Alston & Bird Consumer Finance Blog

COVID-19

Consumer Finance State Roundup

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The pace of legislative activity during this current year can make it hard to stay abreast of new laws.  The Consumer Finance State Roundup is intended to provide a brief overview of recently enacted legislation of potential interest.

Between the end of July and the first week of August, two states enacted legislation of potential interest to Consumer Finance ABstract readers:

  • District of Columbia:  Effective as an emergency measure from July 31 to October 29, 2023, B 25-357 (Act #25-0189), the “Public Health Emergency Credit Alert Emergency Amendment Act of 2023”, provides certain consumer protections to DC residents in connection with their credit reports under Section 28-3871 of the D.C. Code.  First, Section 28-3871(a)(1) requires a credit reporting agency to accept and include in the consumer’s file a personal statement provided by the consumer indicating that the consumer has been financially impacted by the COVID-19 emergency. Second, Section 28-3871(c) prohibits a user of a credit report from taking into consideration adverse information in a credit report that was a result of an action or inaction by the consumer that occurred during the public health emergency, if the credit report includes a personal statement in the form required by Section 28-3871(a).  Third, Section 28-3871(d) requires that an entity providing a credit report to a DC resident upon that consumer’s request (pursuant to 15 U.S.C. § 1681) must notify the DC resident of the right to request a personal statement to accompany the credit report.  Fourth, the emergency measure addresses the ability of the D.C. Attorney General to remedy violations, including through the imposition of penalties.  (We note that this measure includes provisions identical to those previously enacted by the D.C. Council on a short-term basis while it considers permanent legislation with the same effect.  B 25-358, a temporary measure that would extend the same provisions on a 225-day basis, is currently pending in the D.C. Council.)
  • District of Columbia:  Effective as an emergency measure from July 27 to October 25, 2023, B 25-363 (Act #25-0192), the “Foreclosure Moratorium and Homeowner Assistance Fund Coordination Emergency Amendment Act of 2023”, provides for foreclosure protections to certain DC homeowners.  For the period of July 1 through September 30, 2022, the measure protects homeowners: (a) who applied for funding from the DC Homeowner Assistance Fund (“DC HAF”) program prior to September 30, 2022; and (b) whose applications are under review, pending approval, pending payment, or under appeal.  The measure prohibits: (a) a lender or servicer from initiating or conducting a foreclosure action; (b) the initiation of a sale under the Condominium Act of 1976; or (c) the entry of a judgment foreclosing the right of redemption.  Second, on or after July 25, 2022, the measure prohibits a mortgage lender, condominium association, homeowners’ association, or tax sale purchaser, or an agent acting as a representative for any housing or financing entity of a homeowner, from commencing or proceeding with a foreclosure action until 30 days after sending the homeowner to warn of its intention to initiate or continue a foreclosure.  (Like B 25-357, we note that this measure includes provisions identical to those previously enacted by the D.C. Council on a short-term basis while it considers permanent legislation with the same effect.  B 25-364, a temporary measure that would extend the same provisions on a 225-day basis, is currently pending in the D.C. Council.)
  • Illinois:  Effective January 1, 2024, House Bill 2094 (Public Act 103-0292) amends the Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1) to address requirements for mortgage marketing materials from a mortgage company not connected to the consumer’s mortgage company.  Specifically, the measure adds new subsection 505/2AAA(a-5), under which:
    • No language may be used to state or imply that any response by a consumer who is not an existing customer is required … such as the use of the terms “urgent”, “action required”, “materials inspected”, “time sensitive”, or “important account information enclosed”;
    • The mortgage company’s name of the solicitor must be prominently stated in the body of the text, at the head of the letter or message in a font bigger than the body of the text, and on any envelope;
    • The mortgage company’s name of the consumer may not be used to state or insinuate in any way that the marketing material is from the consumer’s mortgage company rather than the solicitor’s mortgage company and is merely a solicitation;
    • The name of the consumer’s mortgage company must not be visible through an envelope window, appear on the envelope itself, or appear in an email subject line;
    • The text must clearly state if the consumer’s mortgage company had no part in helping the solicitor obtain the homeowner’s mortgage information.

