To help make things easier on both mortgage lenders and borrowers during this time of crisis, the Consumer Financial Protection Bureau (CFPB) is loosening some of its regulations under the TILA-RESPA Integrated Disclosures (TRID) rule.

The goal of the new “interpretive rule,” the bureau explains, is to make it “easier for consumers with urgent financial needs to obtain access to mortgage credit more quickly in the middle of the COVID-19 pandemic.”

“The bureau concludes in this interpretive rule that if a consumer determines that his or her need to obtain funds due to the COVID-19 pandemic 1) necessitates consummating the credit transaction before the end of the TRID Rule waiting periods or 2) must be met before the end of the Regulation Z Rescission Rules waiting period, then the consumer has a bona fide personal financial emergency that would permit the consumer to utilize the modification and waiver provisions, subject to the applicable procedures set forth in the TRID Rule and Regulation Z Rescission Rules,” the interpretive rule states.

“The bureau also concludes in this interpretive rule that the COVID-19 pandemic is a ‘changed circumstance’ for purposes of certain TRID rule provisions, allowing creditors to use revised estimates reflecting changes in settlement charges for purposes of determining good faith. This interpretive rule will help expedite consumers’ access to credit under the TRID rule and Regulation Z Rescission Rules.”

“The steps we are taking today will help consumers facing financial emergencies obtain access to mortgage credit faster,” says Kathleen L. Kraninger, director of the CFPB, in a statement. “The pandemic is resulting in consumers facing various challenges, and our temporary and targeted solutions are intended to ensure that consumers receive the credit they need in a timely manner.”

The CFPB says rule change will “also reduce regulatory uncertainty and allow creditors to focus their resources on meeting consumers’ needs.”

Source: https://mortgageorb.com/cfpb-relaxes-trid-rule-to-help-lenders-during-crisis

Federal and state regulators and Congress continue to release new guidance and requirements to assist mortgage borrowers facing economic hardships resulting from the coronavirus (COVID-19) pandemic. Due to the high volume of borrower requests, the associated burden on servicers, and the unknown duration of the COVID-19 pandemic, it is critical for servicers to be in compliance with all forbearance-related requirements and to be responsive to borrower communications and inquiries.

We provide here a comprehensive summary of all the key servicing-related requirements that have been issued in response to the COVID-19 pandemic so that servicers may properly adapt to the numerous requirements. Now is the time to start planning and preparing for post-forbearance options.

CARES ACT REQUIREMENTS AND RELATED FEDERAL GUIDANCE

CARES Act

The CARES Act, which took effect March 27, contains a number of federal law requirements applicable to mortgages and leases. These requirements, by their express terms, do not apply to all mortgages and leases, but rather are limited to properties that are subject to federally-backed mortgage loans or borrowers that participate in certain federal housing and urban development programs. The one exception is with respect to credit reporting, for which the new requirements apply to all consumers, not just borrowers under federal programs. Federally-backed mortgage loans include both residential and multifamily properties insured, guaranteed, supplemented, or assisted pursuant to various federal housing and urban development programs, or purchased or securitized by Fannie Mae or Freddie Mac. Individual condominium or cooperative units are included among the covered properties. Construction loans and “other temporary financings” are excluded.

A borrower with a federally-backed one- to four-family residential mortgage loan experiencing financial hardship due to the COVID-19 pandemic may request forbearance, regardless of delinquency status. Upon receipt of a borrower’s request for forbearance, the forbearance must be granted for up to 180 days, and must be extended for a further 180 days at the request of the borrower. The servicer is not required to obtain documentary evidence in support of the borrower’s request and, moreover, is not permitted to require that a borrower submit documentation as a condition of obtaining relief. During the forbearance period, no additional fees, penalties, or interest may be accrued, but the unpaid principal balance will continue to be due.

Multifamily loan borrowers also are entitled to forbearance, but to a more limited extent. The borrower must have been current on his or her payments as of February 1, 2020. Upon receipt of a request for forbearance (which may be oral or written) the servicer must provide forbearance for up to 30 days, and upon request of the borrower, extend the forbearance period for up to two additional 30-day periods. The servicer is not required to obtain documentary evidence in support of the borrower’s request (but is not expressly prohibited from doing so). A multifamily borrower who receives forbearance may not issue a notice to vacate a residential unit during the forbearance period, and in any event may not require a tenant to vacate before the date that is 30 days after the date on which the tenant is given a notice to vacate.

Irrespective of loan type, furnishers of credit information to credit reporting agencies must report consumers as “current” for the duration of the forbearance period, unless the borrower was already being reported as behind on payments, in which case delinquency reporting must be frozen as of the date of the forbearance. This requirement is not limited to federally-backed mortgages, but extends to all loss mitigation relief offered on all forms of credit “to a consumer who is affected by the [COVID-19] pandemic” during the period between January 31, 2020 and 120 days after the expiration of the current national emergency declaration. If the owner/borrower of a multifamily property is a natural person, he/she is deemed a “consumer” for these purposes, and gets the benefit of these credit reporting provisions.

Servicers of covered one- to four-family residential loans also are prohibited from initiating foreclosure actions for the 60-day period beginning March 18, 2020. These foreclosure restrictions do not apply to vacant or abandoned properties.

FHFA Initiatives

Shortly before the enactment of the CARES Act, the Federal Housing Finance Agency (FHFA) had already directed Fannie Mae and Freddie Mac (the government-sponsored enterprises, or GSEs) to suspend foreclosures and evictions for at least 60 days due to the COVID-19 pandemic. The foreclosure and eviction suspension applies to homeowners with a GSE–backed single family mortgage.

FHFA also announced that the GSEs will provide payment forbearance to single-family borrowers, which will allow mortgage payments to be suspended for up to 12 months due to hardship caused by the coronavirus. The GSEs also have offered multifamily property owners mortgage forbearance, subject to the condition that borrowers suspend all evictions for renters unable to pay rent due to the impact of COVID-19.

The FHFA announced on April 21 that servicers’ obligations to advance scheduled monthly payments for the GSE-backed single-family mortgage loans in forbearance will be limited to four months. After the four-month period, the GSEs will stand ready to take over advancing payments to investors in mortgage-backed securities (MBS). Previously, only Freddie Mac servicers, which generally are responsible for advancing scheduled interest, were limited in that obligation to four months of missed borrower interest payments. Fannie Mae servicers, by contrast, generally are obligated to advance both scheduled principal and interest payments that a borrower does not make, and Fannie Mae policy could have obligated servicers to do so indefinitely. Rising forbearances—mandated by the FHFA and state and federal actions in response to the COVID-19 pandemic—highlighted this significant difference between the two GSEs’ servicing policies. The FHFA announcement now largely aligns the two GSEs’ policies. The announcement appears to leave intact the disparity that Fannie Mae servicers must advance both principal and interest for the four-month period, while Freddie Mac servicers need only advance interest.

According to FHFA Director Mark Calabria, this change will allow all GSE servicers, regardless of type or size, to plan for exactly how long they will need to advance principal and interest payments on loans for which borrowers have not made their monthly payments. Mortgage loans that are delinquent for more than four months historically were purchased by the GSEs out of MBS pools. This FHFA action clarifies that mortgage loans with COVID-19 payment forbearances will be treated similarly to a natural disaster event and will remain in their MBS pools. This effort puts a four-month cap on servicer liability for advancing, which is significant because forbearances could last up to a year under the CARES Act (as described above). However, the announcement fails to address when servicers will be reimbursed for their advances, and raises questions about the sufficiency of liquidity across the market.

On April 22, the FHFA announced that it is allowing certain single-family loans in forbearance to be purchased and securitized through the GSEs. Mortgage loans either in forbearance or delinquent generally are ineligible for delivery under GSE requirements. However, the FHFA’s action lifts that restriction for a limited period of time and only for mortgages meeting certain eligibility criteria. Eligible loans will also be priced to mitigate the heightened risk of loss to the GSEs from these loans.

On April 27, Mr. Calabria reiterated that borrowers in forbearance with a Fannie Mae- or Freddie Mac-backed mortgage are not required to repay the missed payments in one lump sum. While his statement only covers Fannie Mae and Freddie Mac mortgages, he encouraged all mortgage lenders and servicers to adopt a similar approach.

Related Federal Guidance

On April 3, federal financial regulatory agencies, including the Board of Governors of the Federal Reserve System (Federal Reserve), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Consumer Financial Protection Bureau (CFPB), and state financial regulators issued a joint policy statement providing needed regulatory flexibility to enable mortgage servicers to work with struggling consumers affected by the COVID-19 pandemic. The statement informs servicers of the agencies’ flexible supervisory and enforcement approach during the COVID-19 pandemic regarding certain communications to consumers required by the mortgage servicing rules.

