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On July 23, President Biden announced additional actions taken by HUD, the VA, and USDA, which are intended to ensure stable and equitable recovery from disruptions caused by the Covid-19 pandemic and prepare homeowners to exit mortgage forbearance. According to the Biden administration, the goal of these new measures is to bring homeowners with HUD-, VA-, and USDA-backed mortgages closer in alignment with options provided for homeowners with Fannie Mae- and Freddie Mac-backed mortgages (covered by InfoBytes here). Specifically, mortgage servicers will be required or encouraged to offer new payment reduction offers to assist borrowers.
- HUD. FHA announced enhanced Covid-19 recovery loss mitigation options to help homeowners with FHA-insured mortgages who have been financially impacted by the pandemic. Mortgagee Letter (ML) 2021-18 supersedes previously issued FHA-loss mitigation options, and will, among other things, require mortgage servicers to offer a zero-interest subordinate lien option to eligible homeowners who can resume their existing mortgage payments under the “COVID-19 Recovery Standalone Partial Claim” option. For borrowers that are unable to resume their monthly mortgage payments, FHA established the “COVID-19 Recovery Modification” option, which extends the term of a mortgage to 360 months at market rate and targets a 25 percent principal and interest (P&I) reduction for all eligible borrowers. Servicers may start offering the options as soon as operationally feasible but must begin using the new options within 90 days. These additional options supplement FHA Covid-19 protections published last June (covered by InfoBytes here), which extended the foreclosure and eviction moratorium, expanded the Covid-19 forbearance and home equity conversion mortgage extension, and established the Covid-19 advance loan modification.
- VA. The VA also announced it will offer a new “COVID-19 Refund Modification” option to assist veterans impacted by the pandemic who need a significant reduction in their monthly mortgage payments. Under the plan, the VA will be able to purchase a veteran’s past-due payments and unpaid principal—subject to certain limits—“depending on how much assistance is necessary,” and, in certain circumstances, veterans will be able to receive a 20 percent payment reduction (certain borrowers may be eligible to receive a larger reduction). Mortgage servicers will modify the loan to ensure veterans can afford future mortgage payments. Similar to the VA’s “COVID–19 Veterans Assistance Partial Claim Payment” (covered by InfoBytes here), the deferred indebtedness will be established as a junior lien, which will not accrue interest, will not require monthly payments, and will only become due once the property is sold or the guaranteed loan is paid off or refinanced. The option is available through September 30, 2021.
- USDA. The agency announced new Covid-19 special relief measures, as well as clarifications to existing policies, for servicing borrowers impacted by the pandemic. USDA noted that Chapter 18 Section 5 of Handbook-1-3555 will be expanded to include “COVID-19 Special Relief Alternatives,” which includes an option that targets a 20 percent reduction in a borrower’s monthly P&I payments and offers “a combination of interest rate reduction, term extension and mortgage recovery advance.” These measures are immediately available and will be effective through December 31, 2022. Eligible borrowers must occupy the property, must not be more than 120 days past due on March 1, 2020, and must have received an initial forbearance due to a pandemic-related hardship before September 30, 2021.
On July 2, the CFPB announced its prioritization of resources to focus on the role of racial bias in home appraisals. According to the CFPB, undervaluation of homes based on race further drives the racial wealth divide and overvaluation of homes also puts family wealth at risk, leading to higher rates of foreclosure. On June 15, the CFPB hosted a home appraisal bias event where the NCUA, OCC, and HUD discussed insights on the role of racial bias in home appraisals, which led to conversations on how to collaborate with stakeholders in eliminating racial bias and other inequities in housing. The Bureau also noted it is “pleased to participate” in President Biden’s new interagency initiative to address inequity in home appraisals. The announcement offers numerous tools, among other resources, such as a joint housing website for those needing help paying their mortgage or rent, particularly in light of the CDC’s moratorium expiring on July 31, and a link to HUD’s Fair Housing and Equal Opportunity office for victims of appraisal bias.
On June 25, HUD published a notice of proposed rulemaking (NPRM) that would rescind the agency’s 2020 disparate impact regulation (2020 Rule) and reinstate the agency’s 2013 rule (2013 Rule). The 2020 Rule (covered by a Buckley Special Alert) was intended to align its disparate impact regulation, adopted in 2013, with the U.S. Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. The 2020 Rule included, among other things, a modification of the three-step burden-shifting framework in its 2013 Rule, several new elements that plaintiffs must show to establish that a policy or practice has a “discriminatory effect,” and specific defenses that defendants can assert to refute disparate impact claims. Prior to the effective date of the 2020 Rule, the U.S. District Court for the District of Massachusetts issued a preliminary injunction staying HUD’s implementation and enforcement of the 2020 Rule.
After a period of reconsideration, “HUD is proposing to recodify its previously promulgated rule titled, ‘Implementation of the Fair Housing Act’s Discriminatory Effects Standard’, which, as of the date of publication of this [NPRM], remains in effect due to the preliminary injunction,” the NPRM stated, adding that HUD “believes the 2013 Rule better states Fair Housing Act jurisprudence and is more consistent with the Fair Housing Act's remedial purposes.” HUD emphasized that the 2013 Rule codified longstanding judicial and agency consensus concerning discriminatory effects law. “Under the 2013 rule, the discriminatory effects framework was straightforward: a policy that had a discriminatory effect on a protected class was unlawful if it did not serve a substantial, legitimate, nondiscriminatory interest or if a less discriminatory alternative could also serve that interest,” HUD said in its press release. “The 2020 rule complicated that analysis by adding new pleading requirements, new proof requirements, and new defenses, all of which made it harder to establish that a policy violates the Fair Housing Act. HUD now proposes to return to the 2013 rule’s straightforward analysis.” Comments on the NPRM are due August 24.