A violation of the new subsection constitutes an unlawful practice under the Consumer Fraud and Deceptive Business Practices Act.

  • Illinois:  Effective July 28, 2023, House Bill 2717 (Public Act 103-0322) amends two sections under the Mortgage Escrow Account Act (765 ILCS 910/1) with respect to higher-priced mortgage loans.  First, the measure amends Section 5 to clarify that a mortgage lender that complies with the escrow account requirements under 12 CFR Part 1026 for a “higher-priced mortgage loan” (as defined therein) is deemed to comply with the requirement under the section to notify a borrower about terminating or continuing that escrow account.  Second, the measure amends Section 7 to provide a borrower does not have the right to terminate any escrow account arrangement for a higher-priced mortgage loan, unless the borrower has met all the conditions for cancellation of an escrow account for a higher-priced mortgage loan under 12 CFR Part 1026.

The COVID-19 National Emergency is Ending: Are mortgage servicers ready?

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A&B Abstract:

On January 30, 2023, President Biden informed Congress that the COVID-19 National Emergency (the “COVID Emergency”) will be extended beyond March 1, 2023, but that he anticipates terminating the national emergency on May 11, 2023. The White House Briefing Room reiterated the President’s position on February 10, 2023. Given the significant updates mortgage servicers made to their compliance management systems (“CMS”) to ensure compliance with the myriad of COVID-19-related laws, regulations and guidance issued in response to the pandemic, servicers should begin evaluating their CMS now to determine whether updates are necessary to minimize the risk of non-compliance and consumer harm as the COVID Emergency comes to an end. Set forth below, we discuss some of the key areas on which servicers should focus as they develop a plan for winding down COVID-19 protections.

Background

The COVID-19 pandemic created unprecedented operational challenges for mortgage servicers – challenges servicers sought to overcome through significant actions that were taken at the outset of the pandemic and over the last three years to implement the myriad of federal and state laws, regulations, and guidance that were enacted or promulgated in response to the pandemic.

Indeed, in response to the pandemic, the US Congress passed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, Sections 4021 and 4022 of which provided certain borrowers impacted by the pandemic with certain credit reporting and mortgage-related protections.

Section 4021 of the CARES Act amended the Fair Credit Reporting Act by adding a new section providing special instructions for reporting consumer credit information to credit reporting agencies when a creditor or other furnisher offers an “accommodation” to a consumer affected by the pandemic during the “covered period,” which ends 120 days after the COVID Emergency terminates.

Section 4022 of the CARES Act granted forbearance rights and protection against foreclosure to certain borrowers with a “federally backed mortgage loan.” Specifically, during the “covered period,” a borrower with a federally backed mortgage loan who is experiencing a financial hardship that is due, directly or indirectly, to the COVID Emergency may request forbearance on their loan, regardless of delinquency status, by submitting a request to their servicer during and affirming that they are experiencing a financial hardship during the COVID Emergency. When the CARES Act was enacted, there was uncertainty in the industry as to how to define the “covered period” as the term was undefined. However, because the borrower must attest to a financial hardship during the COVID Emergency, the industry came to understand the “covered period” to be synonymous with the COVID Emergency, such that borrower requests received outside the COVID Emergency need not be granted.

Additionally, under Section 4022, a servicer of a federally backed mortgage loan were prohibited from initiating any judicial or nonjudicial foreclosure process, moving for a foreclosure judgment or order of sale, or executing a foreclosure-related eviction or foreclosure sale (except with respect to vacant and abandoned properties) through May 16, 2020.