The policy statement was designed to make it easier for mortgage servicers to place consumers in short-term payment forbearance programs such as the one required by the CARES Act. The policy statement clarifies that the agencies do not intend to take supervisory or enforcement action against mortgage servicers for delays in sending certain early intervention and loss mitigation notices and taking certain actions relating to loss mitigation set out in the CFPB’s mortgage servicing rules, provided that servicers are making good-faith efforts to provide these notices and take these actions within a reasonable time. The statement does not purport to impose any limitations on consumer claims premised on servicers failing to abide by federal guidance.

On April 7, federal financial institution regulatory agencies (including the CFPB), in consultation with state financial regulators, issued a revised interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications. The revised statement also provides the agencies’ views on consumer protection considerations. The agencies encourage financial institutions to work with borrowers and will not criticize institutions for doing so in a safe and sound manner. The agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk. Agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.

With regard to loans not otherwise reportable as past due, the revised statement makes clear that financial institutions are expected to not designate loans with deferrals granted due to COVID-19 as past due because of the deferral. Since a loan’s payment date is governed by the due date stipulated in the legal agreement, then a financial institution’s agreement to a payment deferral may result in no contractual payments being past due, and these loans are not considered past due during the period of the deferral.

STATE/LOCAL JURISDICTION APPROACHES

District of Columbia

On April 7, the DC Council unanimously approved an emergency bill extending additional relief to residents and businesses impacted by the COVID-19 pandemic. The bill freezes residential rent increases throughout the public health emergency, and 30 days beyond its end. It also creates a mandatory 90-day mortgage deferment program for residential and commercial mortgage holders who request one (the bill’s language is limited to mortgage companies regulated by the city, which means the payment deferrals do not apply to property owners who borrowed money from national banks, for example). No late fees or penalties would accrue and repayment of the deferred amount may be done via a repayment plan, but not through a required balloon lump payment (subject to investor guidelines).

New York

Governor Cuomo’s Executive Orders

In response to the COVID-19 crisis, New York Governor Andrew Cuomo issued two executive orders that place temporary restraints on the ability of banks, residential mortgage servicers, and landlords to exercise remedies under certain agreements, mortgages, and leases. On March 20, Governor Cuomo issued Executive Order 202.8, which includes a statement that “there shall be no enforcement of either an eviction of any tenant residential or commercial, or a foreclosure of any residential or commercial property for a period of ninety days.” As such, landlords cannot seek to evict any tenants in New York State for a 90-day period, and lenders cannot proceed with foreclosure on residential or commercial mortgages on New York properties for a 90-day period.

On March 21, this action was followed by Executive Order 202.9, which includes two major actions. First, Order 202.9 temporarily modifies Section 39 of the New York Banking Law from March 21, 2020 to April 20, 2020, to provide that “it shall be deemed an unsafe and unsound business practice if, in response to the COVID-19 pandemic, any bank which is subject to the jurisdiction of the Department shall not grant a forbearance to any person or business who has a financial hardship as a result of the COVID-19 pandemic for a period of ninety days.” The provision applies to banks subject to New York Department of Financial Services (DFS) jurisdiction. In general, these include banks organized under or subject to the New York Banking Law. The provision is inapplicable to national banks, federal savings banks, and nonbank lenders. Second, Order 202.9 directed the DFS superintendent to promulgate emergency regulations concerning forbearance on mortgage payments and certain banking fees for consumers facing financial hardships relating to the COVID-19 pandemic.

New York Department of Financial Services Regulations

On March 24, DFS issued emergency regulations (the NY Regulations), adopted pursuant to Executive Order 202.9, to address these two areas. The NY Regulations require that, through April 20, 2020, DFS-regulated banks (that is, state banks chartered under New York law) and DFS-licensed residential mortgage servicers grant 90-day forbearances on certain residential mortgages on property located in New York to any New York consumer who applies and demonstrates financial hardship as a result of the COVID-19 pandemic. The NY Regulations provide that the obligation to grant a forbearance is subject to the safety and soundness requirements of the regulated institutions. The NY Regulations expressly exclude from their coverage any commercial mortgage loans, federally-insured loans, and loans “made, insured, or securitized by” Fannie Mae, Freddie Mac, Ginnie Mae, or the Federal Home Loan Banks. Many of these excluded residential mortgage loans are, in practice, already covered by previously-announced broader forbearance relief.

For the residential mortgage servicers to which the NY Regulations apply, compliance with the forbearance provisions becomes a matter of de facto federal law by virtue of the loss mitigation regulations in the mortgage servicing rules in the CFPB’s Regulation X, 12 CFR § 1024.38.

The NY Regulations clarify that, with respect to residential mortgage loans, DFS-regulated banks’ compliance with the NY Regulations satisfies their obligations under the temporary modification of Section 39 of the New York Banking Law that the first part of Order 202.9 addresses.

New York Attorney General Servicer Letters

On April 22, New York Attorney General (NYAG) Letitia James sent letters to 35 of New York’s major servicers, calling on them to provide immediate and long-term relief to all New York homeowners struggling to pay mortgages amidst the COVID-19 pandemic. According to Attorney General James, the letters “emphasize the responsibility of mortgage servicers to do more to ensure that COVID-19 does not cause unnecessary foreclosures or increase homelessness in New York State.”

While Attorney General James acknowledges that servicers have taken some key first steps, both voluntarily and in response to government action, to help homeowners adversely impacted by COVID-19, her letters outline additional steps servicers should implement to avoid a foreclosure crisis when the New York State-mandated mortgage forbearance agreements (as described above) have terminated. Attorney General James requested the following of servicers:

Automatically waive late fees and place homeowners in a three-month forbearance as soon as a payment is missed, whether or not this action requested by the homeowner;

Permit homeowners to renew their 90-day forbearance agreements for up to one year, and provide these extensions based on a verbal or written affirmation that a homeowner’s hardship is COVID-19 related without requiring additional documentation;

Provide a complete and accurate description of post-forbearance options when placing homeowners into a forbearance plan or responding to homeowners’ requests;

Ensure adequate staffing and resources to process homeowners’ questions and requests; and Develop and be prepared to implement long-term solutions that ensure affected homeowners can easily resume payments at the end of these forbearance periods.

The NYAG also expressly encouraged servicers to take steps necessary to communicate effectively with customers who have limited English proficiency, for example by translating standard written solicitations and sections of their websites describing COVID-19-related forbearance programs.

With investors like Fannie Mae and Freddie Mac already requiring servicers to find an affordable solution at the end of the forbearance period, including by placing arrears at the end of the mortgage as additional monthly payments (which may be functionally equivalent to converting the forbearance into a deferment), Attorney General James is calling for all mortgage servicers to provide similar long-term relief to all New York homeowners in order to stave off a future foreclosure crisis.

Massachusetts

Massachusetts Governor Charlie Baker signed emergency legislation on April 20 limiting evictions for residential and small business properties, and limiting foreclosures and requiring forbearance for residential properties. This legislation follows a number of actions by Governor Baker and the City of Boston to protect renters, homeowners, and small businesses during the COVID-19 pandemic.

Except for properties that are vacant or abandoned, lenders holding mortgages on residential properties are prohibited from foreclosing. Mortgage lenders are required to grant forbearance to residential borrowers for a 180-day period if, prior to the expiration of the statutory forbearance period, the borrower submits a request to the mortgage servicer affirming that the borrower has experienced financial impact from COVID-19. Lenders are not permitted to charge fees or penalties or interest beyond the amounts scheduled and calculated as if the borrower has made all scheduled payments in full and on time. Missed payments are to be added at the end of the term of the loan, unless the parties agree to an alternative arrangement.

Other States

Voluntary Partnerships

A handful of other states, including California, Connecticut, Michigan, New Jersey, and Pennsylvania, have established voluntary programs whereby state residents who are struggling financially as a result of COVID-19 may, upon contacting their servicer, be eligible for a 90-day grace period for mortgage payments. Financial institutions will offer, consistent with applicable guidelines, residential mortgage payment forbearances of up to 90 days to borrowers economically impacted by COVID-19. In addition, those institutions will provide borrowers a streamlined process to request a forbearance for COVID-19-related reasons, supported with available documentation; confirm approval of and terms of the forbearance program; and provide borrowers the opportunity to request additional relief, as practicable, upon continued showing of hardship due to COVID-19. For at least 90 days, financial institutions will waive or refund at least mortgage-related late fees and certain other fees for customers who have requested assistance.

With respect to credit reporting, participating financial institutions will not report derogatory tradelines (e.g., late or missed payments) to credit reporting agencies for borrowers taking advantage of COVID-19-related relief, but they may report a forbearance, which typically does not alone negatively affect a credit score. In practice, these credit reporting provisions are likely supplanted by the CARES Act amendments to the federal Fair Credit Reporting Act. As discussed above, the CARES Act amendments require, during the period they are effective, all creditors to freeze credit reporting as of the date of the accommodation for any consumer affected by the COVID-19 pandemic.

