, including allegations brought by the CFPB claiming the educational institution forced borrowers into “high-interest, high-fee” private student loans knowing that borrowers could not afford them. (See InfoBytes coverage on matters related to the educational institution here and here.) According to the Department’s announcement, the approvals cover two categories of borrower claims related to employment prospects and the ability to transfer credits, and mark “the first approval of a new category of borrower defense claims by the Department since January 2017.” Among other things, the Department found that borrowers’ “job prospects were not improved by attending” the educational institution and that credits from the educational institution rarely transferred.
HUD issues mortgagee letter on student loan payments
On June 18, HUD issued Mortgagee Letter 2021-13, which provides updates to its student loan monthly payment calculations to offer greater access to affordable single family FHA-insured mortgage financing for creditworthy individuals with student loan debt. According to HUD, the revised policy more closely aligns FHA student loan debt calculation policies with other housing agencies, which further helps clarify originations for borrowers with student loan debt obligations. The updated policy eliminates a current requirement “that lenders calculate a borrower’s student loan monthly payment of one percent of the outstanding student loan balance for student loans that are not fully amortizing or are not in repayment.” According to HUD, the updated policy “bases the monthly payment on the actual student loan payment, which is often lower, and helps home buyers who, with student debt, meet minimum eligibility requirements for an FHA-insured mortgage.”
Juneteenth creates compliance challenges for mortgage industry
On June 17, President Biden signed S. 475 establishing June 19, Juneteenth, as a federal holiday. The “Juneteenth National Independence Day Act” amends 5 U.S.C. § 6103(a) which codifies the legal public holidays. Because June 19 falls on a Saturday this year, the holiday will be observed on Friday, June 18.
The establishment of a new federal holiday mere hours before the first observance of that holiday poses novel compliance challenges for the mortgage industry. Notably, both TRID and TILA rescission requirements have important timing standards that reference federal holidays.
TRID
Under TRID, the Loan Estimate must be provided to the consumer at least seven business days prior to consummation, and the Closing Disclosure must be provided to the consumer at least three business days prior to consummation. For purposes of these requirements, “business day” is defined as “all calendar days except Sundays and legal public holidays” as specified in 5 U.S.C. § 6103(a). As the holiday occurs on a Saturday this year, Saturday, June 19 is not a “business day” for purposes of calculating either the 7-business day waiting period after delivery of the Loan Estimate or the 3-business-day waiting period after delivery of the Closing Disclosure. Commentary to Regulation Z also states that, for purposes of rescission and the provision of mortgage disclosures, when a federal holiday falls on a Saturday but is observed on the preceding Friday, the observed holiday is a business day.
Accordingly, for purposes of providing the Loan Estimate at least seven business days prior to closing and the Closing Disclosure at least three business days prior to closing, lenders may not count Saturday, June 19, as a business day, but must count Friday, June 18, as a business day. Absent clarification from the CFPB, lenders are advised to push closings back one day where they were previously counting Saturday (June 19) as a business day. For example, if a Closing Disclosure was received by the consumer on Thursday, June 17, closing may not occur until Tuesday, June 22.
Rescission
A rescission period expires on midnight on the third business day after closing and uses the same definition of business days, which is “all calendar days except Sundays and legal public holidays.” As such, Saturday, June 19 this year is not a “business day” for purposes of the 3-business day rescission period and lenders should ensure that consumers are provided an extra day where the rescission period encompasses June 19, and are made aware of that extension. This raises unique funding and Notice of Right to Cancel disclosure related questions, the answers to which may depend on individual facts and circumstances. Absent further guidance from the CFPB, creditors may wish to delay closing by one day for those transactions where the three-day Closing Disclosure period is relevant, as well as consider providing updated Notices of Right to Cancel with a new rescission period taking into account both the new public holiday and when such new notice is sent.
On June 18, CFPB acting Director Dave Uejio issued a statement recognizing that "some lenders did not have sufficient time after the Federal holiday declaration to consider whether and how to adjust closing timelines" and that "some lenders may delay closings to accommodate the reissuance of disclosures adjusted for the new Federal holiday." Uejio further noted that "TILA and TRID requirements generally protect creditors from liability for bona fide errors and permit redisclosure after closing to correct errors." He added that any guidance ultimately issued by the Bureau "would take into account the limited implementation period before the holiday and would be issued after consultation with the other FIRREA regulators and the Conference of State Bank Supervisors to ensure consistency of interpretation for all regulated entities."