In response to the CARES Act, mortgage servicers were inundated with directives issued by the US Department of Housing and Urban Development (“HUD”), the US Department of Veterans Affairs (“VA”), the US Department of Agriculture (“USDA”), the Consumer Financial Protection Bureau (“CFPB”), as well as the guidelines published by Fannie Mae and Freddie Mac (collectively, the “Agencies”), as the Agencies (other than the CFPB) were tasked with implementing the protections afforded by the CARES Act.  As result of these directives, servicers were required to quickly implement changes to their servicing operations, while ensuring accurate communication of such changes to its customers. For example, HUD alone issued over 20 mortgagee letters since the outset of the pandemic that were directly related to the operations of HUD-approved servicers.

In addition to the Agencies, several states either passed legislation, promulgated regulations or issued directives that mortgage servicers were required to implement. Servicers were also required to respond to the CFPB’s Prioritized Assessments, inquiries from Congress, and requests from the Agencies. Accordingly, servicers devoted substantial legal, compliance, and training resources to ensure compliance with applicable laws and requirements.

In implementing the foregoing laws and regulations, servicers made significant updates to their CMS and the various components that support an effective CMS, including, among others, policies, procedures, training, scripting, correspondence, system updates, and vendor management. Similarly, now that the COVID Emergency appears to be nearing an end, servicers should reevaluate what updates are necessary to effectively wind-down COVID-19 protections while minimizing regulatory risk and consumer harm.

Below we discuss several issues servicers should be particularly mindful of in developing a plan for winding down COVID-19 protections.

Key Areas of Focus for Servicers

Agency/GSE Guidelines: The myriad of Agency guidance issued in response to the pandemic included new and evolving requirements regarding the offering of COVID-19 Forbearance Plans, COVID-19-specific loss mitigation options, and other COVID-19-related borrower protections. For example, HUD, VA, and USDA have largely tied a borrower’s ability to request an initial COVID-19 Forbearance to the expiration of the COVID Emergency. HUD has indicated that a borrower may only request an additional forbearance extension of up to six months if the initial forbearance will be exhausted and expires during the COVID Emergency. On the other hand, Fannie Mae and Freddie Mac have previously informally indicated that servicers should continue to process borrower requests for COVID-19 Forbearances until the GSEs announce otherwise. Moreover, there is the possibility that all or some of the Agencies will expand post-forbearance COVID-19 protections to a broader class of borrowers given the apparent success of the streamlined options. On January 30, 2023, HUD issued a mortgagee letter (which was corrected and reissued on February 13th) extending its COVID-19 Recovery Loss Mitigation Options to include additional eligible borrowers, increase its COVID-19 Recovery Partial Claims, and add incentive payments to servicers. Notably, the mortgagee letter does not appear to update HUD’s existing guidance on the availability of COVID-19 Forbearance Plans, and it temporarily suspends several of HUD’s non-COVID-19 loss mitigation options, such as all FHA-HAMP options. In preparing for the end of the COVID Emergency, servicers should ensure that they identify and carefully review applicable Agency guidelines to determine what, if any, updates to existing processes are necessary.

Policies, Procedures, and Training: Whether a servicer created a specific COVID-19/CARES Act policy and/or updated its existing policies to reflect applicable COVID-19 protections, servicers must now review and update those policies to ensure they do not inaccurately reflect requirements no longer in effect as a result of the termination of the COVID Emergency. As a reminder, Regulation X requires servicers to maintain policies and procedures that are reasonably designed to achieve the objectives in 12 C.F.R. § 1024.38. Commentary to Regulation X clarifies that “procedures” refers to the actual practices followed by the servicer. Thus, servicers should ensure that its procedures reflect its policies. It is also important that updated and accurate training and job aids are provided to servicing employees, particularly to consumer service representatives, to ensure clear, accurate, and up to date information is communicated to consumers. It’s also a good time to ensure that policies, procedures, and training reflect the expiration of certain CFPB COVID-19-related measures. For example, the enhanced live contact requirements for borrowers experiencing COVID-19 related hardships were in effect from August 31, 2021 through October 1, 2022.