Nonbinding Guidance

A small collection of additional states have provided nonbinding guidance with respect to requesting or urging servicers to proactively work with borrowers impacted by the COVID-19 pandemic.

Arizona: On March 19, the Arizona Attorney General requested that lending companies defer payments (without lump sum or balloon payments), cease foreclosures, waive late fees and default interest for late payments, and cease negative reporting to credit reporting agencies for 90 days.

California: On March 22, the California Department of Business Oversight issued an advisory encouraging financial institutions to adopt certain practices during the COVID-19 pandemic, including offering payment accommodations, such as allowing borrowers to defer or skip some payments or extending the payment due date, which would avoid delinquencies and the furnishing of negative payment information to credit reporting agencies.

Connecticut: The Department of Banking encouraged servicers and other financial institutions to work with borrowers whose ability to make loan repayments may be impacted by COVID-19. Efforts may include waiving late fees, offering forbearance plans or other deferment options and having adequate staff available to work proactively with borrowers facing hardship. The Department also encouraged servicers to consider providing guidance to their internal and external collection teams regarding the servicer’s policies at this time.

Illinois: The Illinois Division of Financial Institutions urged all servicers to: (i) forbear mortgage payments for at least 90 days without incurring additional interest or fees; (ii) refrain from reporting late payments to credit reporting agencies, and when payments are modified, coding those payments as deferred with the applicable disaster code; (iii) offer mortgage borrowers an additional 90-day grace period to complete trial loan modifications, and ensuring that late payments during the COVID-19 pandemic do not affect a borrower’s ability to obtain permanent loan modifications; (iv) offer other loss mitigation options to mortgage borrowers, including those that help borrowers stay in their homes at affordable payments; (v) waive late payment fees and online payment fees for a period of at least 90 days and, for mortgage borrowers in a forbearance plan, during the period of forbearance; (vi) postpone foreclosures and evictions for at least 90 days; and (vii) contact mortgage borrowers on automatic payment plans to see if they need to temporarily suspend those payments and, if so, grant any such requests without delay and place the mortgage borrower in a forbearance program.

Maine: Governor Janet Mills urged all Maine banks and credit unions to work proactively with Maine homeowners and small businesses experiencing financial hardship from COVID-19. Governor Mills discouraged Maine banks and credit unions from initiating residential and commercial foreclosures and asked them to pause any foreclosures in progress. She also urged Maine banks and credit unions to refrain from mailing “notices to cure” to Maine residents and businesses as long as the current federal moratorium or successive moratoria remain in effect, and to continue to work with all borrowers in a proactive way.

Maryland: The Commissioner of Financial Regulation urged all mortgage servicers to take reasonable steps in an attempt to offer assistance affected by the COVID-19 pandemic. Such steps include waiving fees, forgoing the reporting of payment information, offering forbearance, extending loan modification trial periods, proactively communicate with borrowers, and training all staff of assistance options available to a borrower.

Nebraska: The Nebraska Department of Banking and Finance encouraged financial institutions to work with affected customers and communities. Efforts may include payment accommodations such as allowing borrowers to defer or skip some payments or extending the payment due date by up to 90 days.

Oregon: The Oregon Division of Financial Regulation encouraged all Oregon-regulated lenders and loan servicers to take active measures to help borrowers economically affected by the COVID-19 pandemic. This includes offering loan forbearance plans, fee waivers, and other deferred payment options.

Vermont: The Vermont Department of Financial Regulation encouraged licensees to communicate and work closely with affected customers by waiving certain fees, easing restrictions, and even offering payment accommodations.

Washington: Governor Jay Inslee and the Washington State Department of Financial Institutions urged servicers to work with homeowners adversely impacted by COVID-19, including payment forbearance for those who need it.

KEY TAKEAWAYS

When working with borrowers, servicers should adhere to state and federal consumer protection requirements, including fair lending laws. Federal and state financial regulators have provided guidance indicating that they will take into account the unique circumstances impacting borrowers and institutions resulting from the COVID-19 pandemic when exercising supervisory and enforcement responsibilities. However, servicers should, at the very least, be able to demonstrate good-faith efforts designed to support consumers and comply with consumer protection laws. Servicers who can proactively identify issues, correct deficiencies, and ensure appropriate remediation to consumers are not only improving efficiency, but also taking important steps to limit future claims premised on standards embodied by these recent government actions. The signatories to the April 3 and April 7 interagency guidance (as discussed above) state that they do not expect to take a consumer compliance public enforcement action against an institution, provided that the circumstances were related to the COVID-19 pandemic and that the institution made good faith efforts to support borrowers and comply with the consumer protection requirements, as well as responded to any needed corrective action. Because state attorneys general did not sign onto this guidance, the possibility remains of state investigations or enforcement matters (and the substance and tone of the NYAG letters indicates that strong possibility). Servicers should keep careful watch over these and future developments to also ensure compliance with the CFPB’s Regulation X servicing rules and U.S. Department of Housing & Urban Development’s complex loss mitigation requirements. Servicers also should be aware of any potential risks related to engaging in unfair or deceptive or abusive business acts or practices (UDAPs/UDAAPs). Certain state and federal regulations require servicers to act in good faith and deal fairly with borrowers, including by structuring any necessary loan modifications to result in payments that are reasonably affordable and sustainable for the borrower at the time the modification is made.

Be mindful of the myriad of federal and state laws, regulations, and guidance, and exercise careful diligence in ensuring compliance with the various tenets of these government actions. As described above, the non-uniform federal and state requirements with respect to the treatment and handling of mortgage loan forbearances related to the COVID-19 pandemic create a patchwork of different requirements, including with respect to how to handle a borrower’s missed payments at the end of a forbearance period. This complexity creates compliance challenges, particularly for those servicers with national servicing platforms. For example, per FHFA guidance, borrowers in forbearance with a GSE-backed mortgage are not required to repay the missed payments in one lump sum (and such repayment options could include setting up a repayment plan; modifying the loan so the borrower’s payments are added to the end of the mortgage; or setting up a modification that reduces the borrower’s monthly mortgage payment). The state-specific approaches generally apply to loans without regard to GSE or private funding. Massachusetts requires a borrower’s missed payments to be added at the end of the term of the loan, unless the parties agree to an alternative arrangement. The District of Columbia allows for a borrower’s payment of the deferred amount to be completed via a repayment plan, but not through a required balloon lump payment. The New York DFS emergency regulations do not stipulate how missed payments should be repaid. With respect to the voluntary programs available in California, Connecticut, Michigan, New Jersey, and Pennsylvania, the onus is on the part of financial institutions to work constructively with consumers. For example, the programs allow for the terms of a forbearance to be agreed upon between the borrower and the servicer, with servicers confirming approval of and terms of the forbearance program. Servicers also should closely monitor any additional developments at both the federal level and within the states in which they do business, including at the local level.

Be transparent and responsive to borrower inquiries and communications, and ensure appropriate staffing. Although there is widespread recognition that servicers are experiencing high volumes of inquiries, servicers should strive to be communicative and cooperative with, and responsive to, consumers. Some states have explicitly directed consumers to file a complaint against uncooperative and uncommunicative mortgage servicers with the relevant state authority. While many servicers are facing their own challenges as more and more of their employees must work from home, at least some state regulators have publicly stated that this does not excuse servicers from meeting their obligations to consumers, and that servicers must implement alternative measures. These include taking steps to eliminate long hold times, allowing borrowers to request relief via e-mail or via website in addition to by phone, and ensuring that calls are not being dropped. A number of individual and class claims filed in the aftermath of the 2008 financial crisis were premised explicitly on undue delays alleged to flow from inadequate staffing and training.

Be aware of federal and state regulatory “requests” and guidance that contain veiled enforcement threats. For example, on the one hand, the NYAG servicer letters, while presented in the context of making certain “requests” to servicers, make clear that the NYAG intends to hold the servicing industry accountable for meeting its obligations to homeowners during this crisis. The letters state they will be monitoring compliance with emergency laws and regulations, evaluating servicers’ performance at implementing COVID-19 relief programs, and determining which servicers are working most effectively to protect the long-term financial health of New York’s homeowners and communities. The NYAG further states that it has already received complaints from borrowers who have had difficulty contacting their servicer and who have highlighted that their economic hardship is likely long-term. According to the NYAG letters, servicers who are unable to meet the demand from consumers who are struggling and need help “will face additional scrutiny” and “will be held accountable for harm caused to consumers.” Even where the NYAG or other regulators decline to act, the standards set out by these recent pronouncements are likely to be adopted by consumer plaintiffs in their own individual or class actions alleging servicing failures. On the other hand, the NYAG letters, in their current form, are not “law.”

