Mortgage Banking Update
In This Issue:
- FHFA Announces Four-Month Limit to Servicer Fannie Mae Advance Obligations
- CFPB Raises HMDA Reporting Thresholds
- Bipartisan Congressional Pressure Mounts for Mortgage Servicer Liquidity Assistance
- Agencies Issue Statement and Interim Final Rule Regarding Appraisals Because of COVID-19
- En banc Third Circuit, Overturning 1991 Panel Decision, Rules FDCPA Allows Oral Dispute
- Regulatory and Litigation Risks to Consumer Financial Services Providers Highlighted in Ballard Spahr Webinar on COVID-19 Crisis Fallout
- Fannie Mae and Freddie Mac Update COVID-19 Servicing Guidance
- Senators Advocate for Mortgage Servicer Liquidity Assistance
- Podcast: Dodd-Frank Act Section 1071 Rulemaking: A Close Look at the Settlement in the Lawsuit Against the CFPB
- Second Circuit Adopts Broad TCPA Autodialer Definition
- Ginnie Mae Announces Expanded Pass-Through Assistance Due to COVID-19 With an Initial April 13 Application Deadline
- VA Revises Appraisal Guidance Related to COVID-19
- VA Updated Guidance on Relief for Borrowers Experiencing Financial Hardship Due to COVID-19
- Trade Groups Respond to Nevada Regulator and AG in Lawsuit Challenging Nevada Law
- CFPB Issues Office of Servicemember Affairs 2019 Annual Report
- Fannie Mae and Freddie Mac Further Revise Origination Guidance In Connection With COVID-19
- FTC Publishes Guidance to Mortgage Borrowers Regarding COVID-19 Relief
- Podcast: The COVID-19 Crisis: A Look at the Consumer Financial Regulatory and Litigation Fallout
- State AGs Ask Director Kraninger to Withdraw CFPB COVID-19 Credit Reporting Guidance
- CFPB and FHFA Announce Launch of Borrower Protection Program
- FHA Accelerates Development and Deployment of FHA Catalyst Due to COVID-19 Emergency
- Fannie Mae and Freddie Mac Extend URLA Implementation Date Due to COVID-19
- Did You Know?
- Looking Ahead
For the latest updates on the Coronavirus pandemic visit the Ballard Spahr Coronavirus Resource Center
On April 21, 2020, the Federal Housing Financing Agency (FHFA) announced the alignment of Fannie Mae and Freddie Mac policies so that, once a mortgage servicer has advanced four months of missed payments on a loan, it will have no further obligation to advance scheduled payments on the loan.
FHFA notes that, when a loan is in a mortgage-backed securities pool, Fannie Mae requires that servicers under a scheduled remittance arrangement advance scheduled principal and interest payments, and that Freddie Mac generally requires that servicers advance up to four months of scheduled interest payments. The new policy will cap a servicer’s advance obligations with Fannie Mae loans to four months of payments.
As previously reported, FHFA Director Mark Calabria had downplayed the extent of the servicer advance obligation that would result from mortgage payment forbearances under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which drew a strong response from the Mortgage Banker Association. There is growing bipartisan support in Congress for the federal government to provide liquidity assistance to residential mortgage loan servicers.
FHFA also announced that it is instructing Fannie Mae and Freddie Mac to maintain in mortgage-backed securities pools loans that are subject to a CARES Act forbearance for at least the duration of the forbearance plan. Loans in CARES Act forbearance plans will be treated as loans subject to a natural disaster event, and thus will remain in a pool despite the typical policy of Fannie Mae and Freddie Mac to purchase a loan out of a pool once it becomes delinquent for more than four months.
The CFPB recently issued a final Home Mortgage Disclosure Act (HMDA) rule to increase the threshold to report closed-end mortgage loans from 25 to 100 originated loans in each of the prior two years, and to increase the permanent threshold to report dwelling-secured open-end lines of credit from 100 to 200 originated lines in each of the prior two years. The new closed-end loan threshold is effective July 1, 2020. The new permanent open-end lines of credit threshold is effective January 1, 2022, as a temporary threshold of 500 originated open-end lines of credit in each of the prior two years is in effect through 2021. The CFPB also issued an executive summary of the final rule, an unofficial redline of the changes to Regulation C, and other helpful materials.
As previously reported, in May 2019 the CFPB proposed to increase the closed-end loan threshold from 25 to 50 originated loans in each of the prior two years, and to increase the permanent open-end line of credit threshold from 100 to 200 lines in each of the prior two years, as well as extend the 500 originated lines temporary threshold through 2021. The CFPB also requested comment on a closed-end loan threshold of 100 originated loans in each of the prior two years. The CFPB later reopened the comment period on the proposals, establishing an October 15, 2019 date for comments. This was in response to comments from stakeholders that they wanted to review the 2018 HMDA data before submitting comments, and such data typically is released in the later part of summer. The 2018 HMDA data was the first data reflecting the expanded HMDA data fields added by the October 2015 final rule.
In October 2019 the CFPB issued a final rule extending the temporary 500 originated lines threshold for reporting open-end lines of credit through 2021, as the threshold was scheduled to expire at the end of 2019.
The CFPB had planned to implement the change to the closed-end loan threshold as of January 1, 2020, but the reopening of the comment period pushed the implementation date later into the year. The mid-year implementation of a higher reporting threshold for closed-end loans will result in some institutions that are currently HMDA reporting institutions becoming non-reporting institutions as of July 1, 2020. If an institution originated at least 25 closed-end loans in both 2018 and 2019, then as of January 1, 2020, the institution would have to collect, record and report HMDA data for calendar year 2020. As of July 1, 2020, if that institution originated fewer than 100 closed-end loans in either 2018 or 2019, it would no longer be a HMDA reporting institution (a “newly excluded institution”).
The CFPB provides guidance on how the mid-year implementation effects a newly excluded institution’s data collection, recording and reporting obligations under HMDA.
- With regard to the collection of HMDA data, newly excluded institutions may cease the collection of data for HMDA purposes beginning on July 1, 2020. However, under the Equal Credit Opportunity Act and Regulation B, there is a separate data collection requirement for mortgage loans for the purchase or refinancing of the consumer’s principal residence.
- With regard to the recording of HMDA data, newly excluded institutions still must record closed-end mortgage loan data for the first quarter of 2020 on their loan application registers within 30 days after the end of the first quarter. Newly excluded institutions will not be required to record second quarter data because the recording deadline is after July 1, 2020.
- With regard to the reporting of HMDA data, newly excluded institutions do not have to report any HMDA data for 2020, even the data that was collected and recorded for the first quarter. However, newly excluded institutions may opt to report data for 2020, but to do so they must report data for the entire year.
As previously reported, a bipartisan group of seven U.S. Senators sent a letter, dated April 8, 2020, to U.S. Department of Treasury Secretary Steven Mnuchin, in his capacity as Chair of the Financial Stability Oversight Council (FSOC), urging prompt action to provide liquidity assistance to residential mortgage loan servicers.
The Senators stated that because mortgage loan servicers often must advance scheduled principal and interest payments to investors regardless of whether the borrowers actually make the payments, the advance obligation that results from borrowers obtaining mortgage loan payment forbearances under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), presents “an existential threat to these companies, and thus to the broader mortgage market.”