Scripts, Letters and Agreements: The CFPB called for mortgage servicers to take proactive steps to assist borrowers impacted by COVID-19 including prioritizing clear communications and proactive outreach to borrowers. In response, servicers updated communications through emails, texts, letters, loss mitigation agreements, buck slips, periodic statements, and other standard communications alerting borrowers of requirements for accepting and processing requests for forbearance, approving forbearance requests, providing credit reporting accommodations, and providing information on post-forbearance loss mitigation options and foreclosure. One of the standards the CFPB uses in assessing whether an unfair, deceptive, or abusive act or practice (“UDAAP”) occurred is whether a representation, omission, act or practice is deceptive, meaning that it misleads or is likely to mislead the consumer, the consumer’s interpretation of the representation is reasonable under the circumstances, and the misleading representation, omission, act or practice is material. Thus, it is important for servicers to review their communication library to make sure outdated CARES Act and other COVID-19-related information is not included in borrower communications.

System Updates: Throughout the last three years servicers were required to implement substantial system enhancements to ensure compliance with the myriad of requirements that arose in response to the pandemic. These enhancements included, among others, stop codes to ensure compliance with applicable foreclosure moratoria; changes to loss mitigation decisioning systems to reflect new and revised loss mitigation waterfalls; updates to borrower-facing websites and interactive voice response (“IVR”) systems to provide borrowers with information on available COVID-19 protections and to facilitate a borrower’s ability to self-serve when requesting a COVID-19 Forbearance; enhancing credit reporting systems to ensure accurate credit reporting for borrowers who are provided an accommodation under the CARES Act; and implementing system updates to ensure compliance with applicable fee restrictions. Given the significant time, effort, and resources required to implement the foregoing enhancements, servicers should begin evaluating their systems now to determine what changes are necessary to reflect that some or all of these protections will no longer be in effect.

State Law: In response to the COVID-19 pandemic, several states (including but not limited to California, the District of Columbia, Maryland, Massachusetts, New York, and Oregon) enacted their own protections, most of which have since expired. Now is the time for servicers to ensure that their CMS is updated to reflect that these laws are no longer in effect.

Instructions to Service Providers: Many servicers rely on third-party service providers to provide certain support functions. During the pandemic, reliance on such service providers was even more critical as servicers worked to implement the above-referenced requirements. Such service providers include, among others, print/mail vendors, foreclosure counsel, and third-party customer support representatives. In preparing for the end of the COVID Emergency, servicers should ensure accurate and consistent instructions are provided to, and appropriate oversight is exercised over, service providers to ensure compliance with applicable law and to minimize UDAAP risk.

Takeaway

The implementation of federal and state COVID-19 protections required that servicers devote substantial time, effort, and resources to ensure consumers could avail themselves of available protections and to minimize the risk of harm. Unfortunately, when the pandemic first began, servicers did not have the luxury of time when implementing these measures. However, given that the end of the COVID Emergency is not until May 11th, servicers should utilize this time to think through what impact the termination of the emergency will have on their current processes and controls, and begin making necessary updates.

CFPB Publishes Fall 2022 Supervisory Highlights

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A&B ABstract:

On November 16, 2022, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) released its Fall 2022 Supervisory Highlights (Issue 28) (the “Supervisory Highlights”), which, among other things, announces the creation of a Repeat Offender Unit and highlights supervisory observations from examinations conducted by the Bureau in the first half of 2022.  Below we discuss some of the key takeaways from the Supervisory Highlights.

The Supervisory Highlights

CFPB’s New Repeat Offender Unit

The CFPB announced the creation a Repeat Offender Unit (“ROU”) to focus its supervision on repeat offenders with the intent to recommend specific corrective actions to stop recidivist behavior. The ROU intends to engage in closer scrutiny of repeat offenders’ compliance with certain orders, along with the following activities:

  • Reviewing and monitoring the activities of repeat offenders;
  • Identifying the root cause of recurring violations;
  • Pursuing and recommending solutions and remedies that hold entities accountable for failing to consistently comply with federal consumer financial law; and
  • Designing a model for review of orders and monitoring that reduces the occurrences of repeat offenders.