Start planning and preparing for post-forbearance options. Since it remains unclear how severe the effects of the COVID-19 pandemic will be and how long the pandemic will last, servicers should consider committing to both providing consumer relief and assessing the ongoing conditions and necessity of continuing relief. Servicers may wish to consider taking steps now, consistent with contractual obligations to loan owners (including securitization vehicles) and a myriad of federal and state regulations and guidance, to implement loan modification options to be offered to borrowers at least 30 days prior to the conclusion of a forbearance plan. Such steps align with the requirements pertaining to borrowers in forbearance with a Fannie Mae- or Freddie Mac-backed mortgage (for which their servicer will contact them about 30 days before the end of the forbearance plan to see if the temporary hardship has been resolved and discuss a forbearance extension or repayment options), and help ease the burden on servicers when the COVID-19-related forbearance periods terminate.

Aim to work with borrowers on their specific needs or concerns. Consistent with contractual obligations to loan owners (including securitization vehicles) and a myriad of federal and state regulations and guidance, a servicer who works with a borrower to address specific borrower requests, concerns, or individual financial health would likely curry regulatory favor. In particular, issues surrounding escrow and tax and insurance payments may require more individualized and customized assistance.

Source: https://www.jdsupra.com/legalnews/covid-19-what-servicers-should-know-68430/

The sudden financial impact of the COVID-19 pandemic on consumers has led to calls for loan servicers and other interested parties to provide temporary or permanent relief for borrowers who are unable to continue making loan payments. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), guidance in the mortgage world from Government Sponsored Entities (GSEs), and emergency regulations issued by the federal government and by state governments have mandated certain forms of relief to impacted consumers. These actors, in turn, have provided some flexibility to facilitate that relief. Many lenders and servicers have answered the call by implementing mandated options and often voluntarily creating programs for borrower relief. But the volume of consumer demand for hardship relief and the speed with which these programs have been implemented may give rise to concerns about fair lending compliance, and whether the monitoring necessary for such compliance can be implemented in a timely and effective manner.

This is the second article of a series of highlighting fair lending issues that may arise in this rapidly changing business and compliance environment. This alert focuses on fair lending issues that may arise in connection with consumer loan and asset servicing during the pandemic, and provides practical advice on things to consider in mitigating those risks in real time.

Government and GSE Response: A Refresher

Congress, federal regulators, and GSEs have provided temporary relief measures for a considerable number of borrowers. The CARES Act mortgage servicers and other interested parties to provide temporary forbearance for all loans that are federally insured, federally guaranteed, or purchased or securitized by Fannie Mae and Freddie Mac. GSEs, including Fannie Mae and Freddie Mac, have issued a variety of mortgage servicing guidelines for processing requests arising from a COVID-19-caused hardship for loans they have purchased or securitized. More generally, the Federal Reserve, FDIC, NCUA, OCC, and CFPB issued (Federal Inter-Agency Guidance) urging lenders, servicers, and others “to consider prudent arrangements that can help ease cash flow pressures on affected borrowers, improve their capacity to service debt, [and] increase the potential for financially stressed borrowers to keep their homes.”

Many states have also implemented temporary measures to protect consumers affected by the pandemic. Early measures included moratoriums on mortgage foreclosures and residential evictions; and temporary limitations on bank account and wage garnishment, debt collection, and communication with delinquent borrowers. Although many of these measures are temporarily effective only for the duration of the respective states of emergency, some regulators, such as the have already begun looking beyond the horizon and have called on mortgage lenders to consider longer-term solutions.

Some servicers and other interested parties have voluntarily offered discretionary programs for hardship relief, such as fee waivers and loan modifications, and have even applied CARES Act standards to mortgage loans not covered by the law. The situation is fluid, as market participants respond, and consumer needs and desires become clearer.

Fair Servicing Risks of Providing COVID-19 Relief and Strategies for Mitigation
The unprecedented and unexpected demand for relief, and the speed with which lenders and servicers are required to or choose to implement new regulatory requirements and deliver relief, challenge many participants in their ability to implement a comprehensive protocol of controls and processes that ensure and document compliance with existing legal requirements, internal policies and processes, regulator expectations, and best practices. One of many compliance issues that may be implicated are fair lending rules and standards. Fair lending risk is perhaps compounded by the Federal Inter-Agency Guidance’s warning that, while regulators will not criticize lenders, servicers, and others for deviations from pre-pandemic standards in the course of prudently delivering borrower relief, such leeway may result in discretionary and differential treatment of borrowers. Despite expressing some degree of understanding and lenience for the “unique circumstances” posed by the COVID-19 crisis, the Federal Inter-Agency Guidance states that, in providing consumer relief, lenders and servicers are expected to “adhere to consumer protection requirements, including fair lending laws.” Similarly, in a recent blog post, the CFPB that it would “not hesitate to take public enforcement action” for fair lending issues that arise from the ongoing pandemic.

The magnitude of fair lending risks posed by aspects of crisis consumer relief are far from clear. The law is itself unsettled as to whether, and how, fair lending legal requirements might even apply to primarily loan servicing activities. This is true even in the business of home mortgage loan servicing, for which so-called “fair servicing” has been a topic of servicer and regulatory scrutiny. Aspects of loan servicing that redefine the debt relationship, such as loan modifications, might be considered as either extensions of credit or an aspect of a credit transaction that may be subject to the Fair Housing Act (FHA), the Equal Credit Opportunity Act (ECOA), and Regulation B, as well as equivalent state and municipal anti-discrimination laws. While there is legitimate debate over whether the FHA applies to loan servicing — since the statute applies only to the “sale or rental of a dwelling” or lending in connection therewith1 — the CFPB has taken the view that ECOA extends fair lending obligations to fair servicing (as made apparent in the and provisions of the Examination Manual). The application of ECOA to mere forbearances, especially those that are involuntary from the standpoint of the servicer, is yet to be resolved, as is the application of ECOA to other forms of consumer debt and crisis relief that is not granted by an ECOA-covered “creditor.”

Whatever the legal reach of fair lending requirements, there are considerations that may counsel lenders, servicers, and others to be mindful of ensuring that similarly situated consumers are treated equally, that decisions to grant relief are based on legitimate business considerations, and that fair lending-type concerns are evaluated as part of a larger program and response. If nothing else, the language of the Federal Inter-Agency Guidance and the CFPB blog post suggests that regulators (and those that follow their lead) likely will be looking at ”fair servicing.”

If your institution decides to engage in fair servicing analyses for crisis-era relief programs, the following strategies for mitigating risk are worthy of close consideration:

1. Develop Uniform Relief Programs

Emergency orders, regulations, and guidance issued in response to the COVID-19 pandemic mandate specific relief for certain types of loans, such as federally backed mortgages and student loans, but allow some discretion in providing borrower relief. The exercise of employee discretion and the assistance of consumers on a case-by-case basis are often appropriate but, because the relief would be selectively offered or tailored, inadvertently disparate results for similarly situated consumers can occur. As a result, it is prudent as a general matter to assist consumers by developing and implementing standardized relief options that can be offered uniformly, and at scale, to meet the large demand for relief. The program features and their eligibility criteria should be clear and consistently applied. Limit the ability of employees to exercise discretion in making decisions to grant hardship relief. If discretion to deviate from uniform standards is necessary for certain cases, those exceptions (and the reasons for the exceptions) should be well documented.

2. Tailor Communications Practices

Consistent with being objective and even handed, it can be useful to proactively communicate with consumers to ensure that each of them have access to the same information about the availability of relief. Information about relief programs (or directions for requesting relief) should be publicly posted on the lender or servicer’s website, or communicated to all potentially eligible consumers. (However, in doing so, be mindful of existing law, as well as emergency orders and regulations adopted by some states and municipalities, which limit the servicer’s ability to communicate with consumers who are more than 30 days delinquent, or in bankruptcy, or who have asked to have no communication with the servicer.) Early communication with consumers is crucial to ensuring that they have the information necessary to seek relief before they are seriously delinquent.

3. Carefully Draft Application Questions

Some relief programs offered to borrowers during the COVID-19 pandemic are available only if the consumer can demonstrate financial hardship as a result of the pandemic. The process of demonstrating a pandemic-related hardship may reveal information bearing on a prohibited basis, such as the fact that the borrower is caring for a sick spouse, has medical debt from seeking hospitalization for COVID-19, or is receiving public assistance. ECOA prohibits the request of information about a borrower’s membership in a prohibited basis group, and the use of such information in making a credit decision, except in very limited circumstances.2 Lenders and servicers should develop a standard application or telephone script used to collect information from consumers seeking relief to ensure that their employees do not ask for prohibited basis information unless required. If such information is nonetheless volunteered by the consumer, such information cannot be considered in the credit decision, except as expressly permitted by law.