Shortly after the Senators sent their letter to Secretary Mnuchin, a group of 21 Republican members of the U.S. House of Representatives sent a letter, dated April 10, 2020, to Secretary Mnuchin similarly urging action to meet the liquidity needs of the mortgage servicing industry. The members state that “the unforeseeable nature of the present liquidity strain on the mortgage market, similar to many other sectors of our economy, is of a systemic nature, including the inability of the servicing industry to manage billions of dollars in principal and interest advances mandated by regulators and Congress . . . .” The members also note that once homeowners can return to their jobs and make their mortgage payments “it may become appropriate to talk about larger structural reforms to better handle events like this in the future. However, the current priority must be this liquidity crunch.” Twenty of the Representatives signing the letter are members of the House Financial Services Committee (HFSC).
And in a letter dated April 15, 2020, to Secretary Mnunchin and Federal Reserve Chairman Jerome Powell, Senator Sherrod Brown (D-OH), Ranking Member of the Senate Committee on Banking, Housing and Urban Affairs, and Representative Maxine Waters (D-CA), Chairwoman of the HFSC, sounded a similar theme. The letter provides that “[t]he government must be prepared to respond quickly to prevent a liquidity shortfall in the single-family and multi-family mortgage markets, and to ensure that consumers are equitably served by that response.” The letter notes that the Federal Reserve and Department of Treasury have established or announced that they will establish funding facilities to support corporate debt, asset-backed securities, small and mid-sized businesses, and states and localities.
On April 14, 2020, the federal banking agencies announced an interim final rule that will allow for appraisals and evaluations of homes and other real property to be obtained up to 120 days after closing. The federal banking agencies, along with the National Credit Union Administration (NCUA) and Consumer Financial Protection Bureau (CFPB), also issued an interagency statement addressing existing flexibilities in appraisal standards and regulations with regard to appraisals of homes and other real property. The interim final rule became effective immediately upon publication in the Federal Register (which occurred on April 17, 2020), and applies to transactions closed on or before December 31, 2020, unless the agencies extend the date. Comments on the interim final rule are due June 1, 2020.
Interim Final Rule. The federal banking agencies are the Comptroller of the Currency, Federal Deposit Insurance Corporation, and Federal Reserve Board. The interim final rule provides that the “completion of appraisals and evaluations required [by the appraisal rules of the federal banking agencies] may be deferred up to 120 days from the date of closing.” The deferral applies to all residential and commercial real estate transactions, other than acquisition, development, and construction loans.
In the supplementary information to the interim final rule, the federal banking agencies advise that they expect institutions that defer receipt of an appraisal or evaluation:
- “[T]o conduct their lending activity consistent with the underwriting principles in the agencies’ Standards for Safety and Soundness and Real Estate Lending Standards that focus on the ability of a borrower to repay a loan and other relevant laws and regulations.” (Footnotes omitted.)
- To use best efforts and available information to develop a well-informed estimate of the collateral value of the property.
- To adhere to internal underwriting standards for assessing a borrower’s creditworthiness and repayment capacity, and develop procedures for estimating the collateral’s value for the purposes of extending or refinancing credit.
Of course, deferring an appraisal or evaluation until after closing raises the possibility of an eventual valuation that is lower than expected. Addressing this elephant in the room, the agencies state that they “expect institutions to develop an appropriate risk mitigation strategy if the appraisal or evaluation ultimately reveals a market value significantly lower than the expected market value. An institution’s risk mitigation strategy should consider safety and soundness risk to the institution, balanced with mitigation of financial harm to COVID-19-affected borrowers.”
Interagency Statement. The interagency statement addresses the ability to defer an appraisal or evaluation under the interim final rule with regard to the requirement under the Equal Credit Opportunity Act (ECOA) and Regulation B (ECOA Valuations Rule) for a creditor to provide an applicant for a first lien residential mortgage loan with a copy of written appraisals or valuations developed in connection with the application prior to consummation of the loan. The agencies note that the ECOA Valuations Rule does not contemplate a post-consummation valuation of the property. As a result, the agencies state that they “will not take enforcement actions against institutions under the ECOA Valuations Rule for post-consummation valuations performed pursuant to the … interim final rule. Nevertheless, the agencies encourage institutions to provide borrowers with copies of such post-consummation valuations as promptly as practicable upon completion.”
With regard to existing appraisal flexibilities, the agencies note that:
- While the appraisal rules of the federal banking agencies and NCUA require that appraisals be conducted in compliance with the Uniform Standards of Appraisal Practice (USPAP), the rules do not require that an interior and exterior inspection of the property be performed, although such inspections are common.
- Consistent with USPAP, an appraiser can determine the characteristics of a property through other methods, including asset records, photographs, property sketches, and recorded media.
- Both desktop appraisals and exterior-only appraisals can fulfill the requirements of USPAP, as long as the analysis is credible. However, the agencies note that for certain higher priced mortgage loans an appraisal involving an interior inspection of the property is required.
- The appraisal rules of the federal banking agencies and NCUA except certain transactions from the requirement to have an appraisal performed by a certified or licensed appraiser. Among the excepted transactions are residential real estate transactions with a transaction value of $400,000 or less (federal banking agencies) or less than $250,000 (NCUA). The NCUA has proposed to increase the exception level to a transaction value less than $400,000. The agencies encourage institutions to make use of the various exceptions.
The agencies also note that the use of an existing appraisal or evaluation for a subsequent transaction may be particularly relevant during the COVID-19 emergency. After addressing relevant considerations, the agencies advise that an “institution’s determination of the validity of existing appraisals and evaluations used for subsequent transactions conducted during the COVID-19 emergency will not be subject to examiner criticism if it is consistent with safe and sound practices.”
The agencies also address the temporary flexibility regarding appraisals recently announced by Fannie Mae and Freddie Mac because of COVID-19.
In Ricco v. Sentry Credit, Inc., the U.S. Court of Appeals for the Third Circuit ruled that the Fair Debt Collection Practices Act does not require a written dispute to avoid an assumption by the debt collector that the debt is valid. Declining the opportunity to be “the ‘legal last-man-standing’ among the courts of appeals,” the en banc decision ended a circuit split by overturning the contrary 1991 ruling of a Third Circuit panel in Graziano v. Harrison. Since Graziano, all of the other circuits that have considered the issue have taken the position that a written dispute is not required.
FDCPA Section 1692g(a) requires a debt collector to send a written “validation notice” to a consumer within five days of the collector’s initial collection attempt and specifies what information the notice must contain. Subsection (a)(3) requires the notice to include a statement that the debt will be assumed to be valid by the debt collector unless the consumer disputes the debt within 30 days. It is silent, however, on what form the dispute must take to avoid that assumption.
In its en banc decision, the Third Circuit distinguished the language in FDCPA Section 1692g(a)(4) and (a)(5) and 1692g(b) from the language in Section 1692g(a)(3). Subsections (a)(4) and (a)(5), respectively, require a consumer to notify a debt collector in writing of a dispute to trigger the collector’s obligation to mail documentation verifying the debt and to make a written request to trigger the collector’s obligation to provide the original creditor’s name and address, if different from the current creditor. Subsection (b) requires a collector to stop collection efforts until verification is obtained if the debtor notified the collector in writing of a dispute or requested the creditor’s identity in writing.
