March 13, 2021, marked the one-year anniversary of President Trump’s declaring COVID-19 a nationwide emergency. By the CARES Act, company motion and steerage, and varied state legal guidelines and government orders, governments throughout jurisdictions acted rapidly to offer mortgage reduction to householders liable to default.
Even with all that regulatory and legislative would possibly delivered to bear, the lack of householders to pay their mortgages stays widespread—and a spotlight of lawmakers. The Mortgage Bankers Affiliation (MBA) reported that 5.14 % of mortgage loans, representing 2.6 million householders, had been in forbearance as of March 7, 2021.1
This put up offers an outline, one yr in, of the present state of regulators’ and lawmakers’ efforts to offer reduction to mortgage debtors, regulators’ views of how mortgage servicers have applied these efforts, and the way which will form the following yr as we emerge from the grip of the pandemic. DWT’s prior protection of COVID-related mortgage reduction and related regulatory motion and steerage is collected here.
Mortgage Forbearance Prolonged for Federally Backed Loans
The CARES Act directed mortgage servicers to supply 12 months of forbearance to debtors of federally backed mortgage loans affected by COVID-19 and imposed short-term moratoria on evictions and foreclosures. The protections utilized to loans backed by the Federal Housing Administration (FHA), the Division of Veterans Affairs (VA), and the Division of Agriculture (USDA), in addition to loans owned by Fannie Mae and Freddie Mac.
On February 16, 2021, President Biden extended foreclosures moratoria to June 30, 2021, for FHA, VA, and USDA loans and offered an extra six months of forbearance (in three month increments) for debtors who entered forbearance on or earlier than June 30, 2020. President Biden additionally prolonged the forbearance enrollment deadline, allowing debtors not at present in forbearance to request forbearance by way of June 30, 2021. HUD issued Mortgagee Letter 2021-05 to implement the prolonged forbearance reduction and related loss mitigation choices.
Shortly after the Biden Administration’s announcement, on February 25, 2021, the Federal Housing Finance Company (FHFA) extended forbearance for qualifying Fannie Mae and Freddie Mac loans to as much as 18 months and prolonged eviction moratoria for single-family foreclosures and REO evictions to June 30, 2021, bringing its prior extension (to fifteen months) consistent with the extensions for federally backed loans.
Owners with Fannie/Freddie loans will need to have been signed up for forbearance by February 28, 2021, to be able to qualify for the prolonged forbearance. See Fannie Mae issued Lender Letters LL-2021-07 and LL-2021-02, and Freddie Mac issued Bulletin 2021-8, containing up to date servicing and loss mitigation steerage.
The American Rescue Plan and the Home-owner Help Fund
Within the same release asserting the extensions of federal mortgage forbearance, the Biden Administration remarked that “it’s vital that Congress move the American Rescue Plan to ship extra assist to struggling householders.” The American Rescue Plan Act of 2021, a $1.9 trillion stimulus invoice simply signed into regulation by President Biden on March 11, 2021, establishes a $9.961 billion Home-owner Help Fund by way of which funds will likely be allotted by the Treasury Division among the many states, Washington, D.C., and Puerto Rico by the Treasury Division.
The funds will likely be disbursed to states based mostly on relative want, decided by the common variety of unemployed people, and the full variety of mortgagors in foreclosures or with 30 days’ overdue funds. The broad function of the help is:
[T]o mitigate monetary hardships related to the coronavirus pandemic by offering such funds . . . to eligible entities for the aim of stopping home-owner mortgage delinquencies, defaults, foreclosures, lack of utilities or house vitality companies, and displacements of householders experiencing monetary hardship after January 21, 2020, by way of certified bills associated to mortgages and housing.
States are to make use of the funds to help eligible households with mortgage-related bills reminiscent of mortgage funds, insurance coverage, utilities, and home-owner’s affiliation charges—together with for gadgets reminiscent of “facilitating rate of interest reductions”—although the regulation lacks element on how states will allocate the funding. The invoice requires a minimal of 60 % of allotted funds be used to help householders at or under the higher of (1) the world median revenue, or (2) america median revenue, as decided by HUD. The remaining 40 % is to be prioritized “to socially and economically deprived people,” which isn’t outlined.
The reduction to be offered by way of the Home-owner Help Fund is notably completely different from the mortgage help offered pursuant to the House Reasonably priced Modification Program (HAMP) created by way of the Troubled Asset Reduction Program (TARP) as a part of the Emergency Economic Stabilization Act of 2008 in response to the 2008 monetary disaster. TARP, in contrast, primarily offered mortgage reduction funds to mortgage servicers to incentivize HAMP mortgage modifications to debtors and relied closely on mortgage servicer participation and implementation.
It stays to be seen whether or not states receiving funding will try to implement comparable applications. Regardless, the laborious classes mortgage servicers realized from implementing HAMP will turn out to be useful as servicers put together to deal with the inevitable deluge of post-CARES Act forbearance loss mitigation (mentioned additional under).
State Forbearance Efforts
All through the spring and summer season of 2020, varied states handed sweeping payments and governors instituted emergency orders supposed to complement federal mortgage reduction offered by the CARES Act by extending varied levels of forbearance, eviction, and foreclosures moratoria to eligible householders.2
Within the fall, California added borrower protections with Meeting Invoice 3088, which obligates servicers to offer a purpose for denial to debtors who’re denied a mortgage forbearance, and imposes further associated procedural necessities.3 It stays to be seen if these efforts, a number of of which expired in December or will expire within the first quarter of 2021, will likely be prolonged, whether or not states will move new payments to match the federal extensions of mortgage reduction, and what, if any, further actions states might undertake as forbearance durations finish and funds turn out to be due.
