Mortgage Banking Update
In This Issue:
- Federal Agencies and CSBS Provide Flexibility Guidance to Mortgage Servicers
- CARES Act Includes Provisions on Credit Reporting and Student Loans
- FHA Announces Additional Loss Mitigation Options Based on CARES Act
- Fannie Mae and Freddie Mac Provide Further Appraisal Relief Due to COVID-19
- Fannie Mae and Freddie Mac Address VOEs, Income Continuity, Appraisals, Title Policies, and More
- NYDFS Adopts Emergency Regulation Requiring COVID-19 Mortgage Loan Forbearance
- The CARES Act Requires Residential Mortgage Forbearance Relief
- Nevada Directive Requiring Collection Agencies to Cease Collection Efforts Due to COVID-19 Outbreak Creates Uncertainty
- CFPB Issues Annual FDCPA Report
- This Week’s Podcast: A Conversation With Former CFPB Director Richard Cordray
- NYDFS Emergency Regulations Require 90-Day Mortgage Forbearance, Waiver of ATM, Overdraft, Credit Card Late Fees for Borrowers Demonstrating Financial Hardship From COVID-19
- CFPB Postpones Certain Data Collections and Issues Guidance on Examinations, Supervision and Enforcement Approach During COVID-19 Crisis
- CFPB Seeking Comments to Assist Taskforce on Federal Consumer Financial Law
- PA Attorney General Launches “PA CARE Package” Program
- CFPB Issues Credit Reporting Guidance During COVID-19 Pandemic
- Did You Know?
- Looking Ahead
On April 3, 2020, federal agencies and the Conference of State Bank Supervisors (CSBS) issued a joint statement (Joint Statement) providing guidance to residential mortgage loan servicers regarding forbearance measures under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Real Estate Settlement Procedures Act (RESPA) Regulation X servicing requirements.
The agencies are the Comptroller of the Currency, Consumer Financial Protection Bureau (CFPB), Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration, and state banking regulators, through the CSBS. In conjunction with the Joint Statement, the CFPB issued FAQs to provide more detailed guidance to servicers. The Joint Statement and FAQs address flexibility that the agencies will provide servicers regarding compliance with loss mitigation, early intervention and annual escrow statement requirements under Regulation X. The agencies state that “This Joint Statement is intended to clarify the application of the Regulation X mortgage servicing rules and the agencies’ approach to supervision and enforcement related to the rules during this emergency, including those applicable to [short-term payment forbearance options, like the CARES Act forbearance, or short-term repayment plans (collectively “short-term options”)].”
The agencies note that small servicers, as defined for Regulation X purposes, are not subject to the early intervention and loss mitigation requirements addressed in the Joint Statement. To the extent that consumers have private rights of action to enforce the Regulation X servicing requirements, the Joint Statement and FAQs do not alter those rights.
Addressing the residential mortgage forbearance provisions of the CARES Act, the agencies state that servicers (1) must provide a CARES Act forbearance if the borrower makes a forbearance request and affirms that he or she is experiencing a financial hardship during the COVID-19 emergency, and (2) may not require any additional information from the borrower before granting a CARES Act forbearance.
Incomplete Loss Mitigation Application. The agencies confirm that a borrower’s request for a CARES Act forbearance and affirmation of a financial hardship during the COVID-19 emergency constitutes an incomplete loss mitigation application under the Regulation X servicing requirements. While Regulation X permits a servicer to offer a short-term option based on an incomplete loss mitigation application, the receipt of the incomplete application triggers notice and other loss mitigation requirements under Regulation X. The Joint Statement addresses the flexibility that is being provided in connection with such requirements. The loss mitigation requirements under Regulation X apply to a RESPA-covered loan secured by the borrower’s principal residence.
In the FAQs, the CFPB notes that a servicer may offer loss-mitigation options to a borrower (1) who has not submitted an application at all, and (2) when the offer is not based on any evaluation of information submitted by the borrower in connection with a loss-mitigation application.
Five-Day Acknowledgment Notice Requirement. When a servicer receives an incomplete loss mitigation application, even if the borrower is offered, or in, a short-term option, the servicer still must provide an acknowledgment notice. The Joint Statement provides that, as of April 3, 2020, and until further notice, in evaluating compliance with Regulation X, if a mortgage servicer offers or provides a borrower a short-term option, including a CARES Act forbearance, the agencies do not intend to take supervisory or enforcement action against servicers for:
- “[F]ailing to provide the acknowledgment notice described in Regulation X, 12 CFR 1024.41(b) within five days of the receipt of an incomplete application (whether the servicer receives the incomplete application before or during the forbearance or repayment plan period), provided the servicer sends the acknowledgment notice before the end of the forbearance period, for a short-term payment forbearance program (or the end of the repayment period, for a short-term repayment plan).”
Other Loss Mitigation Notice and Early Intervention Requirements. Regulation X requires that mortgage servicers follow certain procedures, including providing a borrower with notices, when the borrower applies for loss mitigation, and also requires servicers to provide live contact and written early intervention communications when a borrower is delinquent. The Joint Statement provides that as of April 3, 2020, and until further notice, the agencies do not intend to take supervisory or enforcement action against servicers for:
- “[D]elays in sending the loss mitigation-related notices and taking the actions described in Regulation X, 12 CFR 1024.41(b)-(d), (h)(4), and (k), which, among other things, include the five-day acknowledgement notice, the 30-day evaluation and notice, and the appeals notice, provided that servicers are making good faith efforts to provide these notices and take the related actions within a reasonable time;
- [D]elays in establishing or making good faith efforts to establish live contact with delinquent borrowers as required by Regulation X, 12 CFR 1024.39(a), provided that servicers are making good faith efforts to establish live contact within a reasonable time; and
- [D]elays in sending the written early intervention notice to delinquent borrowers required by Regulation X, 12 CFR 1024.39(b) (the 45-day letter), provided that servicers are making good faith efforts to provide this notice within a reasonable time.”
The agencies advise that this approach applies regardless of whether a borrower is experiencing a financial hardship due to COVID-19. With regard to the first bullet point, the agencies clarify that for borrowers offered a short-term option, the agencies intend to take the approach discussed above regarding the five-day acknowledgment notice for evaluating compliance with the deadlines for sending such notice.
