COVID, Yr Two: A Take a look at Mortgage Aid, Regulatory Scrutiny, and the Highway Forward | Davis Wright Tremaine LLP

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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 numerous state legal guidelines and government orders, governments throughout jurisdictions acted rapidly to offer mortgage aid to owners vulnerable to default.

Even with all that regulatory and legislative may delivered to bear, the lack of house owners 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 owners, have been in forbearance as of March 7, 2021.1

This publish gives an outline, one 12 months in, of the present state of regulators’ and lawmakers’ efforts to offer aid to mortgage debtors, regulators’ views of how mortgage servicers have carried out these efforts, and the way which will form the subsequent 12 months as we emerge from the grip of the pandemic. DWT’s prior protection of COVID-related mortgage aid and related regulatory motion and steerage is collected right 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 momentary 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 prolonged foreclosures moratoria to June 30, 2021, for FHA, VA, and USDA loans and offered a further 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 the moment in forbearance to request forbearance via June 30, 2021. HUD issued Mortgagee Letter 2021-05 to implement the prolonged forbearance aid and related loss mitigation choices.

Shortly after the Biden Administration’s announcement, on February 25, 2021, the Federal Housing Finance Company (FHFA) prolonged 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) according to the extensions for federally backed loans.

Householders with Fannie/Freddie loans will need to have been signed up for forbearance by February 28, 2021, so as 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 House owner Help Fund

In the identical launch asserting the extensions of federal mortgage forbearance, the Biden Administration remarked that “it’s essential that Congress cross the American Rescue Plan to ship extra support to struggling owners.” The American Rescue Plan Act of 2021, a $1.9 trillion stimulus invoice simply signed into legislation by President Biden on March 11, 2021, establishes a $9.961 billion House owner Help Fund via which funds can be allotted by the Treasury Division among the many states, Washington, D.C., and Puerto Rico by the Treasury Division.

The funds can be disbursed to states based mostly on relative want, decided by the typical variety of unemployed people, and the whole 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 house owner mortgage delinquencies, defaults, foreclosures, lack of utilities or dwelling power companies, and displacements of house owners experiencing monetary hardship after January 21, 2020, via certified bills associated to mortgages and housing.

States are to make use of the funds to help eligible households with mortgage-related bills corresponding to mortgage funds, insurance coverage, utilities, and house owner’s affiliation charges—together with for objects corresponding to “facilitating rate of interest reductions”—although the legislation lacks element on how states will allocate the funding. The invoice requires a minimal of 60 % of allotted funds be used to help owners at or beneath the larger of (1) the realm median earnings, or (2) the US median earnings, as decided by HUD. The remaining 40 % is to be prioritized “to socially and economically deprived people,” which isn’t outlined.

The aid to be offered via the House owner Help Fund is notably totally different from the mortgage help offered pursuant to the Dwelling Reasonably priced Modification Program (HAMP) created via the Troubled Asset Aid Program (TARP) as a part of the Emergency Financial Stabilization Act of 2008 in response to the 2008 monetary disaster. TARP, against this, primarily offered mortgage aid 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 and implement comparable applications. Regardless, the laborious classes mortgage servicers realized from implementing HAMP will come in useful as servicers put together to deal with the inevitable deluge of post-CARES Act forbearance loss mitigation (mentioned additional beneath).

State Forbearance Efforts

All through the spring and summer time of 2020, numerous states handed sweeping payments and governors instituted emergency orders supposed to complement federal mortgage aid offered by the CARES Act by extending numerous levels of forbearance, eviction, and foreclosures moratoria to eligible owners.2

Within the fall, California added borrower protections with Meeting Invoice 3088, which obligates servicers to offer a cause for denial to debtors who’re denied a mortgage forbearance, and imposes extra 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, can be prolonged, whether or not states will cross new payments to match the federal extensions of mortgage aid, and what, if any, extra actions states might undertake as forbearance intervals finish and funds turn into due.

We proceed to observe these state developments and, as mentioned extra beneath, we anticipate COVID-19-related compliance to take heart stage within the states’ post-pandemic regulatory examination and enforcement priorities.