Applying “one of the most venerable of our interpretative canons: the rule against surplusage,” the Third Circuit concluded that “injecting a writing requirement into (a)(3) effectively strikes that provision from the statute.” In its view, subsection (a)(3) merely restates the “truism” that:
[I]f the debtor disputes the debt, the collector must verify it at some point down the road. But (a)(4) and (b) demand that if the debtor disputes the debt in writing, the collector must prove its validity immediately. So if every dispute must be conveyed in writing, collectors must prove every dispute immediately—no collector can ever count on its future ability to prove a debt. Put differently, inserting a writing requirement into (a)(3) means that every dispute triggers (a)(4) and (b). That simply can’t be right. If every dispute triggers (a)(4) and (b), then (a)(3) has no meaning.
The Third Circuit observed that reading section 1692g(a)(3) to permit oral disputes “makes sense” because such reading “provides debtors multiple methods to dispute debts while assigning various rights depending on the method.” For example, according to the court, an oral dispute can still defeat the presumption of validity and prevent collectors from reporting the debt without noting the dispute but, unlike a written dispute, does not force the collector to immediately stop collection efforts, verify the debt, and respond. In addition, the Third Circuit determined that its reading of section 1692g(a)(3) was consistent with the provision’s plain meaning.
The Third Circuit also considered whether, despite its disagreement with Graziano, the principle of stare decisis would justify upholding that precedent. The court first observed that various factors unique to courts of appeals supported overturning Graziano, namely its belief that the panel that decided Graziano would decide it differently now, that Graziano “was only a panel decision” and the en banc Third Circuit had never expressed a view on the issue presented, and that its reading of section 1692g(a)(3) would end a circuit split “and restore national uniformity.” With regard to stare decisis considerations, the Third Circuit pointed to U.S. Supreme Court cases decided since Graziano that disfavor “atextual” interpretations of statutory language. It also observed that “any legitimate reliance interests seem minimal,” because “overturning Graziano merely requires debt collectors to prospectively tweak their collection notice template.”
Finally, the Third Circuit rejected the plaintiff’s request for its decision not to be given retroactive effect, and held that because the collection letter she received tracked the language of section 1692g(a)(3)-(5) “nearly word-for-word,” she could not have been misled about her dispute rights. While stating that its ruling should be applied retroactively in all open cases on direct review and to all events that predate or postdate the ruling, the Third Circuit commented that “we do not suggest that debt collectors who sent Graziano-compliant letters before today will be on the hook for failing to foresee our change in the law.”
The court expressed its “confidence” that district courts would appropriately exercise their discretion under various FDCPA provisions not to penalize collectors. Citing the FDCPA provision that provides a collector who acts in good faith in conformity with an agency advisory opinion cannot be held liable if that opinion is changed, rescinded or judicially invalidated, the Third Circuit stated that “collectors should [similarly] not be penalized for good-faith compliance with then-governing caselaw.” It also noted the FDCPA provisions that allow a district court to withhold damages for unintentional errors or trivial violations and award attorney’s fees to the collector if a debtor’s lawsuit was brought in bad faith for the purpose of harassment.
Regulatory and Litigation Risks to Consumer Financial Services Providers Highlighted in Ballard Spahr Webinar on COVID-19 Crisis Fallout
Our webinar, “Consumer Financial Regulatory and Litigation Fallout from the COVID-19 Crisis,” in which we were joined by special guest speakers Richard Cordray, former CFPB Director, and John Roddy, Partner at Bailey & Glasser and prominent plaintiffs’ class action lawyer, highlighted the regulatory and litigation risks the crisis is expected to create for members of the consumer financial services industry. Chris Willis, Practice Leader of Consumer Financial Services Litigation at Ballard Spahr, also participated in the webinar, and Alan Kaplinsky, Practice Leader of the firm’s Consumer Financial Services Group, moderated the webinar.
Mr. Roddy discussed the emergency debt collection regulation issued by the Massachusetts AG and the possibility of state UDAP claims based on collection activities during the crisis. Mr. Cordray discussed the CFPB’s authority in the areas of mortgage and student loan servicing, debt collection and credit reporting, and referenced a white paper he published yesterday directed to CFPB Director Kraninger and various Senate and House members setting forth immediate actions the CFPB should take to prevent consumer harm, including the following:
- Using its supervisory authority to closely monitor banks, financial companies, and mortgage loan servicers to make sure they follow through in making the mortgage relief required by the CARES Act available to consumers and for mortgage loans not covered by the CARES Act, working with lenders and servicers to try to develop similar arrangements for payment forbearance and loan modifications.
- Pressing companies to offer help to consumers to minimize loan delinquencies and defaults, such as by waiving overdraft fees, NSF fees, or late fees and by providing forbearance on loan payments.
- Issuing guidance reminding debt collectors that the FDCPA prohibits any conduct “the natural consequence of which is to harass, oppress or abuse any person in connection with the collection of a debt” or any conduct that is “unfair or unconscionable” and outlining parameters that debt collectors should observe to avoid engaging in conduct that is abusive or unconscionable, such as refraining from initiating new debt collection lawsuits, garnishing wages, or attaching bank accounts.
With regard to the question of whether the CFPB should adopt measures like the Massachusetts AG’s emergency debt collection regulation, Chris Willis questioned whether the CFPB would have the authority to adopt a similar measure that barred certain collection activity. Also discussed was the ability of states to enact laws that require changes to the terms of credit, such as waiving late fees, changing due dates, or stopping interest accrual, including the impact of federal preemption on national banks and federal savings associations.
All of the speakers stressed the need for companies to identify potential sources of risk in their operations and attempt to address those risks in advance. Examples given of operational areas that could be impacted by employees working remotely and create compliance and reputational risks included call centers and customer service, collections, dispute investigation, loss mitigation, fraud investigation/ID monitoring, and compliance monitoring. The speakers discussed the types of industry practices that might be viewed as unfair and thus trigger scrutiny from regulators such as continuing to charge for goods or services that cannot be provided during the crisis or initiating automatic charges via credit or debit cards or ACH during a government-ordered grace period. Another potential area of risk highlighted by Chris Willis was fair lending issues that could arise from the handling of modification and forbearance requests.
On April 8, 2020, Fannie Mae, in an update to Lender Letter 2020-02, and Freddie Mac, in Bulletin 2020-10, announced updates to their temporary servicing guidance due to COVID-19. The revised guidance accounts for the adoption of the Coronavirus Aid, Relief and Economic Security Act (CARES Act). Fannie Mae and Freddie Mac remind servicers of the requirement to comply with applicable law, and Fannie Mae notes this requirement applies even if a provision of the Servicing Guide may conflict with applicable law.
Forbearance. As provided for in the CARES Act, 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.