In the FAQs, the CFPB notes that:
- It permits servicers to include additional language in the loss mitigation notices to clarify why the servicers are offering the short-term option, and that servicers offering a CARES Act forbearance or other short-term options due to concerns about the COVID-19 emergency, for example, could include language explaining as much to avoid borrower confusion.
- Servicers do not have to tailor the loss mitigation notices to individual borrowers’ circumstances and that, for example, servicers could develop a form letter that they send to all borrowers enrolled in the same short-term forbearance programs as a result of hardships related to COVID-19.
In addition to the flexibility regarding the live contact requirements set forth in the Joint Statement, in the FAQs the CFPB notes that Regulation X includes some flexibility that may be useful to servicers during the COVID-19 emergency:
- The rule generally requires servicers to “establish or make good faith efforts to establish” live contact with delinquent borrowers within certain timeframes. “Good faith efforts” consist of reasonable steps, under the circumstances. The FAQ provides examples of what conduct may satisfy the good faith standard in different situations.
- Servicers are considered in compliance with the early intervention live contact requirements, and need not otherwise establish or make good faith efforts to establish live contact, if the servicer has established and is maintaining ongoing contact with a borrower under the loss mitigation procedures in Regulation X, 12 CFR 1024.41.
- The live contact requirements do not apply when a borrower is performing as agreed under a loss mitigation option designed to bring the borrower current on a previously missed payment. In this circumstance, the borrower is not considered delinquent for purposes of the live contact requirements. Regulation X, Comment 39(a)-1.ii.
In the FAQs, the CFPB also notes that, in addition to the flexibility in the Joint Statement regarding the early intervention written notice requirement, Regulation X provides flexibility:
- While the rule generally requires servicers to provide a written notice to delinquent borrowers within certain timeframes, a servicer is not required to provide the written notice more than once during any 180-day period. Regulation X, 12 CFR 1024.39(b)(1).
- The early intervention written notice requirements do not apply when a borrower is performing as agreed under a loss mitigation option that is designed to bring the borrower current on a previously missed payment. In this circumstance, the borrower is not considered delinquent for purposes of the early intervention written notice requirements. Regulation X, Comment 39(a)-1.ii.
The FAQS also note that borrowers can request a CARES Act forbearance regardless of their delinquency status. As a result, if a borrower who is not delinquent requests a CARES Act forbearance, the early intervention requirements do not apply.
Annual Escrow Notice. With regard to the Regulation X requirement for servicers to provide an annual escrow account notice, the Joint Statement provides that as of April 3, 2020, and until further notice, the agencies do not intend to take supervisory or enforcement action against servicers for:
- “[D]elays in sending the annual escrow statement required by Regulation X, 12 CFR 1024.17(i), provided that servicers are making good faith efforts to provide these statements within a reasonable time.”
The agencies advise that this approach applies regardless of whether a borrower is experiencing a financial hardship due to COVID-19. However, the agencies clarify that servicers still must comply with the Regulation X requirements concerning timely disbursements from escrow accounts. In the FAQs, the CFPB also advises that servicers still must conduct the annual escrow analysis. The CFPB also notes that while Regulation X requires that a servicer, in an annual escrow notice, provide an explanation of how the consumer will pay any shortage or deficiency, Regulation X does not require servicers to collect any shortage or delinquency. Servicers could, for example, inform borrowers in the notice, or in an explanatory letter, that they are forgoing collection for several months. Additionally, the annual notice requirement does not apply when a borrower is more than 30 days past due.
Reasonable Diligence. The FAQs include the following guidance on the Regulation X reasonable diligence requirement that applies when the servicer receives an incomplete loss mitigation application:
“Do servicers have to exercise reasonable diligence to complete an application submitted by a borrower to whom the servicer offered a short-term payment forbearance program or short-term repayment plan based on a consumer’s incomplete loss mitigation application?
Not immediately. In general, if a borrower submits an incomplete loss mitigation application 45 days or more before a foreclosure sale, servicers generally must exercise reasonable diligence to obtain documents and information to complete the borrower’s loss mitigation application. Regulation X, 12 CFR 1024.41. However, servicers may suspend reasonable diligence efforts to complete a borrower’s loss mitigation application while the borrower is performing under a short-term payment forbearance program until near the end of the program, unless the borrower requests additional assistance (e.g., longer term relief, such as a loan modification). Regulation X, Comment 41(b)(1)-4.iii. In the case of a 180-day CARES Act forbearance, for example, a servicer could suspend these efforts until near the end of the 180 days. If, for example a servicer extended the CARES Act forbearance an additional 180 days, the servicer could suspend these efforts until near the end of the second 180 days.”
Other FAQ Topics. The FAQs also address the Regulation X continuity of contact requirement and exemption for small servicers from various servicing requirements, the Regulation Z payoff statement requirements, and electronic communications with borrowers.
State Requirements. Various states also have loss mitigation requirements. The Joint Statement and CFPB FAQs do not alter the obligations of mortgage servicers under state law.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes the following provisions of particular interest to members of the consumer financial services industry:
Credit Reporting. Section 4021 (Credit Protection During COVID-2019) amends the Fair Credit Reporting Act to impose new COVID-19 related reporting requirements on furnishers of information to consumer reporting agencies. Under Section 4021, if a furnisher (for example, a financial institution that lends money to consumers) makes an accommodation with respect to one or more payments on a credit obligation or consumer account, the furnisher should continue to report the account as current if the consumer fulfills the terms of the accommodation. However, for accounts that were already delinquent before the accommodation was made, then the furnisher is permitted to continue reporting the account as delinquent unless the consumer brings the account current. This new reporting requirement does not apply to consumer accounts that have been charged off. These furnisher responsibilities will apply to reporting on accommodations made to consumer accounts between January 31, 2020 until 120 days after the end of the COVID-19 national emergency.
Higher Education and Student Lending. The CARES Act contains several provisions related to higher education, some of which pertain to student loan relief, which are described below:
- Section 3503 (Campus-Based Aid Waivers)
- The bill creates an exemption for institutions of higher education from matching requirements for various campus-based aid programs for academic years 2019-2020 and 2020-2021. Covered programs include Federal Supplemental Educational Opportunity Grants (SEOGs), for students deemed to have significant financial need, and the Federal Work-Study Program. However, private for-profit institutions must still pay their share of work-study wages. Unused work-study funds can be applied to SEOGs (but SEOG funds cannot be applied to work-study programs).