Regulators Prioritize COVID-19 Aid Compliance

We anticipate the Shopper Monetary Safety Bureau (CFPB) to take purpose at mortgage servicers’ responses to COVID-19. In Might 2020, the CFPB rescheduled half of its deliberate examination work and performed prioritized assessments targeted on the pandemic.4

Supervisory Highlights revealed January 19, 2021, as a part of this prioritized overview of pandemic points, highlighted numerous situations of noncompliance with the CARES Act by mortgage servicers, elevating, within the CFPB’s evaluation, the chance of client hurt.5 The conduct highlighted within the report contains descriptions of servicers contravening the CARES Act or harming customers in numerous methods, corresponding to:

  • Offering inaccurate data to customers relating to the CARES Act;
  • Miscommunicating that debtors could be required to pay one “lump sum” cost on the finish of the forbearance interval;
  • Suggesting that customers 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 have been topic to a prioritized evaluation can anticipate the CFPB to comply with 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 Appearing Director of the CFPB, Dave Uejio emailed the company, stating that one among his priorities as appearing director is aid for customers going through hardship as a consequence of COVID-19 in addition to a deal with the mortgage servicers’ failure to correctly administer aid detailed within the Supervisory Highlights.7

He acknowledged that “the CFPB will take aggressive motion to make sure that regulated corporations comply with the legislation and meet their obligations to help customers throughout the COVID-19 pandemic,” that penalties could also be vital, and that he had directed the Supervision, Enforcement & Honest Lending division of the CFPB to expedite enforcement investigations regarding COVID-19.8

Additionally it is value contemplating that, although the CFPB promised to account for “good religion” compliance in sure circumstances (as we focus on right here), this promise might not prolong to compliance points that persist one 12 months into the COVID-19 pandemic. Mortgage servicers who had bother ramping up their methods and operations to answer the sudden demand final spring will possible 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 embody evaluation of compliance with not too long ago enacted legal guidelines, each state and federal, supposed to guard owners from COVID-19-related foreclosures.

The Finish of Forbearance

Over 5.2 % of residential mortgages are nonetheless in forbearance,9 and the delinquency price in the US 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 persistently updating their applications to accommodate borrower wants.11

The choices accessible for debtors to repay forborne quantities on the finish of their CARES Act mandated forbearance time period fluctuate based mostly on the company, however most start with deferral applications which can permit debtors to defer cost of forborne quantities till the top of their mortgage mortgage phrases—typically the best possibility 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 affect on owners introduced on by the top of forbearance, together with how the $10 billion House owner Help Fund can be carried out by the states. Whereas the mixture of CARES Act mandated (or impressed) forbearance, corresponding company loss mitigation applications, and a brand new inflow of federal aid 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 accessible to debtors, how they implement these options, and the way they convey with debtors about their choices.


FOOTNOTES

1  Share of Mortgage Loans in Forbearance Decreases to five.14 % | Mortgage Bankers Affiliation (mba.org).
See, e.g., California, Maryland, Massachusetts, New Jersey, New York (S8243C, S8428), Oregon, and Washington D.C.
See, e.g., California and New York.
See Supervisory Highlights, Situation 23, January 19, 2021.
See id.
See id. at 6–8.
7  The Bureau is taking much-needed motion to guard customers, notably probably the most economically susceptible | Shopper Monetary Safety Bureau (consumerfinance.gov).
Id.
9  Share of Mortgage Loans in Forbearance Decreases to five.14 % | Mortgage Bankers Affiliation (mba.org).
10 See Mortgage Delinquencies Lower within the Fourth Quarter of 2020, MBA February 11, 2021. Delinquency charges are larger for FHA loans than for VA and traditional loans.
11 See Mortgagee Letter 2021-05; Lender Letter 2021-02 and Lender Letter 2021-07; Bulletin 2021-8.
12 See Fannie Mae’s Exercise Hierarchy; Freddie Mac loss mitigation analysis hierarchy; FHA Mortgagee Letter 2021-05.

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