Alston & Bird Consumer Finance Blog

Covid-19

CFPB Announces Two Updates Relating to COVID-19 Pandemic

A&B ABstract:

Last week, the Consumer Financial Protection Bureau issued two announcements of interest to servicers as they continue to respond to borrowers impacted by the COVID-19 pandemic.

Consumer Complaint Report:

On May 21, the CFPB issued a report analyzing approximately 4500 complaints relating to the COVID-19 pandemic.  Among other findings, the report indicates that approximately 22 percent of COVID-19 related complaints addressed mortgages; inability to pay appeared as the most common issue.

The report’s observations include that consumers:

  • complained about being unable to reach customer service representatives, or having access to methods other than telephone contact to discuss payment options;
  • indicated concerns about potential negative credit reporting implications of alternative payment options; and
  • indicated concerns about repayment options at the end of a forbearance period, particularly whether a lump-sum or balloon payment would be required.

No-Action Letter Template:

On May 22, the CFPB issued a No-Action Letter Template permitting mortgage servicers who are seeking to engage in loss mitigation activities with consumers.  The template, requested by Brace Software, Inc., would permit servicers to use Brace’s online platform (an online version of Fannie Mae Form 710) to implement loss mitigation efforts.  According to the CFPB’s announcement,  digitizing the loss mitigation application process may improve its operation.

The No-Action Letter is the latest example of the CFPB’s use of the No-Action Letter Policy announced in September 2019 as part of the CFPB’s effort to promote innovation and facilitate compliance.

Takeaway:

Taken together, these two announcements are indicative of the Bureau’s continued focus on the impact of COVID-19 on borrowers, and on how servicers are responding to borrower needs.

 

Proposed Federal Privacy Legislation Tackles COVID-19 Data

Data collection and analysis is becoming a key weapon in the fight against COVID-19 both here in the United States and around the globe.  But as governments and tech companies roll out a variety of applications and contact tracing tools, legislators from both sides of the political aisle are questioning how to handle the data being collected, analyzed, and shared. The following is a short summary of two recently-proposed pieces of federal legislation.

The COVID-19 Consumer Data Protection Act

On May 7, 2020, a group of Republicans introduced the COVID–19 Consumer Data Protection Act of 2020 (“CCDPA”).  Assigned to the Senate Committee on Commerce, Science, and Transportation, the CCDPA has several key features.

What The CCDPA Covers:
  • It covers to a wide range of organizations, including businesses under the Federal Trade Commission’s jurisdiction as well as non-profits and common carriers (“covered entities”).
  • It covers a variety of types of data, including geolocation data, proximity data, persistent identifiers such as IP addresses or device IDs, and personal health information (“covered data”).
  • It covers certain purposes or use cases, including the collection, processing, or transfer of covered data to (1) track the spread, symptoms, or signs of COVID-19; (2) measure compliance with social distancing guidelines; and (3) conduct contact tracing (“covered purposes”).
  • It does not cover, among other things, data that is already protected by HIPAA and data collected by employers to determine whether employees may enter a physical location.
What The CCDPA Requires:

It makes it unlawful for a covered entity to collect, use, or transfer covered data for a covered purpose unless three requirements are met:

  1. Individuals receive notice prior to collection, use, or transfer of the data;
  2. Individuals give affirmative express consent; and
  3. The covered entity publicly commits to not collect, use, or transfer the data for any purpose.

The CCDPA also requires covered entities to update their privacy policies, to use reasonable security to protect the covered data, to use principles of data minimization, to provide an opt-out mechanism for individuals who previously consented, and to delete the data when it is no longer needed for the covered purposes.

Who Enforces The CCDPA:

The CCDPA does not include a private right of action and would be enforced by either the Federal Trade Commission or state attorneys general.

The Public Health Emergency Privacy Act

On May 14, 2020, members of the House and Senate introduced the Public Health Emergency Privacy Act (“PHEPA”).  PHEPA has been referred to the House Energy and Commerce Committee as well as the Senate Health, Education, Labor and Pensions Committee.