The creation of the ROU is not surprising given Director Chopra’s prior statements signaling that the Bureau would focus its efforts on reining in corporate recidivism in the financial services industry. For example, in March 2022, Director Chopra delivered a speech to the University of Pennsylvania Law School, entitled Reining in Repeat Offenders, in which the Director noted that “[a]t the CFPB, we have plans to establish dedicated units in our supervision and enforcement divisions to enhance the detection of repeat offenses and corporate recidivists and to better hold them accountable…[and that] for serial offenders of federal law, the CFPB will be looking at remedies that are more structural in nature, with lower enforcement and monitoring costs…[including] seek[ing] ‘limits on the activities or functions’ of a firm for violations of laws, regulations, and orders.”

Supervisory Observations

The Supervisory Highlights identifies numerous supervisory observations pertaining to consumer reporting, debt collection, mortgage origination, mortgage servicing, and payday lending, among other topics. We discuss several of the Bureau’s notable observations below.

Consumer Reporting

With respect to credit reporting, the CFPB found violations of the Fair Credit Reporting Act and/or Regulation V involving the following issues:

  • Certain nationwide consumer reporting agencies failed to provide reports to the CFPB regarding consumer complaints received from consumers that the Bureau transmits to the credit reporting agency if those complaints are about “incomplete or inaccurate information” that a consumer “appears to have disputed” with the agency;
  • Some furnishers, including third-party debt collection furnishers, continue to: (1) inaccurately report information despite actual knowledge of errors; (2) fail to correct and update furnished information after determining such information is not complete or accurate; and (3) fail to establish and follow reasonable procedures to report the appropriate date of first delinquency on applicable accounts; and
  • Some furnishers also continue to fail to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of furnished information, such as by verifying random samples of furnished information, and fail to conduct reasonable investigations of direct disputes by neglecting to review relevant information and documentation.

Debt Collection

In recent examination activity, the CFPB has identified certain violations of the Fair Debt Collection Practices Act, such as:

  • Examiners found that certain larger participant debt collectors engaged in conduct intended to harass, oppress, or abuse consumers during telephone calls by continuing to engage in conversation even after consumers stated that the communication was causing them to feel annoyed, harassed, or abused.
  • Examiners found that debt collectors engaged in improper communication with third parties about a consumer’s debt when communicating with a person who had a similar or identical name to the consumer.

Mortgage Origination

Regarding mortgage origination, the CFPB found violations of Regulation Z and deceptive acts or practices prohibited by the Consumer Financial Protection Act (“CFPA”), such as:

  • Examiners found that certain entities improperly reduced loan origination compensation based on a term of a transaction by failing to use actual costs and fee amounts that were accurate and known to loan originators at the time initial disclosures were provided to consumers. Subsequently at closing, consumers were provided a lender credit when the actual costs of certain fees exceeded the applicable tolerance thresholds, which led entities to reduce loan originator compensation after loan consummation by the amount provided in order to cure the tolerance violation. Notably, the Bureau found that in each instance, the settlement service had been performed and the loan originator knew the actual costs of those services. The loan originators, however, entered a cost that was completely unrelated to the actual charges that the loan originator knew had been incurred, resulting in information being entered that was not consistent with the best information reasonably available. Thus, examiners found that the unforeseen increase exception permitted by Regulation Z did not apply to these situations.
  • Examiners also identified a waiver provision in a loan security agreement, which was used by certain entities in one state, that was determined to be deceptive in violation of the CFPA. The waiver provided that borrowers who signed the agreement waived their right to initiate or participate in a class action. The language was found to be misleading because a reasonable consumer could understand the provision to waive their right to bring a class action on any claim, including federal claims, in federal court, which is expressly prohibited by Regulation Z.