FDiTech launches tech sprint to help unbanked
On June 16, the FDIC’s technology lab, FDiTech, announced a tech sprint, which challenges participants to “explore new technologies and techniques that would help expand the capabilities of banks to meet the needs of unbanked individuals and households.” The tech sprint, Breaking Down Barriers: Reaching the Last Mile of Unbanked U.S. Households, invites banks, non-profit organizations, academic institutions, private sector companies, and others to identify data, tools, and other resources that may assist community banks meet the needs of the underbanked in a cost-effective manner. According to the FDIC, a recently published survey found that more than seven million U.S. households were unbanked with Black, Hispanic, American Indian or Alaska Native households having a higher likelihood of being unbanked. Registration will be required for stakeholders to participate, and additional information on how to participate is expected on the FDiTech website in early July.
Illinois regulator proposes implementation of Predatory Loan Prevention Act
Last month, the Illinois Department of Financial and Professional Regulation (IDFPR) published proposed regulations in the state register to implement the Illinois Predatory Loan Prevention Act (Act). As previously covered by InfoBytes, the Act was signed into law in March and prohibits lenders from charging more than 36 percent APR on all non-commercial consumer loans under $40,000, including closed-end and open-end credit, retail installment sales contracts, and motor vehicle retail installment sales contracts. Violations of the Act constitute a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, and carry a potential fine up to $10,000. Additionally, any loan with an APR exceeding 36 percent will be considered null and void “and no person or entity shall have any right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan.”
The IDFPR’s notice of proposed rules provides definitions and loan terms, including (i) general conditions; (ii) limits on the cost of a loan; (iii) how to calculate and compute the APR for the purposes of the Act; (iv) how to determine bona fide fees charged on credit card accounts, including outlining ineligible items, providing standards for assessing whether a bona fide fee is reasonable, and specifying bona fide fee safe harbors and “[i]ndicia of reasonableness for a participation fee”; and (iii) the effect of charging fees on bona fide fees.
Additionally, the IDFPR proposes several amendments related to rate cap disclosure notices. These specify that (i) all loan applications must include a separate rate cap disclosure signed by the consumer (disclosures must be provided in English and in the language in which the loan was negotiated); (ii) lenders must “prominently display” a rate cap disclosure in both English and Spanish in any physical location and on all websites, mobile device applications, or any other electronic mediums owned or maintained by the lender; and (iii) lenders must disclose the rate cap in any written loan solicitations or advertisements.
Maryland passes bill regarding creditworthiness
On May 30, the Maryland governor signed HB 1213, which requires “certain credit grantors to adhere to certain rules concerning evaluations of applications and, under certain circumstances, consider alternative methods of evaluating an applicant’s creditworthiness when evaluating an application for a primary residential mortgage loan or an extension of credit.” Under HB 1213, an entity must, among other things: (i) adhere to the rules concerning evaluations of applications including history of rent or mortgage payments and utility payments, school attendance, and work attendance; and (ii) consider other verifiable alternative indications of creditworthiness if requested by the applicant. The law is effective October 1.
District Court approves new settlement in student debt-relief action
On June 15, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against one of the defendants in an action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney in 2019, which alleged a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, the complaint alleged that the defendants violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. In addition, the complaint asserts the defendants engaged in deceptive practices by misrepresenting (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness; and (iii) their ability to actually lower borrowers’ monthly payments.
The finalized settlement issued against the relief defendant—who acted in an individual capacity and also as trustee of a trust, and who neither admits nor denies the allegations—requires the liquidation of certain assets up to but not exceeding $3 million as monetary relief to go to the CFPB and the People of the State of California. If the liquidation value of the asset is less than $3 million, the relief defendant “will be additionally liable for the difference between the liquidation value of the [asset] and $3,000,000, up to but not exceeding $500,000.” The relief defendant is also liable to all plaintiffs for $88,381.80. In addition, the relief defendant must comply with certain reporting and recordkeeping requirements and fully cooperate with the plaintiffs.
The court previously entered final judgments against four of the defendants, as well as a default judgment and order against two other defendants (covered by InfoBytes here and here). Orders have yet to be entered against the remaining defendants.