4. Sensitively Handle Medical Information

Due to the fact that COVID-19 is a medical crisis, the process of servicing loans and evaluating borrower requests for loan modifications and other relief may inadvertently reveal sensitive medical information about the consumer. The Fair Credit Reporting Act (FCRA) and Regulation V prohibit creditors and servicers from requesting, obtaining, or using medical information in a credit decision or an evaluation of the borrower’s continued eligibility for credit.3 But a credit report or the consumer’s statement of hardship may inadvertently reveal medical information, such as the existence of overdue medical debt incurred in connection with a hospitalization for COVID-19, or the mere fact that a forbearance of debt payments has been granted. Use of unsolicited medical information in making a credit decision is permissible only if: (a) the information is the type of information routinely used in making credit eligibility determinations (such as a delinquency); (b) the creditor uses the medical information in a manner and to an extent that is no less favorable than it would use comparable information that is not medical information in a credit transaction (e.g. delinquent medical debt is treated the same as other delinquencies); and (c) the creditor does not take the consumer’s physical, mental, or behavioral health, condition or history, type of treatment, or prognosis into account as part of any such determination.4 FCRA also requires lenders and servicers that obtain a credit report containing medical information to keep that information confidential.

5. Consider the Effect of Social Distancing on Repayment Options

Consider whether stay-at-home orders and social distancing may disadvantage persons who happen to be in a protected class from making payments. For example, a lender or servicer may reduce its physical footprint by closing down retail branches or other locations where payments are accepted. If elderly or minority consumers are more likely to make payments at a physical location, servicers should consider how best to serve those populations to prevent a disparate impact. For example, communicating location closures, providing multiple payment options, waiving fees for live customer service, or allowing a one-time late fee waiver for consumers who make payments at physical locations, may mitigate the risk of disparately impacting members of certain communities.

6. Training and Vendor Management is Paramount

The most well-laid plans still have a risk of leaving a considerable impact on a prohibited basis group if the employees and vendors implementing those plans are not well-prepared. Employees and vendors should be trained on new programs, and be given clear and consistent instructions, telephone scripts, and job aids to ensure that the plans are implemented consistently across the board. This is obviously challenging in the current remote working environment. Companies should consider how they will evaluate performance and adherence to such policies and procedures in this environment, and provide and document feedback or corrective action when necessary.

7. Document Decisions and Deviation from Standard Practice

Although the Federal Inter-Agency Guidance provides some leniency to facilitate good-faith efforts to assist borrowers, that leniency does not extend to violations of fair lending laws. The industry should prepare for regulators to examine compliance and fair lending issues that arose during the pandemic. In particular, regulators are expected to focus on whether the process used by a lender or servicer to provide consumer relief (or deviate from standard practice and underwriting criteria) was fair and consistent. Any exceptions should be commensurate with the circumstances presented, and documented in a way that enables the regulators to understand that the response was fair, reasonable, and in the best interest of consumers in the larger context of business requirements.

1 42 U.S.C. §§ 3604(b), 36052

12 C.F.R. §§ 1002.5, 1002.6

3 15 U.S.C. § 1681b(g); 12 C.F.R. tit. 12, ch. X, pt. 1022.

4 12 C.F.R. § 1022.30.

Source:https://iclg.com/briefing/12636-fair-lending-considerations-in-a-covid-19-world-fair-servicing-and-consumer-relief-in-the-u-s

Okay, so here we are… we have worked together to secure financing for your mortgage. You are getting a great rate, favourable terms that meet your mortgage goals, the lender is satisfied with all the supporting documents, we are broker complete, and the only thing left to do is wait for the day the lawyers advance the funds for the mortgage. Here is a list of things you should NEVER do in the time between your financing complete date (when everything is setup and looks good) and your closing date (the day the lender actually advances funds).

Never make changes to your financial situation without first consulting me. Changes to your financial situation before your mortgage closes could actually cause your mortgage to be declined.

So without delay, here are the 10 Don’ts of Mortgage Closing… inspired by real life situations.

1: Don’t quit your job.

This might sound obvious, but if you quit your job we will have to report this change in employment status to the lender. From there you will be required to support your mortgage application with your new employment details. Even if you have taken on a new job that pays twice as much in the same industry, there still might be a probationary period and the lender might not feel comfortable with proceeding. If you are thinking of making changes to your employment status… contact me first, it might be alright to proceed, but then again it might just be best to wait until your mortgage closes! Let’s talk it out.

2: Don’t do anything that would reduce your income.

Kinda like point one, don’t change your status at your existing employer. Getting a raise is fine, but dropping from Full Time to Part Time status is not a good idea. The reduced income will change your debt services ratios on your application and you might not qualify.

3: Don’t apply for new credit.

I realize that you are excited to get your new house, especially if this is your first house, however now is not the time to go shopping on credit or take out new credit cards. So if you find yourself at the Brick, shopping for new furniture and they want you to finance your purchase right now… don’t. By applying for new credit and taking out new credit, you can jeopardize your mortgage.

4: Don’t get rid of existing credit.

Okay, in the same way that it’s not a good idea to take on new credit, it’s best not to close any existing credit either. The lender has agreed to lend you the money for a mortgage based on your current financial situation and this includes the strength of your credit profile. Mortgage lenders and insurers have a minimum credit profile required to lend you money, if you close active accounts, you could fall into an unacceptable credit situation.

5: Don’t co-sign for a loan or mortgage for someone else.

You may have the best intentions in the world, but if you co-sign for any type of debt for someone else, you are 100% responsible for the full payments incurred on that loan. This extra debt is added to your expenses and may throw your ratios out of line.

6: Don’t stop paying your bills.

Although this is still good advice for people purchasing homes, it is more often an issue in a refinance situation. If we are just waiting on the proceeds of a refinance in order to consolidate some of your debts, you must continue making your payments as scheduled. If you choose not to make your payments, it will reflect on your credit bureau and it could impact your ability to get your mortgage. Best advice is to continue making all your payments until the refinance has gone through and your balances have been brought to zero.

7: Don’t spend your closing costs.

Typically the lender wants to see you with 1.5% saved up to cover closing costs… this money is used to cover the expense of closing your mortgage, like paying your lawyer for their services. So you might think that because you shouldn’t take out new credit to buy furniture, you can use this money instead. Bad idea. If you don’t pay the lawyer… you aren’t getting your house, and the furniture will have to be delivered curb side. And it’s cold in Canada. You get the picture. However just in case you don’t, I included it below.

8: Don’t change your real estate purchase contract.

Often times when you are purchasing a property there will be things that show up after the fact on an inspection and you might want to make changes to the contract. Although not a huge deal, it can make a difference for financing. So if financing is complete, it is best practice to check with me before you go and make any changes to the purchase contract.

9: Don’t list your property for sale.

If we have set up a refinance for your property and your goal is to eventually sell it… wait until the funds have been advanced before listing it. Why would a lender want to lend you money on a mortgage when you are clearly going to sell it right away (even if we arranged a short term).

10: Don’t accept unsolicited mortgage advice from unlicensed or unqualified individuals.

Although this point is least likely to impact the approval of your mortgage status, it is frustrating when people who don’t have the first clue about your unique situation give you unsolicited advice about what you should do with your mortgage, making you second guess yourself. Now, if you have any questions at all, I am more than happy to discuss them with you. I am a mortgage professional and I help clients finance property everyday, I know the unique in’s and out’s, do’s and don’ts of mortgages. Placing a lot of value on unsolicited mortgage advice from a non-licensed person doesn’t make a lot of sense and might lead you to make some of the mistakes as listed in the 9 previous points!

So in summary, the only thing you should do while you are waiting for the advance of your mortgage funds is to continue living your life like you have been living it! Keep going to work and paying your bills on time!

Now… what about after your mortgage has funded? You are now free to do whatever you like! Go ahead… quit your job, go to part time status, apply for new credit to buy a couch and 78″ TV, close your credit cards, co-sign for a mortgage, sell your place, or soak in as much unsolicited advice as you want! It’s up to you! But just make sure your mortgage has funded first. Also it is good to note, if you do quit your job, make sure you have enough cash on hand to continue making your mortgage payments! The funny thing about mortgages is if you don’t make your payments, the lender will take your property and sell it to someone else and you will be left on that curbside couch (as pictured above). Obviously, if you have any questions, I would love to answer them for you, feel free to contact me anytime!

Source: https://www.christinebuemann.ca/the-10-donts-of-mortgage-closing1

Summary

1. A U.S. housing crisis is coming and although it won’t be anything like the last one, that won’t make it any less painful.

2. Even though there has been no rampant speculation or subprime mortgage fraud, housing is still overvalued.

3. And the dearth of inventory that’s plagued the current cycle will reverse in violent fashion once the worst of the virus has passed as financially strapped homeowners seek to raise cash.