While a borrower may request a CARES Act forbearance regardless of whether they are delinquent on their federally backed mortgage loan, Fannie Mae and Freddie Mac have requirements to establish qualified right party contact (QRPC) with delinquent borrowers and to work with such borrowers to determine the best solution. Fannie Mae and Freddie Mac advise as follows:
Fannie Mae: “As described in Servicing Guide D2-2-01, Achieving Quality Right Party Contact with a Borrower, QRPC is a uniform standard for communicating with the borrower, co-borrower, or a trusted advisor (collectively referred to as “borrower”) about resolution of the mortgage loan delinquency. We reaffirm the applicability of QRPC when working with a borrower impacted by COVID-19 to ensure the servicer understands the borrower’s circumstances and determines the best possible workout option for resolving the borrower’s delinquency. In the event that the servicer is unable to achieve full QRPC and offers a forbearance plan to a borrower impacted by COVID-19 in compliance with the CARES Act, the servicer is considered to be in compliance with our Servicing Guide.”
Freddie Mac: Freddie Mac provides guidance similar to the Fannie Mae statement, and Freddie Mac also states: “As required by the Guide, Bulletin 2020-4 and this Bulletin, the Servicer must make good faith efforts to establish QRPC with the Borrower in order to evaluate the Borrower for a forbearance plan, and the length of each forbearance plan term must be for an appropriate length, based on the Borrower’s individual circumstances and nature of the hardship, and must be agreed upon with or requested by the Borrower. In the event the Servicer and Borrower cannot agree on an appropriate forbearance length, or further communication with the Borrower is not possible under the circumstances, the Servicer must provide the term requested by the Borrower, not to exceed 180 days.”
Fannie Mae advises that it is temporarily eliminating the requirement that servicer must receive prior written approval for a forbearance plan that would result in the mortgage loan becoming greater than 12 months delinquent. Similarly, Freddie Mac advises that it is temporarily waiving the requirement that a forbearance plan may not extend beyond a date that would cause the delinquency to exceed a cumulative total of 12 months of the borrower’s contractual monthly mortgage payment.
Fannie Mae instructs servicers that they must inform a borrower who a received a CARES Act forbearance of the ability to shorten the forbearance plan term at any time to reduce the amount of payments that are being delayed or reduced. Fannie Mae also advises that it is eliminating the requirement set forth in prior guidance that the servicer determine the occupancy status of the property when achieving QRPC and evaluating a borrower impacted by COVID-19 for a workout option prior to expiration of the forbearance plan.
Foreclosure Activities. Fannie Mae and Freddie Mac advise that servicers must suspend foreclosure activities through May 17, 2020 in accordance with the CARES Act. For borrowers who are in bankruptcy, (1) Fannie Mae advises that it is temporarily suspending the requirement that servicers file motions for relief from the automatic stay, and (2) Freddie Mac advises that it is temporarily relieving servicers of their responsibility to meet the timelines in the guide for filing a motion for relief from the automatic stay, and that servicers must continue to work with bankruptcy counsel to determine the appropriate time to file such a motion.
Credit Reporting. The CARES Act amended the Fair Credit Reporting Act (FCRA) to provide that, if a furnisher 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 already were delinquent before the accommodation was made, the furnisher is permitted to continue reporting the account as delinquent, unless the consumer brings the account current.
Fannie Mae and Freddie Mac advise servicers that they must comply with the requirements of the FCRA, as amended by the CARES Act.
Disaster Guidance. Freddie Mac advises that, while it leveraged some of its guidance for disasters with regard to addressing the COVID-19 national emergency, its requirements for the emergency differ from the requirements regarding disasters and that servicers should follow the disaster guidance in connection with the emergency only when expressly advised to do so by Freddie Mac.
A bipartisan group of U.S. senators sent a letter dated April 8, 2020, to U.S. Department of Treasury Secretary Steven Mnuchin, in his capacity as Chair of the Financial Stability Oversight Council (FSOC), urging prompt action to provide liquidity assistance to residential mortgage loan servicers.
The senators address the mortgage loan payment forbearance relief provided for in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and state it is likely that many families will be unable to make their mortgage payments as scheduled, which will result in widespread participation in the CARES Act forbearance program. The senators note that up to 25 percent of borrowers may seek assistance. Because mortgage loan servicers often must advance scheduled principal and interest payments to investors regardless of whether the borrowers actually make the payments, the senators caution that the advance obligation that results from CARES Act forbearances presents “an existential threat to these companies, and thus to the broader mortgage market.” The senators refer to a Mortgage Bankers Association (MBA) estimate that the advance obligation could reach $100 billion.
Addressing a concern that “some nonbank lenders may have adopted practices that made them particularly susceptible to constraints on their liquidity during a severe downturn,” the senators argue that this is not a reason to refrain from providing liquidity assistance now. Specific points asserted by the senators include that (1) “even if there are servicers whose thin capital and poor risk management structure make them inappropriate for assistance, ignoring the broader liquidity strain on the market right now would risk stress well beyond these companies” and (2) “the focus now should not be on longer-term reform [with regard to servicer liquidity], but on ensuring that the crisis now unfolding does as little damage to the economy as possible.”
The senators signing the letter to Secretary Mnuchin are Mark R. Warner (D-VA), M. Michael Rounds (R-SD), Robert Menendez (D-NJ), Thom Tillis (R-NC), Tim Kaine (D-VA), Jerry Moran (R-KS), and Tim Scott (R-SC).
The position of the senators is in stark contrast with the position of Federal Housing Finance Agency (FHFA) Director Mark Calabria, as reflected in a report from HousingWire. According to the report, Director Calabria believes that the level of forbearances will be nowhere near the 20 to 50 percent level that some are suggesting, and that if there are servicers that are having difficulty dealing with the advance obligation, FHFA would not provide liquidity assistance, but would have Fannie Mae and Freddie Mac use their ability to transfer the servicing to another servicer. And with regard to the transfer of servicing, Director Calabria indicated that the borrower experience would be better when moving from a small servicer to a large servicer. The Director’s statements drew sharp criticism from MBA President and CEO Robert Broeksmit, CMB.
In an MBA release, Mr. Broeksmit stated “[s]ervicers are required to offer borrowers widespread forbearance under a plan devised and approved first by FHFA and then codified by the CARES Act. Fannie Mae and Freddie Mac are contractually obligated for the payments to investors. Since Fannie Mae and Freddie Mac will eventually reimburse mortgage servicers for the payments they must advance during forbearance, Director Calabria should advocate for the creation of a liquidity facility at the Fed to ensure the stability of the housing finance market.” Mr. Broeksmit also stated that “[w]e . . . strongly disagree with [the Director’s] characterization of the customer experience as it relates to the size of a mortgage servicer. Millions of Americans are well-served by their local independent mortgage bank, community bank, or credit union, and many chose to obtain their mortgage from those institutions for that precise reason.” On April 4, 2020, the MBA joined a group of financing and housing advocates in issuing a statement calling on government regulators to provide a source of liquidity for mortgage servicers in view of the advance obligation associated with CARES Act forbearances.
FHA approved lenders may request access to the FHA Catalyst case binder module and claims module via the FHA Resource Center at email@example.com or 1-800-Call FHA (1-800-225-5342).