- Section 3504 (Use of Supplemental Educational Opportunity Grants for Emergency Aid)
- Institutions of higher education may use SEOG funds to assist undergraduate or graduate students for unexpected expenses and unmet financial need, and waive the need calculation requirements under the Higher Education Act (HEA), up to the amount of the maximum Federal Pell Grant for the applicable academic year.
- Section 3505 (Federal Work-Study During a Qualifying Emergency)
- Students participating in the Federal Work-Study program can receive work-study wages even if they are unable to work.
- Section 3506 (Adjustment of Subsidized Loan Usage Limits)
- If a study does not complete a semester/term due to a qualifying emergency, loans received for that semester will not count toward the total number of terms a student is eligible to receive a subsidized Stafford loan.
- Section 3507 (Exclusion from Federal Pell Grant Duration Limit)
- If a study does not complete a semester/term due to a qualifying emergency, Pell Grants received for that semester will not count toward the total number of terms a student is eligible to receive such grants.
- Section 3508 (Institutional Refunds and Federal Student Loan Flexibility)
- Requirements applicable to institutions of higher education regarding returning HEA Title IV student aid are waived with respect to students withdrawing as a result of a qualifying emergency. Similarly, students will not be required to return Pell Grants received. Moreover, the bill cancels loans for a given term/semester if a student had to withdraw due to a qualifying emergency.
- Section 3513 (Temporary Relief for Federal Student Loan Borrowers)
- All payments on federally-held student loans (not commercially held FFELP or private student loans) are suspended through September 30, 2020.
- During the suspension period, interest shall not accrue on federally held loans.
- For purposes of federal loan forgiveness and loan rehabilitation programs, payments will be treated as if they were made for each month during the suspension period.
- Suspended payments must be reported to the credit bureaus as if they were made (thus not reported using forbearance codes).
- Involuntary collection of loans is suspended during the suspension period.
- The Secretary of Education is given a timeline to notify borrowers.
In Mortgagee Letter 2020-06, dated April 1, 2020, the U.S. Department of Housing and Urban Development (HUD) announced further loss mitigation options for FHA loans based on the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). FHA also announced an extension period for Home Equity Conversion Mortgage (i.e., reverse) loans (HECMs). The new guidance applies to all FHA Title II single family mortgage programs. HUD welcomes feedback on the guidance for a period of 30 days from April 1, 2020.
The specific COVID-19 forbearance guidance and the specific COVID-19 HECM extension period guidance set forth in the Mortgagee Letter are effective immediately. All other parts of the guidance must be implemented no later than April 30, 2020, although servicers may begin following such guidance immediately. Servicers may approve the initial COVID-19 forbearance for forward mortgage loans and the HEMC extension period no later than October 30, 2020.
The guidance for the COVID-19 forbearance will be incorporated into a new section of HUD Handbook 4000.1 entitled “Presidentially-Declared COVID-19 National Emergency.” For borrowers affected by COVID-19, this guidance should be followed, and not the existing guidance in the Handbook for Presidentially-Declared Major Disaster Areas (PDMDA). For servicers who are using the loss mitigation options under the PDMDA guidance, they must convert to the loss mitigation options in the new guidance for COVID-19.
Forbearance Relief. The guidance includes a very direct statement: Servicers “must not deny COVID-19 National Emergency Home Retention Options to [b]orrowers that experience an adverse impact on their ability to make on-time [m]ortgage [p]ayments due to the COVID-19 National Emergency and satisfy the loss mitigation criteria set forth in [the guidance].” The guidance provides that:
- If a borrower is experiencing a financial hardship negatively impacting their ability to make on-time mortgage payments due to the COVID-19 National Emergency and makes a request for a forbearance, the servicer must offer the borrower a forbearance, which allows for one or more periods of reduced or suspended payments without specific terms of repayment.
- The initial forbearance period may be up to six months and, if needed, an additional forbearance period of up to six months may be requested by the borrower, and must be approved by the servicer. The term of either the initial or the extended forbearance may be shortened at the borrower’s request.
- The servicer must waive all late charges, fees, and penalties, if any, as long as the borrower is on a forbearance plan.
With regard to communications with borrowers, the guidance provides that the servicer may utilize any available methods for communicating with a borrower regarding a forbearance to meet these requirements. Examples of acceptable methods of communication regarding a forbearance include, but are not limited to, emails, texts, fax, teleconferencing, websites, or sending out a general communication advising borrowers that forbearance is granted, provided the borrower emails a request or calls their servicer.
Partial Claim Criteria. For a borrower who owns and occupies their home that secures the FHA loan and receives a forbearance based on the COVID-19 National Emergency, the servicer must evaluate the borrower for a COVID-19 National Emergency Standalone Partial Claim no later than the end of the forbearance period(s).
The eligibility requirements for a COVID-19 National Emergency Standalone Partial Claim are:
- The loan was current or less than 30 days past due as of March 1, 2020;
- The borrower indicates they have the ability to resume making on-time mortgage payments; and
- The property is owner-occupied.
Additionally, the servicer must ensure that:
- The borrower’s accumulated late fees are waived;
- The COVID-19 National Emergency Standalone Partial Claim amount includes only arrearages, which consists of principal, interest, taxes, and insurance;
- The COVID-19 National Emergency Standalone Partial Claim does not exceed the maximum statutory value of all partial claims for an FHA-insured mortgage (as listed in Handbook 4000.1 section Statutory Maximum for Partial Claims, III.A.2.k.v(D)(2)(a)); and
- The borrower receives only one COVID-19 National Emergency Standalone Partial Claim.
Other Loss Mitigation Options. For a borrower who is not brought current through a COVID-19 National Emergency Standalone Partial Claim, the servicer must evaluate the borrower for other loss mitigation home retention options (Handbook 4000.1 section III.A.2.k) and home disposition options (Handbook 4000.1 section III.A.2.l). Pursuant to the guidance, borrowers who are delinquent due to a forbearance received following a COVID-19 National Emergency Declaration are deemed to satisfy the eligibility requirements for FHA loss mitigation home retention and home disposition options.