4. As affordability collapses with fewer buyers eligible to buy a home, the only way to rectify the mismatch between supply and demand will be via declining prices.

The coronavirus pandemic will cause many cash-strapped Americans to sell their homes, flooding the market with excess supply.

A U.S. housing crisis is coming and although it won’t be anything like the last one, that won’t make it any less painful. Even though there has been no rampant speculation or subprime mortgage fraud, housing is still overvalued. And the dearth of inventory that’s plagued the current cycle will reverse in violent fashion once the worst of the virus has passed as financially strapped homeowners seek to raise cash. And as affordability collapses with fewer buyers eligible to buy a home, the only way to rectify the mismatch between supply and demand will be via declining prices.

Home prices dropped about 35% between mid-2006 and early 2009 in the first nationwide decline since the Great Depression as measured by the S&P/Case-Shiller home price index. They have since recovered, and are now at 117% of their prior peak level in 2006. Home prices historically meandered in a range of three to four times median incomes, jumping to 5.1 times in December 2005 before collapsing. The ratio is now at 4.4 times, a level that was unprecedented prior to June 2004.

Several factors that characterized the last decade will now work against housing. The lowest interest rates in U.S. history spurred a boom in luxury housing. At the start of the last decade, about a fifth of the homes in the U.S. were priced at $300,000 or higher. Ten years on, that’s true for more than half of all homes. The National Association of Realtors says the inventory of existing homes for sale has dropped to about three months of supply from more than seven months. Supply has shrunk as millions of Baby Boomers unexpectedly delayed downsizing. One of the reasons for this was the longest bull market in stocks in history, which afforded would-be sellers the wherewithal to continue carrying higher maintenance and larger homes than otherwise possible.

The recent reversal in the stock market has the potential to expedite the long anticipated “Silver Tsunami.” A June 2019 Fannie Mae report tallied the number of homes owned by boomers and the generation that preceded at about 46 million, more than a third of the 140-million-home housing stock. Zillow Group Inc. predicts “upwards of 20 million homes hitting the market through the mid-2030s (which) will provide a substantial and sustained boost to supply, comparable to the fluctuations that new home construction experienced in the 2000s boom-bust cycle.”

But now, the number of homes Zillow projected to hit the market in a disciplined fashion over the next 15 years will become an exodus as retirees’ need to monetize the equity in their homes to supplement their disposable income skyrockets. One can only imagine how swiftly home prices will decline once boomers feel safe enough to open their homes to outsiders as part of the normal sales process. The University of Michigan’s preliminary consumer sentiment index for April that was released Thursday showed that plans to buy a home tumbled the most since 1979.

The capping of deductions at $10,000 has already led to a 10% to 25% discount on home prices in high tax states relative to their lower-tax counterparts. Anticipated increases in property taxes to offset collapsing state and municipal budgets will amplify the damage inflict on those on fixed incomes.

A complete unknown that could increase the coming surge in supply is the pool of single-family rentals. About eight million landlords who own between one and 10 properties accounting for half the nation’s rental properties, according to Avail, a software company that caters to landlords. Financial duress will come swiftly for those carrying multiple mortgages. Also, a small cohort of institutional investors own roughly 250,000 of the roughly 16 million pool of rental homes, according to ATTOM Data Solutions.

Making matters worse is the crash in demand for jumbo mortgages, which are those over the $510,400 conforming loan ceiling. Wells Fargo & Co. recently announced that it was halting the purchase of jumbo mortgages that originate from other lenders. Investors are sticking with government-backed loans which have greater security given payments will still be received even if borrowers have been granted forbearance. In the last downturn it took almost five years to close the premium charged to attain a jumbo mortgage over rates on conforming mortgages.

And finally, there are more than nine million second homes in the U.S. that may or may not be financially viable given the depth of the current recession. Lending standards tightened dramatically in the last recession as the unemployment rate crested at 10%. It’s difficult to imagine the challenge prospective homebuyers will face in the coming years given we know a 10% jobless rate is not a best-case scenario.

It’s also impossible to quantify how Americans will perceive homeownership given the hardship so many will endure. If frugality is embraced as it was after the Great Depression, homes will once again be viewed as a utility. The McMansion mentality is at risk of extinction.

The reason why the collapse in the subprime mortgage market hit the housing market so hard was because the lead up was predicated on the fact that there had never been a nationwide decline in home prices. But now for the second time in a little more than a decade, Americans are poised to witness the impossible.

Source:https://seekingalpha.com/article/4337078-another-u-s-wide-housing-slump-is-coming?utm_source=news.google.com&utm_medium=referral

The Federal Reserve is buying up hundreds of billions of dollars of mortgage-backed securities, boosting liquidity for banks and encouraging them to lend more to jumpstart the devastated economy.

But JPMorgan Chase, the nation’s fourth largest home loan provider, is heading in the opposite direction, having just raised its borrowing standards on home loans and suspended home equity line of credit offerings. JPMorgan’s decision to back away from mortgage lending — along with similar moves by other prominent banks — could have dire consequences for the hobbled housing market, industry pros said. Their actions also come at a time when nonbank lenders, which now provide a majority of home loans, don’t have access to Federal Reserve funds and may not be able to absorb a flood of defaults.

“It is going to make a housing crunch that we have not had,” said Ken Thomas, a South Florida independent banking analyst. More plainly,he said, “It is going to hurt the housing market.”

At the very least, JPMorgan’s one-two punch last week will mean getting a mortgage for a new home will become a lot more difficult, further depressing demand. It comes at a time when the coronavirus has led to a rise in mortgage forbearance requests, not to mention the 22 million Americans who have filed for unemployment, grinding the economy down to a virtual standstill.

“One of the most important things for the housing market is going to be liquid financial markets,” said Ralph McLaughlin, chief economist at Haus, a startup that partners with homebuyers to share the cost of owning a home.

JPMorgan’s move appears to run counter to the Federal Reserve’s moves of boosting liquidity at banks in order to promote lending.

Homebuyers seeking a mortgage through JPMorgan must now have a credit score of at least 700 and must put down 20 percent of the total purchase price. The bank said it is shifting focus to refinances, which have taken off amid historically low mortgage rates. JPMorgan last week also said it was “temporarily pausing” its home equity line of credit offering.

“Due to the economic uncertainty, we are making temporary changes that will allow us to more closely focus on serving our existing customers,” the bank’s Chase Home Lending division said in a statement.

Other major loan providers have taken similar actions. US Bank increased its minimum credit score requirement to 680 and Wells Fargo said it was restricting its jumbo loan program. Wells will now only allow customers with at least $250,000 in liquid assets to refinance, according to the Wall Street Journal, a move designed to eliminate all but the wealthiest potential homebuyers.

The U.S.housing market was on relatively solid footing before the crisis, according to McLaughlin. Inventory was low and demand was high. There were few signs of distress.Other major loan providers have taken similar actions. US Bank increased its minimum credit score requirement to 680 and Wells Fargo said it was restricting its jumbo loan program. Wells will now only allow customers with at least $250,000 in liquid assets to refinance, according to the Wall Street Journal, a move designed to eliminate all but the wealthiest potential homebuyers.

The U.S.housing market was on relatively solid footing before the crisis, according to McLaughlin. Inventory was low and demand was high. There were few signs of distress.

And while the coronavirus’ tsunami-effect on the economy has upended the housing market, McLaughlin said “we still don’t know how bad it is…We are in the fourth inning of this. There are still a lot of ways that this whole thing can play out.”

Overall mortgages in forbearance rose to 3.74 percent from March 30 to April 5, up from 2.73 percent the previous week, according to the Mortgage Bankers Association. If those numbers continue to rise, they could force additional banks to tighten their lending standards.

Those standards have already increased across the industry, said Joel Kan of the MBA. The group’s Mortgage Credit Availability Index for March highlighted that shift, most of it coming in the final two weeks of the month. “We can expect more of this given the trajectory of the situation in the forecast,” he said.

History repeated?

Since the last recession, many banks have moved away from the residential mortgage space, citing low margins and a need to focus on more profitable lines of business. Nonbank lenders emerged to fill that void and today companies like Quicken Loans, Freedom Mortgage and LoanDepot now originate more than half of all the residential mortgages in the United States, according to the U.S. Treasury Department. Quicken Loans is the biggest home mortgage originator in the country.

But those alternative lenders are now facing growing concerns about their ability to service mortgages. If a loan goes into default, will those nonbanks have enough cash to pay the interest payments? Nonbanks don’t have access to the hundreds of billions of dollars in liquidity that the Federal Reserve can pump into banks. If those alternative lenders get wiped out, it could mean fewer players in the home loan space going forward.