We proceed to watch these state developments and, as mentioned extra under, we anticipate COVID-19-related compliance to take heart stage within the states’ post-pandemic regulatory examination and enforcement priorities.
Regulators Prioritize COVID-19 Reduction Compliance
We count on the Shopper Monetary Safety Bureau (CFPB) to take intention at mortgage servicers’ responses to COVID-19. In Could 2020, the CFPB rescheduled half of its deliberate examination work and carried out prioritized assessments centered on the pandemic.4
Supervisory Highlights printed January 19, 2021, as a part of this prioritized assessment of pandemic points, highlighted varied cases of noncompliance with the CARES Act by mortgage servicers, elevating, within the CFPB’s evaluation, the danger of shopper hurt.5 The conduct highlighted within the report contains descriptions of servicers contravening the CARES Act or harming customers in varied methods, reminiscent of:
- Offering inaccurate info to customers relating to the CARES Act;
- Miscommunicating that debtors could be required to pay one “lump sum” fee on the finish of the forbearance interval;
- Suggesting that buyers could be required to pay a price to obtain a forbearance;
- Sending collections and default notices, assessing late charges, and initiating foreclosures for debtors enrolled in forbearance;
- Failing to course of forbearance requests in a well timed method; and
- Enrolling debtors in undesirable forbearances.6
Entities that had been topic to a prioritized evaluation can count on the CFPB to observe up on any findings.
Likewise, mortgage servicers ought to proceed to vigilantly monitor compliance associated to actions taken throughout the COVID-19 emergency. After his January appointment as Performing Director of the CFPB, Dave Uejio emailed the company, stating that one among his priorities as appearing director is reduction for customers going through hardship on account of COVID-19 in addition to a give attention to the mortgage servicers’ failure to correctly administer reduction detailed within the Supervisory Highlights.7
He acknowledged that “the CFPB will take aggressive motion to make sure that regulated corporations observe the regulation and meet their obligations to help customers throughout the COVID-19 pandemic,” that penalties could also be obligatory, and that he had directed the Supervision, Enforcement & Truthful Lending division of the CFPB to expedite enforcement investigations regarding COVID-19.8
It is usually value contemplating that, although the CFPB promised to account for “good religion” compliance in sure circumstances (as we talk about here), this promise might not prolong to compliance points that persist one yr into the COVID-19 pandemic. Mortgage servicers who had bother ramping up their techniques and operations to answer the sudden demand final spring will doubtless be anticipated to have resolved these points.
State regulators have additionally indicated that implementing compliance with COVID-19-related legal guidelines is a precedence. In February 2021, and once more simply final week, Commissioner Manuel Alvarez of the California Division of Monetary Safety and Innovation (DFPI) reminded California mortgage servicing licensees that examinations by the DFPI now additionally embrace evaluation of compliance with lately enacted legal guidelines, each state and federal, supposed to guard householders from COVID-19-related foreclosures.
The Finish of Forbearance
Over 5.2 % of residential mortgages are nonetheless in forbearance,9 and the delinquency fee in america was nonetheless virtually 6.75 % on the finish of the fourth quarter of 2020.10 HUD, Fannie Mae, and Freddie Mac have expanded forbearance plans to a most time period of 18 months and are constantly updating their applications to accommodate borrower wants.11
The choices obtainable for debtors to repay forborne quantities on the finish of their CARES Act mandated forbearance time period range based mostly on the company, however most start with deferral applications which is able to enable debtors to defer fee of forborne quantities till the top of their mortgage mortgage phrases—typically the best choice for debtors able to resuming their pre-forbearance month-to-month funds.12
It stays to be seen what else lawmakers and federal and state regulators will do to ease the impression on householders introduced on by the top of forbearance, together with how the $10 billion Home-owner Help Fund will likely be applied by the states. Whereas the mix of CARES Act mandated (or impressed) forbearance, corresponding company loss mitigation applications, and a brand new inflow of federal reduction might but avert a repeat of the final foreclosures disaster, it’s too quickly to inform.
What’s clear, although, in gentle of statements by federal and state regulators that compliance with pandemic-related legal guidelines are a brand new enforcement precedence, is that mortgage servicers will proceed to be topic to a excessive diploma of scrutiny with respect to the options they make obtainable to debtors, how they implement these options, and the way they impart with debtors about their choices.
1 Share of Mortgage Loans in Forbearance Decreases to 5.14 Percent | Mortgage Bankers Association (mba.org).
2 See, e.g., California, Maryland, Massachusetts, New Jersey, New York (S8243C, S8428), Oregon, and Washington D.C.
3 See, e.g., California and New York.
4 See Supervisory Highlights, Challenge 23, January 19, 2021.
5 See id.
6 See id. at 6–8.
7 The Bureau is taking much-needed action to protect consumers, particularly the most economically vulnerable | Consumer Financial Protection Bureau (consumerfinance.gov).
9 Share of Mortgage Loans in Forbearance Decreases to 5.14 Percent | Mortgage Bankers Association (mba.org).
10 See Mortgage Delinquencies Decrease in the Fourth Quarter of 2020, MBA February 11, 2021. Delinquency charges are increased for FHA loans than for VA and standard loans.
11 See Mortgagee Letter 2021-05; Lender Letter 2021-02 and Lender Letter 2021-07; Bulletin 2021-8.
12 See Fannie Mae’s Workout Hierarchy; Freddie Mac loss mitigation evaluation hierarchy; FHA Mortgagee Letter 2021-05.