Podcast: Dodd-Frank Act Section 1071 Rulemaking: A Close Look at the Settlement in the Lawsuit Against the CFPB
We are joined by Nitin Shah of Democracy Forward, attorney for the plaintiffs in the lawsuit brought to compel the CFPB to issue rules implementing Section 1071 of the Dodd-Frank Act. Section 1071 requires financial institutions to collect and report race, ethnicity, and other data in connection with credit applications made by women-or minority-owned and small businesses. We discuss the lawsuit’s basis, the rulemaking deadlines in the settlement and expected rulemaking timeline, and substantive issues that the rules are likely to address.
Click here to listen to the podcast.
A unanimous three-judge panel of the U.S. Court of Appeals for the Second Circuit, in Duran v. La Boom Disco, Inc., handed a win to the plaintiffs’ bar by holding that the Telephone Consumer Protection Act’s (TCPA) statutory definition of an automatic telephone dialing system (ATDS) includes telephone equipment that can automatically dial phone numbers stored in a list, rather than just phone numbers that the equipment randomly or sequentially generates. The decision widens a circuit split, with the Second Circuit agreeing with the Ninth Circuit’s broad reading in Marks v. Crunch San Diego and rejecting the narrower ATDS definition adopted by the Third, Seventh, and Eleventh Circuits.
In Duran, the plaintiff sued La Boom Disco (LBD) claiming that LBD violated the TCPA by sending him hundreds of unsolicited text messages over a period of more than a year. The numbers to which messages were sent by the online systems used by LBD were generated by and uploaded by humans to the systems. The district court granted summary judgment to LBD after finding that the online systems it used to send the text messages were not ATDSs because a human determines the time at which the systems sends messages to recipients, thereby requiring too much human intervention to meet the ATDS definition.
Based on the statutory definition, the Second Circuit considered two questions: (1) whether LBD’s texting systems had the “capacity…to store or produce numbers to be called, using a random or sequential number generator”; and (2) whether the systems had the “capacity…to dial such numbers.”
As to the first question, the Second Circuit concluded that for a dialing system to qualify as an ATDS, “the phone numbers it calls must be either stored in any way or produced using a random-or sequential-number-generator.” (emphasis added). It ruled that LBD’s systems qualified as ATDS because the numbers to be called were “stored” by the systems and thus not subject to the additional requirement that they be randomly or sequentially generated. In other words, “the mere fact that the programs ‘store’ the lists of numbers is enough to render them ATDSs.”
As to the second question, the Second Circuit found it necessary to determine “how much [human] intervention is tolerable under the statute before an ATDS becomes a non-ATDS.” It rejected the district court’s view that “the human-intervention test turns not on whether the user must send each individual message, but rather on whether the user (not the software) determines the time at which the numbers are dialed.’ (emphasis included). More specifically, the Second Circuit did not agree that the human intervention test turns solely on the timing factor and instead looked at what it means to “dial” numbers without human intervention.
It observed that the verb “to dial,” as now commonly used, refers to “the specific act of ‘inputting’ some numbers to make a telephone operate, and to connect to another telephone.” In its view, “clicking ‘send’ or some similar button—much like flipping an on switch—is not the same thing as dialing, since it is not the actual or constructive inputting of numbers to make an individual telephone call or to send an individual text message. Clicking ‘send’ does not require enough human intervention to turn an automatic dialing system into a non-automatic one.” Because LBD’s systems “only required a human to click ‘send’ or some similar button in order to initiate a text campaign,” the Second Circuit concluded that the systems did not require human intervention to dial and therefore had the second capacity necessary to qualify as ATDSs (namely, the ability to dial numbers automatically on their own).
Accordingly, the Second Circuit held that LBD’s systems were ATDSs because they store lists of numbers and dial those stored numbers without human intervention. In a footnote, it anticipated criticism that “by relying on an antiquated notion of ‘dialing,’” we are unintentionally defining all smartphones as ATDSs, since clicking on a name in a digital phonebook to make a phone all or send a text message looks the same as clicking ‘send’ to initiate a text campaign. No inputting of numbers takes place.” The Second Circuit deemed these actions “quite different” because “clicking on a name in a digital phonebook to initiate a call or text is a form of speed-dialing or constructive dialing that is the functional equivalent of dialing by inputting numbers.” In contrast, it observed, someone who clicks on the “send” button in programs such as those used by LBD is not dialing a particular attached number but “is accomplishing a different task altogether: it is telling the ATDS to go ahead and dial a separate list of contacts, often numbering he hundreds or thousands.”
Duran now makes both the Second and Ninth Circuits magnets for TCPA litigation. The good news is that by widening the circuit split, Duran may propel the FCC to finally move forward in its pending public notice proceeding initiated in 2018 from which further guidance on the ATDS definition had been expected or may result in the U.S. Supreme Court deciding the issue once and for all.
Ginnie Mae Announces Expanded Pass-Through Assistance Due to COVID-19 With an Initial April 13 Application Deadline
In All Participants Memorandum 20-03, dated April 10, 2020, Ginnie Mae announced revised and expanded issuer assistance with respect to the requirement to advance principal and interest payments due holders of mortgage-backed securities in view of the COVID-19 national emergency. Ginnie Mae also issued two related agreements, a Request and Repayment Agreement and a Master Supervisory Agreement. The initial deadline to request assistance is April 13, 11:59 PM ET.
The assistance will be provided under the Pass-Through Assistance Program (PTAP). Ginnie Mae advises that assistance rendered under PTAP in connection with the COVID-19 national emergency (PTAP/C19) is to be considered an extraordinary measure, for use when other resources have been exhausted and with the requirement of full repayment by the issuer.
The amount of assistance advanced by Ginnie Mae will bear a fixed rate of interest that will apply to a given month’s pass-through assistance to all issuers. The applicable interest rate will be posted on Ginnie Mae’s website on the second business day of each month. Ginnie Mae advises that a request for assistance, and the actual provision of assistance, under this program will not, in and of itself, constitute a basis for default under the Ginnie Mae Guaranty Agreement. However, any breach of the Master Supervisory Agreement or related Request and Repayment Agreements will constitute an event of default under the Master Supervisory Agreement and related Request and Repayment Agreements, the MBS Guide and the Guaranty Agreement.
Requests for assistance under PTAP/C19 may be made once per month and must relate to the principal and interest remittance due security holders for that month. PTAP/C19 funds may be used only to cover shortfalls in the principal and interest owed to security holders associated with loans that are delinquent, which includes loans in forbearance, as of the date that each request for assistance is submitted. Funds may not be used to cover other issuer operational or servicing costs.
For April 2020 remittances, the deadline to request PTAP/C-19 assistance was April 13, 2020, 11:59 PM ET.
The U.S. Department of Veterans Affairs (VA) issued Circular 26-20-13, dated April 10, 2020, to revise guidance on valuation and appraisal requirements due to the COVID-19 national emergency. Previously, the VA provided guidance on valuation and appraisal requirements due to the emergency in Circular 26-20-11. Circular 26-20-11, which was dated March 27, 2020, was rescinded upon the issuance of Circular 26-20-13. The VA also issued an Exhibit A to Circular 26-20-13, which is a modified version of the Exhibit A that accompanied Circular 26-20-11.