Credit Reporting. The guidance provides that a borrower who is granted a Forbearance for Borrowers Affected by the COVID-19 National Emergency and is otherwise performing as agreed is not considered to be delinquent for purposes of credit reporting.
The guidance also notes that FHA requires servicers to comply with the credit reporting requirements of the Fair Credit Reporting Act (FCRA). However, FHA encourages servicers to consider the impacts of the COVID-19 National Emergency on the financial situations of borrowers and any flexibilities a servicer may have under the FCRA when taking any negative credit reporting actions.
Extension Period for HECMs. For HECMs, the guidance provides that, pursuant to the COVID-19 National Emergency, upon request of the borrower the servicer must delay submitting a request to call a loan due and payable. Consistent with the forbearance periods provided for in the CARES Act, the initial extension period may be up to six months and, if needed, an additional period of up to six months may be approved by HUD. The term of either the initial or the additional extension period may be shortened at the borrower’s request. The servicer must waive all late charges, fees, and penalties, if any, as long as the borrower is in an extension period.
For loans that have become automatically due and payable, entered into a deferral period, or became due and payable with HUD approval, the servicer may also take an automatic extension for any deadline relating to foreclosure and claim submission for a period of up to six months. If needed, an additional period of up to six months may be approved by HUD.
On March 31, 2020, Fannie Mae in an update to Lender Letter 2020-04 and Freddie Mac in Bulletin 2020-8 announced appraisal relief. The relief applies to loans with application dates on or before May 17, 2020.
Both the Fannie Mae and Freddie Mac appraisal relief announcements apply to purchase transactions involving new construction, and Freddie Mac also addresses appraisal relief for GREENChoice MortgagesSM. Freddie Mac notes that the relief does not apply to CHOICERenovationSM Mortgages.
Fannie Mae also addresses inspection relief for HomeStyle® Renovation Loans, but notes that the appraisal relief does not apply to the loans.
In response to COVID-19 developments, Fannie Mae and Freddie Mac have issued guidance regarding verifications of employment (VOEs), income continuity, appraisals, title policies, and other matters. The Fannie Mae guidance is set forth in Lender Letter 2020-03 and Lender Letter 2020-04, and the Freddie Mac guidance is set forth in Bulletin 2020-5.
VOEs. Based on the difficulty of obtaining verbal VOEs, Fannie Mae and Freddie Mac address the use of written methods that will be permitted, specifically an email from the employer, year-to-date paystubs or bank account statements (or other permitted documentation) that reflect payroll deposits.
Income Continuity. Fannie Mae provides the following guidance: “Given the current economic climate associated with COVID-19 and its impact on employment and income, we recommend that lenders practice additional due diligence to ensure the most recent information is obtained. Lenders are strongly encouraged to help ensure any disruption to borrowers’ employment (or self-employment) and/or income due to COVID-19 is not expected to negatively impact their ability to repay the loan. During these uncertain times, it is our goal to partner with you to help ensure sustainable homeownership for the borrower.”
Freddie Mac provides the following guidance: “Given the current COVID-19 situation and its impact on the economy including Borrower employment and income, Freddie Mac recommends that Sellers practice additional due diligence to ensure that accurate Borrower information is obtained and that the Borrower’s ability to repay the Mortgage is not negatively impacted. During these uncertain times, it is our goal to partner with our Sellers to help them ensure sustainable homeownership for the Borrower.”
Both Fannie Mae and Freddie Mac note that an example of additional due diligence for a self-employed borrower would be attempting to verify that the borrower’s business is operational closer to the note date rather than rely on the current guide requirements (e.g., within 15 days instead of 120 days).
Appraisals. Fannie Mae and Freddie Mac address the loans, and related circumstances, for which they will accept an exterior appraisal and/or desktop appraisal in lieu of a traditional appraisal. They also provide related guidance regarding the completion of appraisal report forms. Fannie Mae and Freddie Mac also encourage the acceptance of appraisal waiver offers.
Title Insurance. With regard to the challenges in meeting title requirements that are presented by recording offices being closed, both Fannie Mae and Freddie Mac advise that they are working to address the challenges. In the meantime, both advise that they accept lender’s policies of title insurance written on the 2016 ALTA loan title insurance form or an equivalent form, as long as it includes Covered Risk 14, which provides for gap coverage, and there is no exclusion for this coverage in Schedule B of the policy.
Business Continuity Plans. Fannie Mae and Freddie Mac remind sellers and services of their requirements for business continuity plans, and note that they have communicated with their document custodians and confirmed that the custodians’ plans are in place.
Financial Statements. For companies with a March 31, 2020, deadline (based on a December 31 year-end) to file financial statements and related information with Fannie Mae and Freddie Mac, the deadline is extended until April 30, 2020.
On March 24, 2020 the New York State Department of Financial Services (NYDFS) adopted on an emergency basis a regulation that requires New York-regulated banking organizations and New York-regulated mortgage servicers subject to the authority of the NYDFS (regulated institutions) to provide mortgage loan forbearance relief.
Forbearance. In addition to adhering to the NYDFS servicing requirements set forth in Part 419 of its rules, the emergency regulation requires that regulated institutions must:
- Make applications for forbearance of any payment due on a residential mortgage of a property located in New York, widely available to any individual who resides in New York and who demonstrates financial hardship as a result of the COVID-19 pandemic; and
- Subject to the safety and soundness requirements of the regulated institution, grant such forbearance for a period of ninety (90) days to any such individual.
The requirement is tied to the duration specified in Executive Order 202.9, which is until April 20, 2020, but that timeframe may be extended. Regulated institutions are not limited to offering this specific relief.
The forbearance requirements do not apply to and do not affect “any mortgage loans made, insured, or securitized by any agency or instrumentality of the United States, any Government Sponsored Enterprise, or a Federal Home Loan Bank, or the rights and obligations of any lender, issuer, servicer, or trustee of such obligations, including servicers for the Government National Mortgage Association.” The carve-out does not appear to expressly cover whole mortgage loans owned by Fannie Mae or Freddie Mac.