In late March, MBA, the Housing Policy Council and the Structured Finance Association urged federal regulators to provide relief.

“Without some access to liquidity so that they can cover that cost, non-depository mortgage servicers will not have enough liquidity to advance these payments at the extraordinary rate that we are going to need,” the group wrote in its letter that was addressed to the Department of Housing and Urban Development, the Fed, Treasury and other agencies. “That would undermine the relief efforts the federal government has undertaken to encourage mortgage lending, they said, “requiring yet more government intervention.”

But their pleas appear to have fallen on deaf ears. Federal Housing Finance Agency director Mark Calabria said the agency has no plans to provide liquidity through its mortgage agencies Fannie Mae and Freddie Mac to those nonbank lenders.

Source: https://therealdeal.com/2020/04/20/banks-want-out-of-mortgage-lending-heres-what-that-means-to-the-housing-market/

Sterling Bancorp in Southfield, Mich., is under investigation by the Justice Department for issues tied to its mortgage business.

The $3.3 billion-asset company disclosed in a regulatory filing late Friday that it had received grand jury subpoenas from the agency seeking documents and information associated with its residential lending practices and related issues. Sterling said it is cooperating with the investigation.

Sterling also disclosed that it is cooperating with the Office of the Comptroller of the Currency, which is looking into the bank’s credit administration and its compliance with Bank Secrecy Act and anti-money-laundering laws. The company has been operating under a formal agreement with the OCC since June tied to BSA and AML compliance.

The company also decided to permanently discontinue its Advantage Loan Program, an initiative it had suspended late last year. The company has been auditing documentation for prior originations and implementing systems and controls to make sure policies and procedures are being followed.

Tom Lopp succeeded Gary Judd as Sterling’s chairman and CEO on Nov. 30.

The company also began an internal review led by a special committee of independent directors and outside counsel.

The ongoing review determined that some employees “engaged in misconduct tied to the origination of such loans, including with respect to income verification and requirements, reliance on third parties and related documentation,” the filing said.

As a result, Sterling said, a “significant number of employees” have been terminated, including the senior vice president in charge of the Advantage Loan Program in California, or have resigned. The company said more terminations and resignations are possible.

While Sterling is working on initiatives to diversify its loan production and review new mortgage products, it said that “the implementation of any new loan products takes time and may be subject to” regulatory review.

Because of those issues, Sterling said it has stopped paying dividends in the near term, halted dividends from its bank to the holding company and will delay filing its annual report.

Finally, Sterling dislcosed that a shareholder lawsuit was filed in the U.S. Disctrict Court for the Eastern District of Michigan against the company and some of its officers and directors. The lawsuit alleges that there were violations of federal securities laws, mostly tied to disclosures leading up to Sterling’s initial public offering, subsequent filings and during earnings calls.

“While the company intends to vigorously defend this action, it is too early to determine the potential outcome,” the filing said.

Source :https://www.americanbanker.com/news/sterling-in-michigan-facing-justice-department-probe-of-mortgage-practices

The past decade has seen the growth of an especially painful and pernicious type of fraud. Criminals have been inserting themselves into the middle of real estate closings, sending believable money transfer instructions to the buyer’s bank or the escrow agent, and absconding with the money. This money was supposed to pay off the remainder of the seller’s mortgage, and has the potential to affect any mortgage banker.

Court cases in this space describe a third party pretending to be a known and trusted vendor and instructing purchase payments sent to a supposedly new account, and the payer bank following that instruction without verifying the account change.¹

This article will define and explain this problem, legal underpinnings of claims against the criminals, and how companies are guarding against this type of disaster. We also discuss what mortgage bankers should do to minimize their risks of taking the loss for such thefts at the end of the day.

How could this happen and how can we stop it?

Consumers, real estate agents, and closing lawyers are vulnerable to these attacks through automated phone calls and phishing text messages. Sophisticated versions of these attacks will trick the recipient into clicking a link or installing or downloading an infected attachment. Bad guys gather information that will make their fraudulent instructions look like they genuinely arise from the appropriate parties, such as the lawyer handling the closing or the agent representing the buyer. Fraudulent email or other official-seeming correspondence contain wire transfer payment instructions usually regarding the down payment or closing costs.

With the money gone, all the parties scramble to avoid being left holding the bag for the error, and forced to pay for their mistakes by paying the home buyers back their missing money. The bank paying the money or the lawyer/agent who was impersonated by the fraudsters are the most likely patsies in the chain, as they dealt most closely with the wrongdoer and had the greatest opportunity to catch the fraud before money was lost.

For buyers’ bankers, a confirming phone call to the right party, not using the number on the fraudulent request, but looking up that number directly, is the best move to minimize risk for all parties and to avoid liability for the loss. At this stage, ANY change of payment data or suspicious looking payment request should be questioned with a follow-up call before payments are made. Adding this one step to the mortgage payment process can save immeasurable heartbreak and entirely measurable money losses.

What laws are violated?

In 2018, cyber-crime victims across the United States billion. In the last quarter of 2018, the companies most targeted received approximately 120 fraudulent emails. In fiscal year 2017, $969 million was either diverted or attempted to be diverted from real estate purchase transactions to fraudulent accounts.²

This criminal conduct falls squarely into the wire fraud statute, but the accounts receiving the payments usually belong to criminals overseas, and out of the reach of U.S. law enforcement according to Rahul Gupta.³ Federal law “prohibits, during and in relation to felony violations of certain laws (including, but not limited to, embezzlement or misapplication of bank funds; fraud or false statements; mail, bank, and wire fraud), the knowing use, transfer or possession, without lawful authority, of a means of identification, such as an individual’s social security number or date of birth, of another person with the intent to commit a crime.”⁴ This statute has been used in the past to prosecute fraudulent real estate transaction schemes, upholding wire fraud conviction for transferring $22,000 via wire with the intent to defraud their creditor.⁵

Why do they target real estate transactions?

The Gentleman Thief, Willy Sutton, claimed that he robbed backs because “that’s where the money is.” Think how much money can be skimmed by stealing the final payouts of residential house sales, at least hundreds of thousands of dollars each time. And if you convince the buyer’s bank to transfer to a safe account overseas, or you can quickly move the money to one remotely, then the risks are minimal.

Home sales involve significant amount of money that can be easily diverted. The median price of homes that have sold now exceeds $220,000.⁶ The market value of the commercial and industrial real estate in the United States is approximately $2.655 trillion, according to the Real Estate Investor’s Deskbook § 1:5 (3d ed.). Because there are multiple parties in every real estate transaction with no definite party to always provide payment information, that data may come to the payor bank from the closing lawyer, the alleged receiving bank or mortgage company, any real estate agent in the transaction, or from the buyers themselves; fraudsters can rely on the confusing array of options to fool a payor bank. Much of the information a bad actor needs to impersonate the parties and launch this fraud can be found online.

The issue of wire fraud in real estate is metastasizing. The FBI reported that from 2015 to 2017, there was over an 1,100 percent rise in the number of crimes using business e-mails in the real estate transaction context and an almost 2,200 percent rise in the reported monetary loss. The FBI also reported nearly $150 million in real estate fraud losses in 2018. According to the FTC, consumers reported losing $1.48 billion to fraud in 2018, which marks an increase of 38 percent over 2017. The FTC defines wire fraud is any event where an individual is tricked into sending money via wire transfer to a fraudster.

As participants in real estate transactions, lawyers and real estate brokers are vulnerable to information theft leading to impersonation. According to the Ponemon Institute’s report, 2017 State of Cybersecurity in Small and Medium Sized Businesses, 61 percent of small businesses experienced a cyberattack in 2017, up from 55 percent in 2016. That same research indicated that 43 percent of malware victims are small businesses. During the course of a recent real estate transaction, an associate of a large North American law firm wired $2.5 million of a client’s money to a Hong Kong bank account.7 Cybercriminals had set up the account and induced the associate to send the funds by pretending to be employees of a legitimate mortgage company.

What about insurance?

Victims of this type of crime may expect their insurance to assist in compensating for the stolen payment. However, the insurance industry has made adjustments as a result of the prevalence of this crime. Direct mail or email fraud is generally not covered under cyber insurance policies, even though the crucial information to impersonate a legitimate party may have been secured through hacking or phishing. A payor bank’s errors and omissions policies may cover this, although more insurance companies are requiring a set of procedures to confirm payment destinations before money is sent. If your bank does not have the right procedures, it may not be insured for the loss.

Insurance companies have reacted to this wave of crime by adjusting coverage types and caps to minimize their exposure. Bankers, buyers, brokers, and lawyers should carefully review their insurance policies to find coverage, risk allocation, and coverage limitations.

What is being done about it?