The VA advises that it revised the prior guidance based on the rapidly changing environment in the mortgage banking industry caused by COVID-19, as well as feedback from multiple sources on Circular 26-20-11. The revised guidance is effective for all loans for which the application date is on or after the date of the Circular (April 10, 2020) and until further notice or the rescission of the Circular, which is scheduled for April 1, 2021. The guidance in Circular 26-20-11 was effective for all loans closed on or after March 27, 2020, until the rescission of the Circular. The VA did not expressly address what guidance applies to loans for which the application date is before April 10, 2020, and has not yet closed.
Exterior Only and Desktop Appraisals. In Circular 26-20-11, the VA announced the ability to use an exterior-only or desktop appraisal in certain situations, and the VA expands the ability to use such appraisals with Circular 26-20-13. The general guidance is that an exterior-only appraisal with enhanced assignment conditions is permitted for purchase or refinance transactions, subject to the requirements outlined in Circular 26-20-13, when the appraiser’s assigned geographic jurisdiction does not have restrictions imposed by authorities prohibiting individuals leaving their domicile, such as mandatory quarantine. The VA advises that appraisers should refer to their state or local authorities to determine if they are deemed an essential part of the financial transaction for mortgage lending. The VA also advises that lenders should not request an exterior-only appraisal if the loan amount will be more than one and a half times the applicable 2020 Freddie Mac conforming loan limit for a one-unit property in the area. Exterior-only appraisals will be permitted for liquidation appraisals without the need for the enhanced assignment conditions.
A desktop appraisal for loans that do not exceed the applicable 2020 Freddie Mac conforming loan limit for a one-unit property in the area is permitted, subject to the requirements outlined in Circular 26-20-13, when the appraiser’s assigned geographic jurisdiction has restrictions imposed by authorities prohibiting individuals leaving their domicile, such as mandatory quarantine, or not deemed an essential part of the financial transaction for mortgage lending. While desktop appraisals are permitted for cash-out refinance transactions, appraisers must prioritize appraisals for purchase transactions.
The VA advises that lenders must state in both the “public” notes in WebLGY and by email to the appraiser if they will accept a desktop appraisal. If the lender will not accept a desktop appraisal, the appraiser must advise the VA Regional Loan Center (RLC) to place the assignment on hold for 30 days and then subsequently cancel, if the status has not changed.
Desktop appraisals will not be permitted for liquidation appraisals.
Appraisals based on an inspection of the interior of the property will be required with purchase transactions involving vacant property. However, the interior inspection is allowed only when the appraiser poses no harm to themselves or others.
Various Topics. The VA advises that:
- With regard to reconsiderations of values (ROV):
- For purchase transactions, an ROV will be restricted to no greater than 7 percent from the appraiser’s opinion of value or $10,000, whichever is greater. This is changed from the guidance in Circular 26-20-11.
- For cash-out refinance and liquidation transactions, the VA is suspending ROV requests. This is consistent with the guidance in Circular 26-20-11.
- Consistent with the guidance in Circular 26-20-11, “[i]n extreme cases when an appraiser is not available to complete an appraisal assignment for a purchase, VA has the authority and ability to issue a Memorandum of Value [and this] will be completed on a case-by-case basis.”
- Consistent with the guidance in Circular 26-20-11, appraisers are to suspend any alteration and repair assignments until further notice. Lenders have two options with regard to repairs. They have the authority and “are encouraged” to certify repairs, especially repairs performed by licensed personnel (although certifications that may involve lead-based paint repairs still must be completed by an appraiser). Lenders also can use the completion escrow approach. With the latter approach, all repairs must be completed and escrowed funds disbursed before the loan may be guaranteed, and there must be adequate assurance that the work will be completed timely (up to 180 days) and satisfactorily. New guidance in Circular 26-20-13 provides when the appraisal has found repairs with a purchase transaction, the lender has the option to close the loan when the veteran accepts responsibility to complete the repairs within 180 days of the closing of the loan and the home is habitable by conventional standards. The time for completion of the repairs may be extended if warranted. Re-inspection will be required upon the completion of the repairs.
- When an interior inspection of the property will be performed, for the safety of the veteran and appraiser, certain communications between the veteran, lender, and appraiser must occur. The guidance is consistent with the guidance in Circular 26-20-11, with an update applicable to appraisers.
Termite Inspections. The VA updates the guidance from Circular 26-20-11, and advises that (1) if there is known or visible evidence of termite infestation present, the seller and real estate broker/agent must provide a certification to that fact and the veteran must acknowledge that no inspection was completed (and the VA recommends that the veteran complete an inspection once the national emergency has ended), and (2) if there is known or visible evidence of termite infestation, a clear termite report must be provided within one year of the close of escrow.
NOV Conditions. Consistent with Circular 26-20-11, the VA advises that any additional items that need to be met on the Notice of Value (NOV) to comply with VA requirements must be met within 180 days from the date of the NOV issuance, and the veteran must acknowledge and accept any and all conditions not met prior to closing. However, the VA now expressly adds that when there are clear and obvious minimum property requirement related issues that would render the home uninhabitable, a guaranty will not be issued until all repairs are completed.
Exhibit A. Exhibit A to the Circular sets forth an updated Modified Set of Instructions, Scope of Work, Statement of Assumptions and Limiting Conditions and Certification.
In Circular 26-20-12, dated April 8, 2020, the U.S. Department of Veterans Affairs (VA) updated its prior guidance on the relief available to VA loan borrowers based on the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Eligibility for Forbearance. VA advises that the relief is available to a borrower with a VA-guaranteed loan or a VA-held loan who is experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency. VA confirms the ability of such a borrower to obtain a loan forbearance, regardless of whether or not they are delinquent, by submitting a request to the servicer and attesting that the borrower is experiencing a financial hardship due to the COVID-19 emergency.
The CARES Act provides that 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. VA states that “[t]he borrower, not the servicer, is entitled to determine the period of the forbearance, subject to the statutory limit of up to 360 days.”
Exiting Forbearance. The VA states that “[t]he servicer must ensure the borrower has been given every opportunity to pursue all possible loss mitigation options in order to bring their loan current. Failure to do so could impact a future claim payment and could lead to other legal or administrative action(s) against the servicer.”
VA advises that no later than 30 days before the scheduled end of a forbearance period, a servicer must review the loan file for all possible loss mitigation options, and the servicer should document this review in the loan file. VA notes that among the various loss mitigation options set forth in the VA Servicer Handbook are the following:
- Repayment plans.
- Loan modifications.
- Streamline modifications.
- VA Affordable modifications.
- VA Disaster modifications.
- Disaster Extend modifications.
VA states that a servicer may not require the borrower to repay the total amount of the forborne payments in a lump sum, except if the amount would be payable at the end of the loan. The VA notes that the borrower may opt to make a lump sum payment in lieu of a loss mitigation option.
If the servicer determines that no loss mitigation options are possible and the borrower has equity in the home, the servicer must refer the file to the relevant Regional Loan Center and VA will consider a refunding of the loan. If a refunding is not possible, then the servicer should consider foreclosure alternatives.
Foreclosure Moratorium. The VA also addresses the foreclosure moratorium under the CARES Act. The CARES Act 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. Before the adoption of the CARES Act, the VA issued guidance strongly encouraging mortgage servicers to observe a foreclosure and eviction moratorium for the same 60-day period. The VA now conforms its guidance with the foreclosure moratorium provided for in the CARES Act.