Mortgage Servicing

The Bureau indicated that its mortgage servicing examinations focused on servicers’ actions as consumers experienced financial distress related to COVID-19. Mortgage servicing findings by the CFPB included the following:

  • Servicers engaged in abusive acts or practices by charging sizable phone payments fees when consumers were unaware of the fees’ existence and, if disclosures were provided, providing general disclosures indicating that consumers “may” incur a fee did not sufficiently inform consumers of the material costs;
  • Servicers engaged in unfair acts or practices by:
    • charging consumers fees during a CARES Act forbearance plan, in violation of the CARES Act’s prohibition on the imposition of “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”; and
    • failing to timely honor requests for forbearance from consumers;
  • Servicers engaged in deceptive acts or practices by misrepresenting that certain payment amounts were sufficient for consumers to accept a deferral offer at the end of their forbearance period, when in fact, they were not due to updated escrow payments; and
  • Servicers violated Regulation X by failing to maintain policies and procedures reasonably designed to:
    • inform consumers of all available loss mitigation options, which resulted in some consumers not receiving information about options, such as deferral, when exiting forbearances; and
    • properly evaluate consumers for all available loss mitigation options, resulting in improper denial of deferral options.

Payday Lending

Regarding payday lending, examiners found that some lenders failed to maintain records of call recordings that were necessary to demonstrate compliance with certain conduct provisions in consent orders, e.g., prohibiting certain misrepresentations. The consent order provisions required creation and retention of all documents and records necessary to demonstrate full compliance with all provisions of the consent orders. The Bureau determined that the failure to maintain the call recordings violated the consent orders and federal consumer financial law.

Although this finding was specific to payday lenders, it may have broader implications for entities subject to an active CFPB consent order, as the provision relied upon by the Bureau in making its finding is routinely found in CFPB orders.

Takeaway

The compliance issues noted in the Supervisory Highlights emphasize the importance of maintaining a strong and continually updated compliance management system. Entities should review the Bureau’s supervisory observations against their current policies, procedures, and processes to ensure consistency with the Bureau’s compliance expectations, and to determine whether enhancements and/or proactive consumer remediation may be appropriate. Finally, entities subject to active CFPB consent orders should pay particular attention to whether their current policies, procedures, and processes are sufficient to ensure compliance with applicable law and the terms of the consent order, in order to mitigate against the risk of being deemed a repeat offender and potentially subject to increased penalties or broader structural remedies such as “seek[ing] ‘limits on the activities or functions’ of a firm for violations of laws, regulations, and orders.”

Biden-Harris Administration Announces Extension of COVID-19 Foreclosure Moratorium

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A&B Abstract:

Today, the Biden Administration announced an extension of the foreclosure moratorium for federally-backed mortgage loans (the “Presidential Announcement”). To implement the Presidential Announcement, the federal agencies (i.e., HUD/FHA, USDA, and VA) and GSEs (i.e., Fannie Mae and Freddie Mac) have announced (or are anticipated to announce) extensions of the foreclosure moratorium until July 31, 2021.

Presidential Announcement

According to the Presidential Announcement, the three federal agencies that back mortgages – the Department of Housing and Urban Development (HUD), Department of Veterans Affairs (VA), and Department of Agriculture (USDA) – will extend their respective foreclosure moratorium for one, final month, until July 31, 2021. Similarly, the Federal Housing Finance Agency (FHFA) will announce that it has extended the foreclosure moratorium for mortgages backed by Fannie Mae and Freddie Mac until July 31, 2021.

The Presidential Announcement goes on to provide that once the moratoria end, HUD, VA, and USDA will take additional steps to prevent foreclosures on mortgages backed by those agencies until borrowers are reviewed for COVID-19 streamlined loss mitigation options that are affordable, while FHFA will continue to work with Fannie Mae and Freddie Mac to ensure that borrowers are evaluated for home retention solutions prior to any referral to foreclosure.

In addition, the Presidential Announcement notes that HUD, VA, and USDA will also continue to allow homeowners who have not taken advantage of forbearance to date to enter into COVID-related forbearance through September 30, 2021, while homeowners with Fannie Mae or Freddie Mac-backed mortgages who have COVID-related hardships will also continue to be eligible for COVID-related forbearance.