Advising Borrowers of Forbearance Availability. The emergency regulation requires that, as soon as reasonably practicable, and in no event not later than 10 business days following the promulgation of the regulation on March 24, 2020, all regulated institutions must email, publish on their website, mass mail, or otherwise similarly broadly communicate to customers how to apply for COVID-19 relief and provide their contact information.
COVID-19 Relief Qualifications. The emergency regulation provides that the criteria developed by regulated institutions for individuals to qualify for COVID-19 relief must be clear, easy to understand, and reasonably tailored to the requirements of the regulated institution to assess whether it will provide COVID-19 relief, consistent with the goals of Executive Order 202.9 and the emergency regulation, applicable state and federal law, and the principles of safe and sound business practices.
Additionally, if a regulated institution receives an application for COVID-19 relief that omits any information that the institution reasonably needs to process the application, the institution must promptly communicate to the applicant the nature of the missing information and how it can be provided to the institution.
Processing Applications and Communications With Applicants. The emergency regulation requires that regulated institutions process and respond to requests for COVID-19 relief immediately, and in no event not later than 10 business days after the regulated institution receives all information it reasonably requires to process the application. The emergency regulation does not appear to acknowledge that regulated institutions may be facing staffing challenges, as well as high levels of communications from borrowers, because of the COVID-19 crisis.
Regulated institutions must develop and implement procedures for the expedited processing of applications for COVID-19 relief for any individual who reasonably establishes an exigent circumstance and requests the expedited processing of the individual’s application.
The emergency regulation requires that all determinations on applications for COVID-19 relief must be communicated to the applicant in writing where reasonably feasible and warranted, and must state whether the regulated institution granted the application. If the application was granted, the institution must advise what, if anything, the applicant must do to secure the relief. If the application was denied, the institution must provide the reason it was denied and include a statement that the applicant may file a complaint with the New York State Department of Financial Services at 1-800-342-3736 or http://www.dfs.ny.gov if the applicant believes the application was wrongly denied.
Unsafe and Unsound Business Practice. The emergency regulation notes that Executive Order 202.9 modified Section 39 of the New York State Banking Law was modified to provide that it shall be an unsafe and unsound business practice if, in response to the COVID-19 pandemic, any regulated institution does not grant a forbearance of any payment due on a residential mortgage for a period of 90 days to any individual who has applied for such a forbearance and demonstrated a financial hardship as a result of the COVID-19 pandemic, as described in the emergency regulation.
In assessing whether a regulated institution has engaged in an unsafe or unsound practice by denying an application for such a forbearance, the NYDFS will consider (1) the adequacy of the process established by the regulated institution to process such forbearance applications, (2) the thoroughness of the review afforded to the application, (3) the payment history, creditworthiness, and the financial resources of the borrower, and (4) the application of any state and federal laws or regulations that would prohibit the grant of a forbearance, as well as the safety and soundness requirements of the regulated institution.
Recordkeeping. Regulated institutions must maintain copies of all files relating to their implementation of the emergency regulation for a period of seven years from the date of creation and to make such files available for inspection at the next examination of the regulated institution by the NYDFS.
Fee Relief. Subject to safety and soundness requirements, for any individual who demonstrates financial hardship from COVID-19, regulated banking organizations must (1) eliminate fees charged for the use of automated teller machines (ATMs) that are owned or operated by the regulated banking organization, (2) eliminate overdraft fees, and (3) eliminate any credit card late payment fees. This relief also applies during the duration of Executive Order 202.9.
The CARES Act permits borrowers with federally backed residential mortgage loans to request a forbearance from making payments for up to 180 days, with the ability to request an extension for an additional 180-day period. The U.S. House of Representatives is expected to vote on the legislation on March 27, 2020. The provisions in the legislation adopted by the Senate are addressed below.
Federally Backed Mortgage Loan. The forbearance relief is available to borrowers with federally backed mortgage loans. A “federally backed mortgage loan” is defined to include any loan secured by a first or subordinate lien on residential real property, including individual units of condominiums and cooperatives, designed principally for the occupancy of one- to four-families that is:
- Insured by the Federal Housing Administration (FHA) under title II of the National Housing Act, which is the main title under which FHA insures residential mortgage loans;
- Insured under National Housing Act section 255, which addresses home equity conversion (i.e., reverse) mortgage loans insured by FHA;
- Guaranteed under Housing and Community Development Act of 1992 sections 184 or 184A, which address loans related to Native American families and housing authorities and loans related to Native Hawaiian families and authorities;
- Guaranteed or insured by the U.S. Department of Veterans Affairs (VA);
- Guaranteed or insured by the U.S. Department of Agriculture (USDA);
- Made by the USDA; or
- Purchased or securitized by Fannie Mae or Freddie Mac.
Forbearance. During the covered period, a borrower with a federally-backed mortgage loan who is experiencing a financial hardship due, directly or indirectly, to the COVID-19 national emergency may, regardless of delinquency status, request a forbearance. To request a forbearance, a borrower must submit a request to the servicer and affirm that the borrower is experiencing a financial hardship due to the COVID-19 national emergency. The forbearance period is up to 180 days, and during the covered period the borrower can request an extension for an additional period of 180 days. At the borrower’s request, either the initial or extended forbearance period may be shortened. During the forbearance period, no fees, penalties or interest, beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract, may accrue on the borrower’s account.
Section 4022 of the CARES Act, which sets forth the forbearance provisions, does not define “covered period.” In a prior version of the legislation, the section defined “covered period” as the date that the CARES Act becomes law until the sooner of December 31, 2020 or the termination date of the COVID-19 national emergency. (That definition of “covered period” is set forth in section 4023, which addresses forbearances in connection with federally-backed loans on multifamily properties.)
Section 4022 also does not define a “financial hardship.” A prior version of section 4022 defined a “financial hardship” as an inability to meet basic living expenses for goods and services necessary for the borrower and his or her spouse and dependents. (The term also is not defined in section 4023 of the final version of the law.)
Other Servicer Requirements. Other than a borrower’s request for a forbearance and attestation to a financial hardship caused by COVID-19, a servicer may not require additional documentation to grant a forbearance. And, as noted above, during the forbearance period, no fees, penalties or interest, beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract, may accrue on the borrower’s account.