We recently provided an update in a case we’ve been following involving a lawsuit challenging a Nevada statute, SB 311, that allows an applicant for credit with no credit history to request that a creditor treat an applicant’s credit history as identical to that of the applicant’s spouse during the marriage.
Since our last blog post, the plaintiffs in the case, which consist of several industry trade groups, have responded to the defendants’ most recent motion to dismiss. Responding to the defendant’s contention that the case is not constitutionally ripe for adjudication due to the absence of allegations of concrete harm, plaintiffs argue that they have alleged “specific facts illustrating how their members have incurred concrete harm as a result of SB 311.” A central argument advanced by the plaintiffs is that federal law preempts SB 311. They point to operational and compliance issues (and related costs) encountered as a result of trying to comply with both the new Nevada statute and existing federal law. Asserting that they have demonstrated actual, present harm, the trade groups argue that an “inability to establish reliably sound compliance management systems exposes [their] members right now to increased legal and reputation risks and enforcement actions.”
The plaintiffs also claim that they have alleged facts showing a “realistic threat that SB 311 will be enforced” against their members, citing the state’s decision not to stay enforcement of SB 311 and Attorney General Ford’s record of prioritizing anti-discrimination policies.
The Office of Servicemember Affairs (OSA) released its annual report covering the Office’s activities during fiscal year 2019, which covers the period of October 1, 2018 to September 30, 2019.
Noteworthy items include:
- Top Complaints Received from Military Consumers During FY19. In FY19, the same overall number of complaints (34,600) were submitted as in FY18. Complaints were received from servicemembers in all 50 states and the District of Columbia, with the largest number of complaints coming from California, Texas, and Florida (states that the OSA pointed out have the largest veteran concentrations). The top five areas of complaints were received regarding:
- Credit or consumer reporting (36%): Of these, the largest number of complaints focused on incorrect credit reporting, followed by problems with investigations into existing credit or consumer reporting issues.
- Debt collection (25%): The largest number of debt collection complaints concerned “attempts to collect debt not owed” for miscellaneous products and services such as phone bills, health club memberships, and home utility services, followed by credit card debt.
- Mortgage (10%): Of these, the largest number of complaints concerned conventional home mortgages followed by VA mortgages. The majority of complaints involved “trouble during payment process.”
- Credit card (8%): Complaints regarding credit cards touched on a variety of issues including problems with purchases shown on statements, complaints concerning fees or interest or other credit card features or terms, complaints concerning getting a credit card, and problems making payments. Notably, only 2 percent of servicemember complaints involved struggling to pay their credit card bills.
- Checking or savings accounts (7%): The majority of complaints in this category focused on issues with managing an account.
Smaller numbers of complaints were also received regarding student loans, vehicle loans or leases, money transfers, money services and virtual currencies, personal loans, prepaid cards, payday loans, credit repair, and title loans. The largest number of complaints regarding personal and payday loans involved military consumers complaining they were charged unexpected fees or interest.
The demographic data that was collected suggests veterans (47%) submitted more complaints than other categories of military consumers, and more complaints were made by military consumers associated with the United States Army (37%) than other branches of service.
- Research Reports in FY19. The OSA, the Office of Financial Education, and the Office of Research issued two reports this year regarding studies of military consumers.
- Survey Results on Financial Well-being of Veterans. The Bureau analyzed nationwide financial well-being survey results and focused on statistically significant survey response data from veterans. The Bureau concluded that veterans who took the survey reported higher levels of financial well-being than the average U.S. adult.
- VA-Home Loans. The Bureau analyzed servicemember first-time homebuyer data over a ten-year period from 2006-2016. It found a marked increase in VA-home loans, increasing from 30 percent of loans before 2007 to 78 percent of loans in 2016.
- Educational Activities and Coordination with Other Federal and State Government Agencies. The OSA engaged in numerous activities to educate and empower military consumers regarding consumer financial products and services along with coordination with other federal and state government agencies
- MiMM. The OSA continued to develop its flagship tool, Misadventures in Money Management (MiMM), a choose-your-own adventure style interactive graphic novel that takes users through a variety of real life financial choices. In 2018, the OSA launched a new government website (MiMM.gov) to make it easier to access. Overall, 74% of players who completed the MiMM game-based training scored higher on the post-assessment than they did on the pre-assessment.
- Factsheets and Pamphlets. The OSA also developed educational factsheets, pamphlets, and other documents to provide relevant and timely information to military consumers regarding the Servicemembers Civil Relief Act (SCRA), the Military Lending Act (MLA), the financial well-being of veterans, VA mortgage lending, foreclosure protections, medical debt, and credit reporting/monitoring for military consumers.
- Outreach efforts. During FY19, the Bureau taught military attorneys how to spot consumer protection issues when providing legal assistance and engaged in outreach efforts to military consumers in-person, through e-mail and social media campaigns, and the Bureau’s online consumer education tool, Ask CFPB.
- Multi-agency coordination. Several agencies collaborated to develop an outreach program for veteran nursing homes and other veteran meal-service organizations to educate older veterans about scams involving VA benefits through information on food placemats. The Bureau also collaborated with FTC to develop a four-part blog post series to educate military consumers about the car-buying process, shopping for auto financing, assessing whether to purchase a new or used car, how to trade in a car, and identifying add-on products.
On April 14, 2020, Fannie Mae again updated Lender Letter 2020-04 and Freddie Mac issued Bulletin 2020-11 to further revise their guidelines regarding mortgage loan originations in view of COVID-19 with regard to appraisals and project eligibility reviews for condominiums. The temporary flexibilities apply to loans with application dates on or before May 17, 2020. Freddie Mac also updated guidance on post-funding quality control requirements and remote online notarization (RON).
The Federal Trade Commission recently published guidance to mortgage borrowers regarding relief that may be available to them because of the COVID-19 emergency.
The FTC addresses the foreclosure moratorium and forbearance relief provided for in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) for federally-backed mortgage loans. The FTC explains the types of loans that are federally-backed loans, and provides instructions on how a borrower can determine if their loan is owned by Fannie Mae or Freddie Mac.
The FTC recommends that mortgage borrowers contact their servicers regardless of the loan type they have, noting that even if they don’t have a loan eligible for a CARES Act forbearance they may be eligible for other relief. The FTC advises that a forbearance is not loan forgiveness, and recommends that borrowers ask their servicers what happens when the forbearance ends (and the FTC provides a link to a Consumer Financial Protection Bureau video on the subject). Mortgage servicers take note, the FTC states that “[y]our servicer should be able to tell you if it will extend the loan term so you can make the missed payments later, if your monthly payments will go up to make up the difference, if you will owe the entire unpaid amount in a lump sum, and how [forbearance] could affect your credit.” Mortgage servicers likely are waiting to see how long forbearance periods may run before determining the specific methods that borrowers will have to make the missed payments, and the potential for legislation in this area must be considered. The U.S. Department of Veterans Affairs has expressly stated that a servicer may not require the borrower to repay the total amount of the forborne payments in a lump sum, except if the amount would be payable at the end of the loan.
The FTC also advises mortgage borrowers how to get in contact with a counselor approved by the U.S. Department of Housing and Urban Development, and that the borrower’s state may offer relief, such as a moratorium on foreclosures.