Finally, the Presidential Announcement indicates that HUD, VA, and USDA will be announcing additional steps in July to offer borrowers payment reduction options that will enable more homeowners to stay in their homes.

Federal Agency and GSE Announcements

In addition to the foregoing, the USDA and the GSEs issued the following guidance today implementing the Presidential Announcement:

  • USDA:  Today, the USDA issued a brief press release announcing a one-month extension, through July 31, 2021, of the moratorium on foreclosure from properties financed by USDA Single-Family Housing Direct and Guaranteed loans. Beyond July 31, 2021, the USDA indicated that it would continue to support homeowners experiencing financial hardship due to the pandemic by making loss mitigation options available to help keep them in their homes.
  • Fannie Mae LL-2021-02:  Today, Fannie Mae updated LL-2021-02 to extend the moratorium on foreclosures with respect to Fannie Mae loans through July 31, 2021.  Specifically, servicers must continue the suspension of the following foreclosure-related activities through July 31, 2021. Servicers may not, except with respect to a vacant or abandoned property: (1) initiate any judicial or non-judicial foreclosure process, (2) move for a foreclosure judgment or order of sale, or (3) execute a foreclosure sale.  All other guidance set forth in LL-2021-02 remains the same.
  • Freddie Mac Guide Bulletin 2021-23:  Similarly, today Freddie Mac issued Guide Bulletin 2021-23, which announces an extended effective date for the COVID-19 foreclosure moratorium.  Specifically, Freddie Mac is extending the foreclosure moratorium last announced in Guide Bulletin 2021-8. Servicers must suspend all foreclosure actions, including foreclosure sales, through July 31, 2021. This includes initiation of any judicial or non-judicial foreclosure process, motion for foreclosure judgment or order of sale. This foreclosure suspension does not apply to mortgages on properties that have been determined to be vacant or abandoned.

As of today, we are not aware of any formal announcement by HUD or VA regarding the implementation of the Presidential Announcement. However, we anticipate that both HUD and VA will issue guidance consistent with the above announcement in short order.

Takeaway 

The takeaway from today’s announcements is that, except with respect to vacant and abandoned properties, all foreclosure-related activities that could constitute the initiation of any judicial or non-judicial foreclosure process, movement for a foreclosure judgement or order of sale, or execution of a foreclosure sale should continue to be paused until the expiration of the extended foreclosure moratorium.  Moreover, the Presidential Announcement suggests that additional guidance will be issued by the federal agencies permitting borrowers who have not yet taken advantage of a COVID-19 forbearance to do so through September 30, 2021 and announcing additional steps in July to offer borrowers additional payment reduction options to enable more homeowners to stay in their homes. Accordingly, servicers should continue to monitor for any additional guidance from the federal agencies and GSEs regarding the foreclosure moratorium or other COVID-19-related borrower relief.

The CFPB is Sending Mixed Messages on COVID-19 Flexibility

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A&B ABstract: The CFPB’s inconsistent statements about the need for flexibility to address the pandemic suggest a deeper game afoot.

 CFPB warns that continued COVID flexibility for financial institutions is not prudent…

On March 31, 2021, the CFPB announced it would be rescinding seven policy statements issued last year that provided financial institutions with flexibilities regarding certain regulatory filings or compliance with consumer financial laws and regulations due to the COVID-19 pandemic. One of the rescinded statements, for example, encouraged financial institutions to “work constructively with borrowers and other customers affected by COVID-19 to meet their financial needs” and to that end, “when conducting examinations and other supervisory activities and in determining whether to take enforcement action, the Bureau will consider the circumstances that entities may face as a result of the COVID-19 pandemic and will be sensitive to good-faith efforts demonstrably designed to assist consumers.”

In explaining the rescissions, Acting CFPB Director Uejio reasoned: “Because many financial institutions have developed more robust remote capabilities and demonstrated improved operations, it is no longer prudent to maintain these flexibilities.” Accordingly, the CFPB provided notice that it “intends to exercise the full scope of the supervisory and enforcement authority provided under the Dodd-Frank Act.”