On June 24, President Biden announced his intent to nominate seven individuals to serve in key roles, including two nominations to positions in the Department of Housing and Urban Development. Among them is Dave Uejio, the current acting Director of the CFPB, as the nominee for Assistant Secretary for Fair Housing and Equal Opportunity, Department of Housing and Urban Development. As previously covered by Infobytes, Uejio has been with the CFPB since 2012, and from 2015 to his appointment as acting director to replace Kathy Kraninger, he served as the Bureau’s Chief Strategy Officer. According to the announcement, Uejio also co-chairs the Federal Innovation Council, “a leading federal government interagency body [driving] public sector innovation.” In January, President Biden officially nominated FTC Democratic Commissioner Rohit Chopra as the permanent director of the CFPB (covered by InfoBytes here). He is currently awaiting a Senate confirmation vote on his nomination to serve as the Bureau’s Director. President Biden also announced Julia Gordon, who is the National Community Stabilization Trust President, as the nominee for Assistant Secretary for Housing, Federal Housing Commissioner, Department of Housing and Urban Development.
On June 22, FHA published an announcement with a reminder that certain relaxed Covid-19-related standards that had allowed for single-family lenders and servicers to limit face-to-face contact as part of the mortgage origination process for FHA loans would expire as intended on June 30. The temporary guidance, which was first announced last March to provide flexibility related to the re-verification of employment guidance and the exterior-only appraisal scope of work option, was extended several times during the pandemic (covered by InfoBytes here). FHA noted that due to low usage it believes that the expiration of the guidance will have minimal impact on the industry.
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 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.”
On June 10, HUD published an interim final rule (IFR) to restore certain definitions and certifications to its regulations implementing the Fair Housing Act’s requirement to affirmatively further fair housing (AFFH). The IFR also reinstates a process where HUD will provide technical assistance and other support to funding recipients engaged in fair housing planning. The IFR essentially repeals HUD’s 2020 final rule (covered by a Buckley Special Alert), which was intended to align its disparate impact regulation, adopted in 2013, with the U.S. Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. As previously covered by InfoBytes, earlier in January, President Biden directed HUD to examine the effects of the final rule while emphasizing that HUD has a “statutory duty to ensure compliance with the Fair Housing Act,” and on April 12, the Office of Management and Budget posted notices (covered by InfoBytes here) announcing a pending proposed rule to reinstate HUD’s Discriminatory Effects Standard related to the 2020 final rule.
Among other things, the IFR “restores the understanding of the AFFH obligation for certain [funding recipients] to the previously established understanding by reinstating legally supportable definitions that are consistent with a meaningful AFFH requirement and certifications that incorporate these definitions.” The IFR also notes that HUD will provide technical assistance and support prior to the IFR’s July 31 effective date, due to a requirement that HUD funding recipients certify compliance with their AFFH duties on an annual basis, as well as HUD’s statutory obligation to ensure that it follows the Fair Housing Act’s AFFH requirements. HUD further recognizes that the 2020 final rule “did not interpret the AFFH mandate in a manner consistent with statutory requirements, HUD’s prior interpretations, or judicial precedent,” adding that the agency also failed to “provide sufficient justification for this substantial departure.”
HUD also announced that it will separately restore guidance and resources for funding recipients to use when conducting fair housing planning until the agency finalizes a new regulation to implement the statutory mandate to AFFH. Comments on the IFR are due July 12.
On April 30, HUD announced a Charge of Discrimination against a California-based mortgage modification service (respondents) for allegedly violating the Fair Housing Act by discriminating against Hispanic homeowners. According to HUD, the complainants alleged that the respondents targeted them for illegal or unfair loan modification assistance based on their national origin, and that as a result, “they were diverted from obtaining legitimate assistance” and “were at risk of foreclosure.” Specifically, the respondents allegedly marketed and sold loan modification services to financially distressed California homeowners, the majority of whom were Hispanic. The allegations claim that most of the advertisements were in Spanish or were aired on Spanish-language stations and contained allegedly deceptive information regarding the respondents’ ability to obtain loan modifications, as well as its payment structure. Additionally, the complainants stated that they were discouraged from seeking free loan modification assistance, and were, among other things, (i) charged fees before the respondents completed the promised mortgage modifications; (ii) advised to stop making payments without being informed about the risks involved in not paying their mortgages; (iii) provided inaccurate information about the respondents’ services, including that clients would receive services from an attorney; and (iv) instructed to stop communicating with their lenders and to instead forward all lender communications to the respondents if threatened with foreclosure. The charge will be heard by a United States Administrative Law Judge unless a party elects to have the case heard in federal district court.
On April 19, FHA issued an update to Section III of the Single Family Housing Policy Handbook 4000.1, which streamlines many standard mortgage servicing operational requirements. The updates also incorporate FHA actions taken to support borrowers experiencing Covid-19-related financial hardships. The changes/updates include:
- A revised loss mitigation home retention “waterfall” to help servicers quickly review borrowers in danger of foreclosure for a permanent FHA Home Affordable Modification Program option without a lengthy forbearance. FHA noted in its announcement that this process “has been proven to be highly effective at helping borrowers avoid redefault and foreclosure.”
- Streamlined documentation requirements designed “to avoid unnecessary delays” and be more closely aligned “with standard industry servicing practices.” One example includes removing signature requirements on trial payment plans.
- A revised structure for certain allowable costs and fees corresponding with other industry participants’ fee structures.
The changes take effect August 17.
- 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
- 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