The FTC ends the guidance by cautioning mortgage borrowers about scammers who may be trying to take advantage of borrowers who are facing financial difficulty, and advising borrowers not to pay in advance for a party to help them with their mortgage. The FTC notes the federal law prohibition against firms receiving a payment for assisting a borrower with their loan until the borrower has accepted a written offer for a loan modification or other relief from their lender or servicer.
The FTC guidance may be helpful to mortgage servicers in developing communications with borrowers.
In this podcast, we are joined by Richard Cordray, former CFPB Director, and John Roddy, prominent plaintiffs’ class action lawyer, for a discussion of regulatory and litigation risks the crisis is expected to create for the consumer financial services industry. Topics include: industry practices that could trigger regulators’ scrutiny; operational areas impacted by working remotely that create compliance risks; fair lending issues arising from loan modifications/forbearances; state authority to change credit terms.
To listen to the podcast, click here.
To access the slides referenced in the podcast, click here.
A group of attorneys general (AGs) from twenty-one states, the District of Columbia, and Puerto Rico has sent a letter to CFPB Director Kraninger requesting that the CFPB immediately withdraw its guidance regarding credit reporting during the COVID-19 pandemic and “resum[e] vigorous oversight of consumer reporting agencies and enforcement of the FCRA.”
The AGs have two objections to the guidance. First, they claim that the CFPB suggests in the guidance that it will not enforce the CARES Act provision that requires lenders to continue reporting loans as current if they are subject to a forbearance or other accommodation, as long as the loans were current before the accommodation was made. Second, they claim that the CFPB also suggests that it will no longer take enforcement or supervisory actions against consumer reporting agencies (CRAs) for failing to investigate consumer disputes in a timely fashion. The AGs assert that they “will not hesitate to enforce the FCRA’s deadlines against companies that fail to comply with the law.”
The AGs’ claims regarding what the CFPB’s suggests in the guidance mischaracterizes what the CFPB actually stated. With regard to the CARES Act provision on credit reporting, the CFPB stated that it “expects furnishers to comply with the CARES Act and will work with furnishers as needed to help them do so.” With regard to investigating disputes, the Bureau stated that, in evaluating FCRA compliance as a result of the pandemic, it “will consider a consumer reporting agency’s or furnisher’s individual circumstances and does not intend to cite in an examination or bring an enforcement action against a consumer reporting agency or furnisher making good faith efforts to investigate disputes as quickly as possible, even if dispute investigations take longer than the statutory framework.”
Contrary to the AGs’ mischaracterizations, there is no suggestion by the CFPB in the guidance that it does not intend to enforce the CARES Act’s credit reporting provision. There is also no suggestion by the CFPB that it will no longer take enforcement or supervisory actions against furnishers or CRAs for not meeting dispute investigation deadlines. Rather, the CFPB has made clear that it does intend to take action against furnishers and CRAs that take longer than the statutory timeframes to investigate a dispute and will not do so only where, in light of a furnisher’s or a CRA’s individual circumstances, the furnisher or CRA made good faith efforts to investigate the dispute as quickly as possible.
The CFPB and the Federal Housing Finance Agency (FHFA) have announced a new joint initiative, the “Borrower Protection Program.” The initiative is intended to enable the agencies to share mortgage servicing information during the COVID-19 pandemic.
According to the CFPB’s press release, the CFPB will make complaint information and analytical tools available to the FHFA via a secure electronic interface and the FHFA will make available to the Bureau information about forbearances, modifications and other loss mitigation initiatives undertaken by Fannie Mae and Freddie Mac.
The press release quotes CFPB Director Kraninger’s statement that through the program, “the Bureau will share our insights with FHFA and ensure we get their data on how mortgage servicers are working with their customers during this critical time and going forward.” Also quoted is FHFA Director Calabria’s statement that “[b]orrowers are entitled to accurate information about their forbearance options” and that “[t]his partnership with CFPB ensures FHFA can address misconceptions stemming from consumer complaints by working with Fannie and Freddie servicers.”
In Mortgagee Letter 2020-07, dated April 6, 2020, the U.S. Department of Housing and Urban Development (HUD) announced the acceleration of the development and deployment of the FHA Catalyst system to permit lenders to electronically submit cases binders for endorsement of FHA loans in certain situations in view of the COVID-19 national emergency. HUD states that the “system, while limited in initial functionality, will enable [lenders] and FHA to continue to provide mortgages and mortgage insurance functions critical to the stability of the housing market during this emergency.”
The ability to use the case binder module of FHA Catalyst to submit case binders is limited to certain situations. With forward mortgages, lenders that are Lender Insurance Mortgagees, but not approved for electronic case binder submission through FHA Connection, may use the case binder module of FHA Catalyst to submit (1) case binders for severe case warnings and (2) if the lender has conditional direct endorsement approval, case binders for the initial submission of test cases. With home equity conversion (i.e., reverse) mortgages (HECMs), lenders may use the case binder module of FHA Catalyst for the submission of case biders associated with the endorsement of HECMs for the following processes: the initial case binder submission, notice of return case binder resubmission, and test case binder submission.
HUD notes that the case binder module of FHA Catalyst may not be used for the delivery of forward or HECM case binders selected for post endorsement review.
In a separate mortgage letter, Mortgagee Letter 2020-08, HUD announced the availability of FHA Catalyst for FHA approved lenders and/or their authorized users to electronically transmit supplemental claim packages.
FHA approved lenders may request access to the FHA Catalyst case binder module and claims module via the FHA Resource Center at firstname.lastname@example.org or 1-800-Call FHA (1-800-225-5342).
As expected by the mortgage industry, due to COVID-19, Fannie Mae and Freddie Mac have extended the mandatory implementation date for the redesigned Uniform Residential Loan Application (URLA) and the updated automated underwriting system (AUS) data specifications from November 1, 2020 to March 1, 2021.
Fannie Mae and Freddie Mac also extended the date when limited production using the new URLA will be allowed from June 1, 2020 to August 1, 2020. The limited production period will serve as a “test and learn” period for certain lenders. The date when all lenders will be allowed to use the new URLA is extended from September 1, 2020 to January 1, 2021.
The retirement date for the current version of the URLA is extended from November 1, 2021 to March 1, 2022.
California Department of Real Estate Issues COVID-19 FAQs for Licensing Processes
The California Department of Real Estate recently issued COVID-19 FAQs to address questions regarding licensing processes in response to California Governor Newsom’s shelter-in-place order. The FAQs state that all real estate salesperson and broker license exams in all exam centers are cancelled through April 30, 2020, and that applicants and licensees will likely experience delays with exam and licensing processes due to closures of certain live scan service providers.
Alabama Extends Due Date for Licensees Filing Mortgage Call Reports, Annual Reports, and Financial Statements
The Alabama State Banking Department has issued emergency guidance to extend the due date for filing annual reports required of companies licensed under the Consumer Credit Act, Small Loan Act, and Mortgage Broker Act to July 15, 2020. This guidance also applies to companies that file mortgage call reports and financial statements through NMLS. Note that the new due date of July 15, 2020 further extends 30-day deadline extension previously announced by the NMLS Policy Committee, which we reported on here.
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