What The PHEPA Covers:

Generally speaking, PHEPA would apply to certain entities that collect “emergency health data” (“EHD”).  Importantly, “EHD” means (in brief) data that concerns the public COVID-19 public health emergency, which means the “outbreak and public health response pertaining to [COVID-19], associated with the emergency declared” by HHS in January of 2020, and “any renewals” or “subsequent declarations…related to the coronavirus.”

What The PHEPA Requires:

The PHEPA imposes restrictions and compliance obligations similar to those set forth in CCDPA.  It limits the permissible purposes for collecting, using, and disclosing EHD, including reasonable safeguards to prevent unlawful discrimination based on EHD; requires reasonable security to protect EHD; requires reasonable measures to ensure EHD accuracy and a mechanism to correct inaccuracies; requires certain privacy policy disclosures and, if an organization has collected data of at least 100,000 individuals, certain additional disclosures every 90 days; and requires deletion of EHD upon the occurrence of specified events.  The PHEPA generally also requires affirmative express consent prior to the collection, use, or disclosure of EHD (subject to limited exceptions) and requires a mechanism for individuals to revoke consent.

Who Enforces the PHEPA:

PHEPA would not preempt or supersede any requirements or authorizations under applicable federal or state laws and contemplates rule making by the FTC regarding EHD collected prior to the law’s enactment.  PHEPA expressly does not apply to a covered entity or business associate under HIPAA, though PHEPA directs HHS to promulgate guidance on the applicability of similar requirements.

In addition to rule making authority, the FTC would have the authority to enforce the law along with state attorneys general.

Unlike the CCDPA, the PHEPA provides a private right of action for violations that constitute a concrete and particularized injury in fact to the individual.

The PHEPA Applies To The Government, Not Just Private Entities

Unlike the CCDPA, the PHEPA is not limited to private entities and would also regulate some governmental use, collection, and disclosure of EHD.

PHEPA also includes provisions focused on protecting voters’ rights.  It prohibits government entities from denying, restricting, or interfering with (or attempting to do so), or retaliating against someone for, voting in an election, on the basis of EHD, an individual’s medical condition, or participation or non-participation in a program to collect EHD.  PHEPA also prohibits covered organizations from knowingly facilitating such activities.

Attorneys General Urge FHFA and HUD to Take Additional Measures to Protect Borrowers Affected by COVID-19

A&B Abstract:

On April 23, 2020, the attorneys general of 33 states, the District of Columbia and Puerto Rico (the “Attorneys General”) sent two letters, one to the Federal Housing Finance Agency (“FHFA”) and the other to the U.S. Department of Housing and Urban Development (“HUD” and collectively with FHFA, the “Agencies”), respectively, noting that the “national response must recognize the unique challenges presented by the unprecedented number of homeowners who are affected by COVID-19, including the fact that all of these homeowners need relief at the same time..[and that] [m]eeting this challenge will require straightforward and consistent guidance that can be quickly operationalized.”  As a result, the Attorneys General urged the Agencies to make changes to their respective guidelines addressing COVID-19-related mortgage and foreclosure relief.

Revision of Forbearance Programs

The Attorneys General acknowledged that forbearance plans are a critical first response to borrowers affected by the COVID-19 pandemic.  However, the Attorneys General expressed concern that both the mortgage servicing industry and homeowners will become overwhelmed if changes are not made.   The Attorneys General recommended or encouraged that:

  • the Agencies “issue simple, self-executing guidance that servicers can easily implement to meet demand while providing an immediate, responsive resolution to borrowers.” The Attorneys General specifically expressed concern about HUD guidelines requiring an individualized evaluation for every borrower who receives a CARES Act forbearance, as well as guidelines issued by both of the Agencies requiring an individualized evaluation for borrowers coming out of forbearance, due to “grave doubts about servicers’ abilities to effectively manage the unprecedented number of borrowers who will be emerging from forbearance plans related to COVID-19 if individualized evaluations are required for each borrower.”
  • the Agencies amend their forbearance programs so that the obligation to repay forborne payments is automatically placed at the end of the loan term in the form of additional monthly payments that will follow the current term of the loan.  The Attorneys General noted that “there can be no reasonable expectation that a borrower who has experience a loss of employment or a reduction in income will be able to repay the forborne payments in a lump sum at the end of the forbearance period.” FHFA subsequently clarified its repayment requirements for its forbearance program on April 27, 2020.
  • the Agencies issue guidance allowing these post-forbearance agreements to occur without requiring borrowers to execute any additional documents, such as a loan modification agreement or a promissory note for the forborne payments, or at least waiving or easing those requirements until the pandemic abates.
  • FHFA to clarify that a borrower may receive a forbearance based on the borrower’s verbal attestation of a hardship related to COVID-19, and to encourage servicers to proactively notify borrowers of their right to verbally request a forbearance.