A prior version of the legislation required the servicer to pay or advance funds to make disbursements in a timely manner from any escrow account, and to maintain regular communication with the borrower, during the forbearance period. These express requirements are not included in the final version of section 4022. However, Regulation X under the Real Estate Settlement Procedures Act (RESPA) contains escrow account and borrower communication requirements for servicers.
Foreclosure and Eviction Moratorium. The CARES Act also provides that, except with respect to a vacant or abandoned property, a servicer of a federally backed mortgage loan may not initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for not less than the 60-day period beginning on March 18, 2020. Previously, Fannie Mae and Freddie Mac and, with regard to FHA loans, the U.S. Department of Housing and Urban Development, announced foreclosure and eviction moratoriums of at least the same 60-day period. Additionally, the VA previously issued guidance strongly encouraging mortgage servicers to observe a foreclosure and eviction moratorium for the same 60-day period.
Notification of Right to Request a Forbearance. A prior version of the legislation required that servicers notify borrowers of their right to request forbearance during the covered period. The notification requirement is not included in the final version of section 4022.
Evaluation for Post Forbearance Relief. A prior version of the legislation required servicers, before the end of the forbearance period, to evaluate the ability of the borrower to return to making regular mortgage payments and then take specified loss mitigation steps. These requirements are not included in the final version of section 4022. However, Regulation X under RESPA contains specific loss mitigation obligations for servicers.
On March 13, following the declaration of a state of emergency by Nevada Governor Sisolak due to the COVID-19 outbreak, the state’s Department of Business and Industry (DBI) issued guidance that allowed collection agency employees to work from their residences even if a residence was not a location licensed with the DBI. However, on March 20, in response to Governor Sisolak’s order requiring the closing of all businesses deemed “non-essential,” the DBI issued a letter that deemed all Nevada-licensed collection agencies to be “non-essential” and ordered all collection agencies holding a Nevada license located in the state “to close” effective midnight March 20 until April 16. The DBI also directed all collection agencies holding a Nevada license or certificate (regardless of the whether the licensee is located in-state or out-of-state) to “cease collection efforts with Nevada consumers/residents” effective midnight March 20 until April 16.
We are currently working with collections industry clients to address the many questions that have arisen regarding what, if any, activities continue to be permissible while the DBI’s “cease collection efforts” directive remains in effect.
The CFPB has issued its annual Fair Debt Collection Practices Act report covering the CFPB’s and FTC’s activities in 2019.
With regard to the CFPB’s debt collection rulemaking, in her opening message, Director Kraninger only references the Bureau’s May 2019 proposal. She does not mention the Bureau’s supplemental proposal issued last month that would require debt collectors to make specified disclosures when collecting time-barred debts. With regard to the May 2019 proposal, Director Kraninger states that “[t]he Bureau intends to issue a final debt collections rule in 2020.” (The supplemental proposal is mentioned in the section of the report that describes the Bureau’s rulemaking but gives no timetable for a final rule.)
- According to the report’s section on complaints, the CFPB handled approximately 75,200 debt collection complaints in 2019 (which was 6,300 (approximately 8%) less than in 2018). As in 2018, the most common complaint was about attempts to collect a debt that the consumer claimed was not owed (but with more such complaints involving identity theft than in 2018). The second and third most common complaint issues were, respectively, written notifications about the debt, and taking or threatening a negative or legal action.
- In 2019, the CFPB announced three FDCPA enforcement actions. One of those actions resulted in a consent order and the other two actions are still pending. One pending action was filed in September 2019 against a debt collection company and its owner for alleged FDCPA violations in connection with the handling of direct and indirect disputes. The other pending action was filed in May 2019 against a debt collection law firm for alleged FDCPA violations based on an alleged lack of “meaningful attorney involvement.” In addition to the action that resulted in a consent order, the report states that in 2019, the Bureau resolved an FDCPA lawsuit filed in 2016 and obtained settlements with three defendants in a lawsuit filed in 2015 that is still pending. The Bureau reports that these matters resulted in judgments for nearly $50 million in consumer redress and $11.2 million in civil money penalties. The Bureau also permanently banned eight individuals from working in the debt collection industry. The Bureau states that, in addition to its three pending enforcement actions, it “is conducting a number of non-public investigations of companies to determine whether they engaged in collection practices that violate the FDCPA or CFPA.”
The CFPB’s report incorporates information from the FTC’s most recent annual letter to the CFPB describing its FDCPA activities. In 2019, the FTC brought or resolved law enforcement actions against 25 defendants, obtained more than $24.7 million in judgments, and permanently banned 23 companies and individuals from working in the debt collection industry. Three of the enforcement actions resolved in 2019 (including one that was filed in 2019) involved “phantom debt collection.” In addition to the actions involving “phantom debt collection,” the report describes two other FTC debt collection cases. One of these cases involved a debt collection business that allegedly falsely threatened to have people arrested if their debts were not paid. The case was settled in 2018 and refund checks totaling more than $516,000 were sent to consumers in 2019. Litigation remained ongoing in 2019 in the other case, which was filed jointly in 2018 with the New York Attorney General and involves alleged demands by the defendants for more money than consumers owed.
In this week’s podcast, we are joined by Richard Cordray whose book about his CFPB tenure, Watchdog, was recently-released. Among other topics, Mr. Cordray shares what he considers to be his key successes and disappointments as Director, describes his relationship with the Trump Administration, responds to criticism of his use of the CFPB’s enforcement authority, offers his prediction for how SCOTUS will rule in Seila Law, and discusses the abusiveness standard and creation of state mini-CFPBs.
Click here to listen to the podcast.
In response to New York Governor Cuomo’s Executive Order 202.9 issued on March 21, the New York Department of Financial Services (DFS) has adopted new regulations to provide emergency relief to individuals who can demonstrate financial hardship as a result of COVID-19. The new regulations were promulgated as Part 119 to Title 3 of the New York Official Compilation of Codes, Rules and Regulations.