State and local governments are beginning to raise awareness of the issue of wire fraud in the real estate industry. The Utah Division of Real Estate, for example, launched a campaign to call attention to email scams that “target property transactions to force people into wiring down payments and other high dollar real estate proceeds to con artists’ accounts.” According to its website, the Colorado Division of Real Estate at the Department of Regulatory Agencies also warned Colorado consumers to “beware of a national cyber-scam currently taking place that steals money directly from home buyers and sellers.”

In July 2019, American Land Title Association, Community Mortgage Lenders of America, American Escrow Association, Real Estate Services Providers Counsel, created a group called a Coalition to Stop Real Estate Wire Fraud. The group has a stated goal of educating consumers and real estate professionals about the risks of wire fraud.

However, much of the risk of these crimes can be reduced or eliminated by a few extra incidences of careful communication between the payor bank and either its client or the client’s representative in the transaction. The bad guys profit from the complexities of the payment instruction process and lazy assumptions made by all parties. Minimizing your risks of this fraud may be as easy as a phone call.

Source:https://www.mortgagebankermag.com/quality-assurance/security-risk-fraudulent-closing-transfer-instructions-stealing-mortgage-pay-offs/

The U.S. Department of Housing and Urban Development (HUD) and the Consumer Financial Protection Bureau (CFPB) issued separate updates on Monday aimed at clarifying or issuing guidance to their specific sectors in the wake of increasing concern related to the outbreak of the COVID-19 coronavirus.

HUD issued a new informational notice aimed to remind mortgagees of the various loss mitigation program options available to them from the Federal Housing Administration (FHA), in light of concerns related to the spread of the virus.

“As with any other event that negatively impacts a borrower’s ability to pay their monthly mortgage payment, FHA’s suite of loss mitigation options provides solutions that mortgagees should offer to distressed borrowers – including those that could be impacted by the coronavirus – to help prevent them from going into foreclosure,” the notice reads in part.

The relevant home retention options are located in the FHA Single Family Housing Policy Handbook 4000.1, in section III.A.2.

The CFPB, meanwhile, released a statement aimed at encouraging American financial institutions to meet any needs of consumers that arise as a result of the outbreak.

“The agencies recognize the potential impact of the coronavirus on the customers, members, and operations of many financial institutions and will provide appropriate regulatory assistance to affected institutions subject to their supervision,” the CFPB statement reads. “Regulators note that financial institutions should work constructively with borrowers and other customers in affected communities. Prudent efforts that are consistent with safe and sound lending practices should not be subject to examiner criticism.”

The statement goes on to say that financial regulators understand that institutions may be faced with unique challenges as a result of the virus, including staff shortages for those whose employees elect to either remain at, or work from home.

“In cases in which operational challenges persist, regulators will expedite, as appropriate, any request to provide more convenient availability of services in affected communities,” the CFPB said. “The regulators also will work with affected financial institutions in scheduling examinations or inspections to minimize disruption and burden.”

Source : https://reversemortgagedaily.com/2020/03/09/coronavirus-leads-hud-cfpb-to-issue-housing-finance-updates/

On January 1, 2020, the California Consumer Privacy Act (CCPA) became effective and has been described as one of the most comprehensive consumer privacy initiatives ever to be codified into law. Because of its wide implications for businesses throughout the state of California, a panel of legal representatives explained how it could impact the reverse mortgage business during the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in Nashville, Tenn.

Though the law was originally passed in June of 2018 under the administration of the last governor, Jerry Brown, the law only recently went into effect and has some major implications due to its large scope. Because California stands as a major source of reverse mortgage business, the implications of the new law will affect large numbers of individuals and entities in the industry who conduct business within the state.

Brief history

Intended to give California consumers more general say over how much of their personal data is collected and used by businesses operating in the state, the CCPA provides further enforcement to language found in the California state constitution, which describes privacy as an “inalienable” right for Californians. During their presentation at the NRMLA Annual Meeting, attorneys Soroush Shahin of Weiner, Brodsky, Kider and Jay Wright of Bradley Arant Boult Cummings LLP described the law as the “broadest and most comprehensive privacy law in the United States to date.”

According to the language of the bill introduced to the California State Assembly in February of 2018, some of the specific intentions of the law are to let consumers know what personal data is being collected about them and if sold, to whom; allow them to decline the sale of personal data; to give them access to their personal data; allow them to request a business to delete personal information that a business may have collected about them; and to not be discriminated against for exercising rights to privacy.

While its scope is broad, the CCPA does not universally apply to all business operating within California. Instead, a company has to meet one of these three requirements in order to require compliance with the new law: it has annual gross revenues in excess of $25 million; buys or sells the personal information of 50,000 or more consumers and/or households; or earns more than half of its annual revenue from selling the personal information of its consumers.

According to Shahin and Wright, the California legislature passed CCPA in quick succession in order to avert a proposed ballot initiative which would’ve sought even more stringent privacy requirements on the state’s businesses, and that rush to pass the law ultimately led to a degree of ambiguity and uncertainty in terms of how it will apply now that it is in effect.

How the law could impact the reverse mortgage business

Among some issues that have specific relevance to the reverse mortgage industry, one reverse mortgage professional in attendance at the event asked the lawyers whether or not there are any specific verification processes that can be used to properly vet a borrower based on identifiable attributes such as Social Security number.

“Masked data is permissible,” Wright says, referring to using only a partial Social Security number for borrower identification purposes. “You’re certainly prohibited from getting the entire Social Security number from a borrower through fear of potentially releasing other customer data as a part of that [inquiry]. You may need to tweak your policies and procedures to ensure they comply with CCPA.”

Another attendee who is not employed by a lending entity asked if the application of the law would extend to institutions other than lenders, and the broadness of the law clearly illustrates that it does, Shahin explains.

“If you’re a for-profit entity and you collect more than 50,000 pieces of personal information from consumers or devices, it’s extremely broad,” he says. “It’s not just limited to lenders. Any entity that meets those thresholds will be subject to CCPA.”

In general, the scope which qualifies as “personal information” is similarly broad, the attorneys say. It counts as, “information that identifies, relates to, describes, is reasonably capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household.”

Examples of what does not qualify as personal information under the letter of the law includes publicly available information, aggregate consumer information or “deidentified information” which has had personally-identifiable elements removed before being released.

Lender responses

Several reverse mortgage lenders have taken recommended actions in terms of providing disclosures and policies specifically for California residents in light of CCPA’s passage. In terms of the disclosures, several major reverse mortgage lenders have created California-specific portals and web pages in order to comply with the requirements of the new law.

For instance, 1st Reverse Mortgage USA specifies on its dedicated CCPA web notice the policies and practices inherent in its various uses of consumer information, along with details concerning what information is collected, how that information is gathered, and how that information is used in the regular course of 1st Reverse’s business.

Also included is a notice about how personal information collected by 1st Reverse is not sold, but is shared among some third-party partners in order to accomplish certain business requirements.

Open Mortgage features both a CCPA notice and a CCPA-bolstered privacy policy, but also informs consumers that much of the data it collects does not necessarily fall under the jurisdiction of the new law.

“[I]t is important to note that CCPA provides exemptions to companies that have consumer data that is necessary to carry out their business. A majority of the data that Open Mortgage collects is exempt from CCPA as it falls under federal privacy laws set out by the Gramm Leach Bliley Act (GLBA) and cannot, as a result, be part of the [law’s required] Opt-Out request,” the Open Mortgage notice reads. “We are GLBA compliant and protect your data to our fullest capability. So, Open Mortgage will receive your Opt-Out request via the option you select, and will work to remove any data that is not exempt.”

Similarly, Champion Mortgage details its own exemptions from the CCPA under the same principles, due to compliance with GLBA.

“The personal information (PI) that we collect, process or share in connection with the reverse mortgage loans we service is safeguarded under federal requirements and is exempt from the CCPA,” the Champion notice reads.

Activity of other states

While there aren’t necessarily other laws with the scope of CCPA being deliberated in other states, there is momentum in other jurisdictions for further protection of consumer information, Wright says.

“Maine and Nevada have passed state laws pertaining to privacy issues, and there are a number of states that have had consumer data privacy statutes that have been introduced and may be passed in the upcoming legislative sessions,” he says. “There’s movement in 11 or 12 other states. Obviously California is the most significant, and to date the toughest rules with which we’re going to have to contend.”

Still, regulations can change, and the reverse mortgage industry is still in a state of flux concerning compliance with these new privacy requirements. The significance of the topic is immense, and businesses in general are expected to spend billions of dollars in legal or regulatory compliance costs over the upcoming year, Wright says.

Anyone subject to upcoming privacy rules should have active conversations internally, and potentially with counsel to make sure that compliance with existing or upcoming privacy rules is maintained, Wright adds.

Source : https://reversemortgagedaily.com/2020/01/21/how-a-new-california-privacy-law-could-impact-reverse-mortgages/