Expanded Eligibility for Disaster Relief-Related Modifications and Loss Mitigation Programs

The Attorneys General urged the Agencies to expand their eligibility standards for post-forbearance loss mitigation programs to enable a greater number of borrowers to qualify.  The Attorneys General urged HUD to reconsider its decision to remove the Disaster Loan Modification option for borrowers affected by COVID-19.  Further, the Attorneys General requested that the Agencies revise their respective loan modification eligibility criteria to ensure these programs have the same reach as the forbearance program mandated by the CARES Act, as the Agencies’ current guidelines impose several delinquency-related eligibility requirements.  For example:

  • Under current Fannie Mae and Freddie Mac guidelines, borrowers affected by COVID-19 are eligible for any one of three modification programs. Currently, however, a borrower is only eligible for such programs if the borrower was current or less than 31 days delinquent as of March 13, 2020. Additional delinquency-related eligibility criteria apply for the Cap and Extend Modification and Flex Modification programs.
  • Under current HUD guidelines, a borrower is only eligible for the COVID-19 Partial Claim if the borrower was current or less than 30 days delinquent as of March 1, 2020 and the partial claim amount does not exceed 30 percent of the unpaid balance. If a borrower is ineligible for the COVID-19 Partial Claim, then the borrower will be reviewed for HUD’s FHA-HAMP program. The Attorneys General noted that the FHA-HAMP program has additional seasoning requirements, such as requiring the borrower to have made at least 4 payments and the loan to have aged at least 12 months.

The Attorneys General urged the Agencies to waive the delinquency status requirements of these modification programs and noted that post-forbearance modification programs should be commensurate with the forbearance plans required by the CARES Act, as the CARES Act requires forbearance for any borrower experiencing a COVID-19 financial hardship regardless of delinquency status.  Moreover, the CARES Act authorizes forbearances of up to 360 days, so many borrowers receiving CARES Act forbearances will be more than 360 days delinquent by the end of the forbearance period.

Eviction and Foreclosure Moratoriums

Finally, the Attorneys General urged the Agencies to “instruct servicers that they also must suspend all foreclosures and evictions currently in process and cannot move forward to complete any step in the judicial or non-judicial foreclosure or eviction process while the moratorium is in place,” to address differences in various states’ foreclosure and eviction processes.

Currently, the CARES Act states that servicers of federally backed mortgages may not initiate any judicial or non-judicial foreclosures process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale until at least May 17, 2020. The Attorneys General asserted that advancing any step of the eviction or foreclosure process during a forbearance related to COVID-19 will only lead to borrower confusion and harm.

Takeaway

As the COVID-19 pandemic continues to affect homeowners and the mortgage servicing industry, there will likely be continued political pressure on the Agencies to further revise servicer loss mitigation guidelines. Servicers will need to be vigilant to stay on top of the rapidly evolving market conditions and regulatory environment.

 

Delaware Governor Issues Order Restricting Residential Foreclosures and Evictions

A&B Abstract:

On March 24, 2020, Delaware Governor, John Carney, issued a Sixth Modification (the “Order”) to the Declaration of a State of Emergency (the “State of Emergency”) initially issued on March 12, 2020. The Order addresses a number of issues that impact residential mortgage loan servicers, including restrictions on residential foreclosures and evictions and certain fees or charges.