In his Executive Order, Governor Cuomo temporarily suspended or modified, for the period from the date of the Executive Order through April 20, 2020, Section 39 of the state’s Banking Law “to provide that it shall be deemed an unsafe and unsound business practice if, in response to the COVID-19 pandemic, any bank which is subject to the jurisdiction of the Department shall not grant a forbearance to any person or business who has a financial hardship as a result of the COVID-19 pandemic for a period of ninety days.” The order:
- Directed the DFS Superintendent to “ensure under reasonable and prudent circumstances that any licensed or regulated entities provide to any consumer in the State of New York an opportunity for a forbearance of payments for a mortgage for any person or entity facing a financial hardship due to the COVID-19 pandemic and … promulgate emergency regulations to require that the application for such forbearance be made widely available for consumers, and such application shall be granted in all reasonable and prudent circumstances solely for the period of such emergency.”
- Authorized the Superintendent “to promulgate emergency regulations to direct that, solely for the period of this emergency, fees for the use of automated teller machines (ATMs), overdraft fees and credit card late fees, may be restricted or modified in accordance with the Superintendent’s regulation of licensed or regulated entities taking into account the financial impact on the New York consumer, the safety and soundness of the licensed or regulated entity, and any applicable federal requirements.”
New Part 119 applies to regulated institutions, which are defined as “any New York regulated banking organization as defined under New York Banking Law and any New York regulated mortgage servicer entity subject to the authority of the Department.” They include the following requirements that apply for the duration of the Executive Order
- New York regulated institutions must make forbearance applications for any payment due on a residential mortgage of property located in New York “widely available to any individual who resides in New York and who demonstrates financial hardship” as a result of the pandemic and, subject to safety and soundness requirements, must grant such forbearance for a 90-day period. The requirement does not apply to any mortgage loans “made, insured, or securitized by any agency or instrumentality of the United States, any Government Sponsored Enterprise, or a Federal Home Loan Bank, or the rights and obligations of any lender, issuer, servicer or trustee of such obligations, including servicers for the Government National Mortgage Association.” (See our alert for more information on the forbearance requirements.)
- New York regulated banking institutions, for any individual who can demonstrate financial hardship as a result of the pandemic and subject to safety and soundness requirements, must eliminate fees for the use of ATMs owned or operated by the regulated banking institution, eliminate any overdraft fees, and eliminate any credit card late fees.
Regulated institutions are also encouraged to take “additional reasonable and prudent actions” to assist individuals demonstrating financial hardship as a result of the pandemic “in any manner they deem appropriate.”
On March 26, the CFPB issued three policy statements designed to provide flexibility to banks and financial services companies to allow them to focus on responding to customers in need during the COVID-19 pandemic.
First, in two separate policy statements, the CFPB announced that it is postponing certain industry data collection deadlines. Specifically, the Bureau will not expect quarterly information reporting by certain mortgage lenders under the Home Mortgage Disclosure Act (“HMDA”) and Regulation C, but institutions should continue collecting and recording HMDA data in anticipation of making their annual submission. Similarly, the CFPB will not expect reporting of certain information related to credit card and prepaid accounts under the Truth in Lending Act, Regulation Z and Regulation E.
In those policy statements, the CFPB indicated that it “does not intend to cite in an examination or initiate an enforcement action against any institution” that fails to submit these data according to the established reporting schedules, but added that institutions should continue gathering the required data in anticipation of making future submissions. The Bureau said it would provide more information at a later date about resuming regular reporting.
Second, on the same date, the CFPB issued a “Statement on Bureau Supervisory and Enforcement Response to COVID-19 Pandemic” announcing changes to the Bureau’s supervisory activities to account for operational challenges at regulated entities. The guidance reiterates the CFPB’s prior guidance encouraging financial institutions to work constructively with borrowers and other customers affected by the COVID-19 crisis to meet their financial needs. The guidance further states that the Bureau will work with financial institutions to schedule examinations and other supervisory activities in a manner that will minimize disruption and burden. The CFPB encourages “prudent efforts undertaken in good faith” that are designed to meet the needs of customers and borrowers. Toward that end, the Bureau will consider the circumstances that entities may face as a result of the COVID-19 pandemic when conducting examinations, supervisory activities, and in determining whether to take enforcement actions in the future.
The guidance can be found below:
The CFPB has published a request for information (RFI) in today’s Federal Register seeking comments and information to assist its Taskforce on Federal Consumer Financial Law. Comments on the RFI must be received by June 1, 2020.
The CFPB created the Taskforce in October 2019 to examine ways to harmonize and modernize federal consumer financial laws. The Taskforce is charged with examining the existing legal and regulatory environment for consumers and financial services providers and making recommendations to the Bureau’s leadership for improving consumer financial laws and regulations, with a focus on harmonizing, modernizing, and updating the enumerated consumer credit laws, and their implementing regulations.
The RFI seeks information on which areas of the consumer financial services market are functioning well and which might benefit from regulatory changes, particularly those where a change in the rules would provide the greatest marginal benefits relative to the marginal costs. It contains a series of questions about the markets for consumer financial products and services, with a special interest in the following markets: automobile financing (credit or lease); credit cards; credit repair; consumer reporting; first-party and third-party debt collection; debt settlement; deposit accounts (checking or savings); electronic payments; money transfers; mortgage origination and servicing; prepaid cards; small-dollar loans (installment, payday, vehicle title loans); student loans and servicing.
The questions are divided into the following sections:
- Expanding access. The questions explore potential obstacles to financial inclusion. Question topics include short-term, small dollar credit, use of alternative data, and the disparate impact theory.
- Consumer data. The questions explore current and future-looking topics regarding the protection and use of consumer data. Question topics include FCRA and GLBA protections of consumers’ personal information, FCRA provisions concerning information accuracy, state data breach laws, and use of consumer data by fintech companies.
- Regulations. The questions focus on the regulations that the CFPB writes and enforces. Question topics include areas of significant regulatory ambiguity or uncertainty and the need for regulatory changes to address new products and services.
- Federal and state coordination. The questions focus on the costs and benefits of having multiple federal agencies with supervisory or enforcement authority with respect to financial institutions. Question topics include the appropriateness of cooperation by the agencies in areas of shared jurisdiction, potential changes to shared-jurisdiction framework, and costs and benefits to consumers and financial institutions of overlapping enforcement authority.
- Improving consumer protections. The questions address overall performance of consumer protection. Question topics include effectiveness of disclosures and the CFPB’s determination of appropriate remedies for violations.