To further drive home its point, on April 1, 2021, the CFPB issued a press release and compliance bulletin warning mortgage servicers that “unprepared is unacceptable” with regard to the treatment of mortgage borrowers exiting extended forbearances this fall. The CFPB stated it is “committed to using its authorities, including its authority under Regulation X mortgage servicing requirements and under the Consumer Financial Protection Act (CFPA), to ensure that homeowners facing the ongoing economic impact of the Coronavirus Disease (COVID-19) national emergency receive the benefits of critical legal protections and that avoidable foreclosures are avoided.”

…Except when it is!

On March 2, 2021, the CFPB issued a notice of proposed rulemaking (NPRM) to delay the mandatory compliance date of the General Qualified Mortgage (QM) final rule from July 1, 2021 to October 1, 2022. The reason cited by the CFPB for the compliance delay is the “need to provide maximum flexibility [to financial institutions] to address the effects of the pandemic.” In particular, the CFPB’s proposal states:

“The Bureau is concerned that the potential impact of the COVID-19 pandemic on the mortgage market may continue for longer than anticipated at the time the Bureau issued the General QM Final Rule, and so could warrant additional flexibility in the QM market to ensure creditors are able to accommodate struggling consumers.”

Additionally, on April 7, 2021, the CFPB proposed to delay the effective date of two recent debt collection rules by sixty days, from November 30, 2021 until January 29, 2022. The reason cited by the CFPB for its proposed delay is “to give affected parties more time to comply due to the ongoing COVID-19 pandemic.” In particular, the CFPB’s proposal states:

“Since the Debt Collection Final Rules were published, the global COVID-19 pandemic has continued to cause widespread societal disruption, with effects extending into 2021. In light of that disruption, the Bureau believes that providing additional time for stakeholders to review and, if applicable, to implement the final rules may be warranted. The Bureau believes that extending the rules’ effective date by 60 days, to January 29, 2022, may provide stakeholders with sufficient time for review and implementation.”

What is really going on?

 Both of the CFPB’s delay NPRMs are curious. With respect to the QM delay proposal, a broad coalition of both housing and mortgage industry and consumer and civil rights groups files a joint comment letter stating that the recent enhancements to the General QM definition will replace loans that were designated QM under the temporary GSE Patch, and as a result, the organizations do not believe that extending the July 1 mandatory compliance date is necessary. And as our colleague Stephen Ornstein explained, recent FHFA actions will effectively sunset the GSE Patch on July 1 with or without the CFPB taking action. Further, with respect to the debt collection delay proposal, it is unlikely that 60 extra days before the rules take effect will make any appreciable difference to most market participants, considering that they were already given a full year to implement the rules, and they still won’t take effect for seven months.

The CFPB clearly has a strong desire to revisit both the underlying QM and debt collection final rules issued last year. For instance, as early as February 4, 2021, Acting Director Uejio stated that the CFPB would “[e]xplore options for preserving the status quo with respect to QM and debt collection rules.” And Diane Thompson, the Biden Administration political appointee now overseeing CFPB rulemaking efforts, publicly declared her hatred for the CFPB’s new General QM rule. If the CFPB does revisit these rules, it makes sense to do so soon; completing new rulemakings before the old ones take effect or require compliance could provide the CFPB a significant advantage in framing its mandatory Section 1022 cost-benefit analysis, depending upon the economic baseline established for analyzing the effects of its proposals. However, delaying rules simply for the purpose of changing them in light of the policy preferences of an incoming administration can be viewed skeptically by reviewing courts, since such actions tend to undermine the purposes of the Administrative Procedure Act. Perhaps that is the reason why the CFPB is disclaiming its plans to revisit the underlying rules in its delay NPRMs and, contrary to its own recent policy pronouncements, is relying instead upon the need for institutional flexibility to deal with the pandemic in the limited context of these two rules alone. Given the time constraints involved, the CFPB can be expected to show its full hand and propose changes to the QM and debt collection rules soon after it finalizes its associated delay rules.