Restrictions on Late Fees and Excess Interest for Missed Payments

The Order provides that with respect to any missed payment on a residential mortgage occurring during the State of Emergency, no late fee or excess interest may be charged or accrue on the account for such residential mortgage during the State of Emergency.  One could interpret this language to mean that while no late fees or additional interest may be charged or accrued with respect to a missed payment, regularly scheduled interest due on the missed payment may be charged.  While not free from doubt, arguably this provision applies only to owner-occupied 1- to 4-family primary residential property, as this provision immediately follows the below restriction on the commencement of a foreclosure action, which is so limited.

 Foreclosure Restrictions

The Order imposes restrictions on a mortgage servicer’s ability to initiate or complete a foreclosure action or sale and to charge certain fees or interest.  Specifically, until the State of Emergency is terminated and the public health emergency is rescinded, the provisions of the Delaware Code relating to residential mortgage foreclosures, including Subchapter XI, Chapter 49 of Title 10, are modified in the following respects:

  • A servicer may not commence a residential mortgage foreclosure action with respect to any owner-occupied 1- to 4-family primary residential property that is subject to a mortgage; the Order excludes from this restriction any mortgage that is held by the seller of the subject property who does not hold more than five such mortgages;
  • For any residential mortgage foreclosure action initiated prior to the declaration of the State of Emergency, all deadlines in that action, including those related to the Automatic Residential Mortgage Foreclosure Mediation Program established pursuant to § 5062C of Title 10 of the Delaware Code, are extended until 31 days following the termination of the State of Emergency and the rescission of the public health emergency and no late fees or interest may be charged to or accrued on the balance due on the mortgage that is the subject of the residential mortgage foreclosure action during this time period;
  • No residential property that is the subject of a residential mortgage foreclosure action, for which a judgment of foreclosure was issued prior to the declaration of the State of Emergency, may proceed to sheriff’s sale until 31 days following the termination of the State of Emergency and the rescission of the public health emergency; and
  • No residential property that was the subject of a residential mortgage foreclosure action, and which was sold at sheriff’s sale, may be subject to action of ejectment or writ of possession until 31 days following the termination of the State of Emergency and the rescission of the public health emergency.

Except as otherwise provided above, nothing in the Order is intended to relieve any individual of the obligation to make mortgage payments or to comply with any other obligation that an individual may have under a residential mortgage.  Note that Delaware is a judicial foreclosure state requiring a notice of intent to foreclose be sent to the borrower 45 days prior to the commencing foreclosure.  One could read the Order as prohibiting a servicer from sending such notices during the State of Emergency.

Restrictions on Evictions

Similarly, with respect to evictions, the Order provides that, until the State of Emergency is terminated and the public health emergency is rescinded, the provisions of Chapter 57, Title 25 of the Delaware Code (governing summary possession of residential rental units) are modified in the following respects:

  • No action for summary possession may be brought with respect to any residential rental unit located within Delaware;
  • With respect to any past due balance for a residential rental unit, no late fee or interest may be charged or accrue on the account for the residential rental unit during the State of Emergency;
  • For any action for summary possession for a residential rental unit located within Delaware, commenced prior to the declaration of the State of Emergency, all deadlines in that action are extended until at least 31 days after the termination of the State of Emergency and the rescission of the public health emergency;
  • No late fee or interest may be charged or accrue on the balance due on the account for the residential rental unit that is the subject of the action for summary possession during this time period; and
  • For any residential rental unit that was the subject of an action for summary possession, for which a final judgment was issued prior to the declaration of the State of Emergency, no writ of possession may be executed until the seventh day following the termination of the State of Emergency and the rescission of the public health emergency.

The foregoing restrictions do not apply to actions for summary possession based upon a claim that continued tenancy will cause or is threatened to cause irreparable harm to person or property.  Moreover, except as modified above, all other provisions of the Landlord Tenant Code (Chapters 51-59 of Title 25 of the Delaware Code) remain in effect in accordance with their terms and nothing in the Order is to be construed as relieving any individual of the obligation to pay rent or to comply with any other obligation that an individual may have under their tenancy.

Takeaway

As discussed above, the Order imposes a number of restrictions that impact a residential mortgage loan servicer’s ability to initiate or complete foreclosure actions and eviction proceedings as well as limitation on certain fees and charges.  Accordingly, mortgage servicers should carefully review the Order to determine their obligations with respect to impacted borrowers.