Pennsylvania’s Attorney General Josh Shapiro announced this week that his office has launched “PA CARE Package,” a consumer relief program for PA consumers impacted by the COVID-19 pandemic.
The program is intended to implement and expand on the consumer protections provided by the federal CARES Act. The press release issued by the PA AG’s Office describes the program as a partnership between the PA AG’s Office and banks and financial institutions in PA to offer additional assistance to PA consumers affected by the COVID-19 pandemic. To commit to the program, financial institutions and banks must offer the following assistance to affected PA consumers:
- Expansion of small and medium business loan availability
- 90-day grace period for mortgages (at least)
- 90-day grace period for other consumer loans such as auto loans
- 90-day window for relief from fees and charges such as late fees, overdraft fees
- Foreclosure, eviction, or motor vehicle repossession moratorium for 60 days
- No adverse credit reporting for accessing relief on consumer loans
The PA AG’s Office has created a webpage to provide information about the program.
We think the PA AG’s Office deserves praise for launching a voluntary program that’s a “win-win-win”– an economic win for consumers who are in desperate need of financial assistance due to no fault of their own and a public relations win for banks and other lenders as well as for the PA AG.
The CFPB has issued a policy statement concerning COVID-19 considerations that will be relevant to how the CFPB chooses to exercise its supervisory and enforcement authority regarding compliance with the Fair Credit Reporting Act and Regulation V, especially in light of the CARES Act.
The CFPB states that it “understands that the current crisis impacts the financial well-being of consumers and poses operational challenges for consumer reporting agencies and furnishers, including staffing challenges, that could temporarily impede their ability to timely comply with their statutory and regulatory consumer reporting obligations.” The policy statement is intended to “inform [CRAs] and furnishers of the Bureau’s flexible supervisory and enforcement approach during this pandemic regarding compliance with the [FCRA] and Regulation V.” The CFPB also states that it “intends to consider the circumstances that entities face as a result of the COVID-19 pandemic and entities’ good faith efforts to comply with their statutory and regulatory obligations as soon as possible.”
The CFPB gives the following “examples of the flexibility [it] intends to provide in the consumer reporting system”:
- In contrast to legislation that has been introduced calling for credit reporting to be halted in response to the COVID-19 pandemic, “the Bureau encourages [furnishers] to continue furnishing information despite the current crisis.” The Bureau also references the CARES Act section that amends the FCRA to require a furnisher that makes an accommodation with respect to one or more payments on a credit obligation or consumer account that was not already delinquent to continue to report the account as current if the consumer fulfills the terms of the accommodation. It then observes that many furnishers will be offering payment accommodations either as required by the CARES Act or voluntarily and that such accommodations “will avoid the reporting of delinquencies resulting from the effects of COVID-19.” The Bureau affirms its support for “furnishers’ voluntary efforts to provide payment relief” and indicates that it does not intend to cite in an exam or take enforcement action against “those who furnish information to [CRAs] that accurately reflects the payment relief measures they are employing.” This presumably means that although the FCRA, as amended by the CARES Act requires a furnisher to continue to report an account as current when a consumer fulfills the terms of an accommodation, the Bureau will not fault a furnisher for reporting accurate information that reflects the accommodation (such as the amount of a reduced payment or that no payment was made).
- With regard to the FCRA’s required timeframes for a CRA or furnisher to investigate a consumer’s dispute, the CFPB states that it is aware that some CRAs and furnishers “may face significant operational disruptions that pose challenges for them in investigating consumer disputes [within the timeframes],” such as “significant reductions in staff, difficulty intaking disputes, or lack of access to necessary information.” The CFPB states that it will consider a CRA’s or furnisher’s “individual circumstances” and that it does not intend to cite in an exam or bring an enforcement action against a CRA or furnisher “making good faith efforts to investigate disputes as quickly as possible, even if dispute investigations take longer than the statutory framework.” It also reminds CRAs and furnishers that they can take advantage of “statutory and regulatory provisions that eliminate the obligation to investigate disputes by credit repair organizations and disputes they reasonably determine to be frivolous or irrelevant” and indicates that the CFPB will “consider the significant current constraints on furnisher and consumer reporting agency time, information, and other resources in assessing if such a determination is reasonable.” (Despite the supervisory or enforcement relief offered by the CFPB, CRAs and furnishers could still face consumer litigation alleging FCRA violations based on compliance failures that occur in the wake of the COVID-19 pandemic. However, we are hopeful that the CFPB’s policy statement will be helpful in defending a claim that a violation of the dispute investigation timeframes was willful, giving rise to statutory damages.)
While the policy statement is certainly welcomed by CRAs and furnishers, members of the consumer financial services industry face similar operational challenges as a result of the COVID-19 pandemic in complying with numerous other statutory and regulatory requirements for which the CFPB examines them for compliance and as to which the CFPB has enforcement authority. We hope the CFPB intends to also be flexible in its supervisory and enforcement practices regarding such other requirements and will soon provide additional guidance to industry.
NMLS Changes Policy on Reporting Deadlines Due to COVID-19
In response to the COVID-19 pandemic and its impact on state regulated entities, the NMLS Policy Committee has decided to amend a previously announced 60-day deadline extension for filing the following types of reports submitted in the NMLS:
- Mortgage Services Business Call Report
- Mortgage Call Report
- Mortgage Call Report Financial Condition
- Financial Statement
Instead of a 60-day extension, the NMLS Policy Committee is now providing an amended policy that encourages state regulators to be lenient and not take administrative action if the reports are filed within 30 days of the placement of the License Item. This amendment comes after the Federal Financial Institutions Examination Council announced that there would be a 30-day extension for submitting Reports of Condition and Income (Call Reports).
The following table provides the relevant dates for the temporary change in reporting deadlines:
Name of Report
Current Report Due Date
30 Days from Due Date
MSB Q4 2019
March 31, 2020
April 30, 2020
MCR Q1 2020
May 15, 2020
June 14, 2020
MSB Q1 2020
May 15, 2020
June 14, 2020
MCR Standard Financial Condition
90 days from the end of the company’s fiscal year
120 days from the end of the company’s fiscal year
|90 days from the end of the company’s fiscal year
120 days from the end of the company’s fiscal year
Tempe, AZ | June 23-24, 2020
Social Media – Staying Compliant while Staying Connected
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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.