“Do not fall behind on your mortgage … without first attempting to communicate with your servicer.”
UPDATED April 13, 2020
The COVID-19 pandemic has triggered unprecedented levels of unemployment.
One effect of unemployment will be an increased number of homeowners who face the loss of their homes to foreclosure.
All hope is not lost. The following is a quick-and-dirty survey of existing federal- and state-level protections, and some new ones coming on line, followed by a few preliminary recommendations for homeowners facing uncertainty.
Relevant federal law
Two federal laws merit the most consideration.
Recently, the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act,” PL 116–136 [HR 748], was passed into law on March 27, 2020. The CARES Act enacted some consumer protections whose goals are laudable but whose effectiveness has yet to be tested.
Since 2014, the federal Real Estate Settlement Procedures Act (“RESPA”), as enhanced by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and its mortgage-servicing rules have given borrowers a watered-down (but still much-better-than-nothing) bill of rights to protect them in their interactions with mortgage servicers.
For example, under RESPA, servicers can no longer “dual-track” borrowers who make timely and complete requests for mortgage assistance (“RMAs”). With some exceptions, a diligent borrower can’t be placed in the foreclosure “cue” while their RMA is evaluated.
Also, a borrower must be advised up front of the general nature of the loss-mitigation options that may be available to them. Such options typically, but don’t always, include loan modification and temporary forbearance.
Mortgage servicers are also required to exercise diligence in investigating and responding to a borrower’s properly prepared notice of servicing error.
Critically, RESPA authorizes private lawyers to file lawsuits to enforce some of its provisions and to seek financial compensation for their clients. In contrast, the CARES Act has less effective private-enforcement provisions.
The overlay of RESPA protection should inform the following observations and comments.
The Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (“CFPB”), although somewhat defanged under the Trump administration, is tasked with enforcing federal laws enacted by Congress and generating regulations to protect consumers from lender and servicer overreach. (See Banks Raise Hackles as CFPB Enforcement Ramps Up.)
The CFPB also provides consumers with a forum and a very useful Consumer Complaint Database in which to file and review complaints about loan servicing. While complaints filed with the CFPB by borrowers rarely generate direct enforcement actions, the investigations servicers must perform in response to complaints often result in a solution or in helpful information being provided to the borrowers.
Existing state law
There are state-law consumer-protection throughout the country. These laws often mirror their federal counterparts. But they also often enhance the scope and intensity of consumer protections. States’ attorneys general investigate, regulate, and sometimes prosecute lenders and servicers who violate state consumer protection laws — some more effectively than others.
Federal agencies’ and GSEs’ foreclosure moratoria
Properties whose mortgages are administered or guaranteed by federal agencies or by “Government Sponsored Entities” (“GSEs”) are subject to temporary protection from foreclosure. A loan affected by the CARES Act is referred to as a “Federally backed mortgage loan” (“FBMA”).
All FBMAs are subject to a mandatory forbearance scheme that has two components.
First is an across-the-board mandatory suspension of all foreclosures for “not less than the 60-day period beginning on March 18, 2020.”
Second, is an across-the-board forbearance program that requires a borrower to (A) submit a request to their servicer, and (B) affirm “that the borrower is experiencing a financial hardship during the COVID–19 emergency.”
A servicer of an FBMA who receives a forbearance request must grant the request for up to 180 days, which forbearance period must be “extended for an additional period of up to 180 days at the request of the borrower….” During the forbearance period, only scheduled interest will be allowed to accrue on the borrower’s account.
In addition to CARES protections, the following agencies and their policies and regulations are discussed in general fashion.
Agencies like the Federal Housing Administration (FHA), or its parent agency, the Department of Housing and Urban Development (HUD) (see Mortgagee Letter 2020-04), are now subject to a freeze on foreclosure sales and evictions through the end of April, 2020. These include FHA-Insured Title II Single Family forward mortgages and HUD-backed reverse mortgages (i.e., Home Equity Conversion Mortgages or “HECMs”). The same goes for Veterans Administration loans (see Circular 26-20-8), and the USDA Single-Family Housing Guaranteed Loan Program.
Foreclosures of homes and eviction of residents subject to mortgages guaranteed or held by GSEs such as Fannie Mae (see Lender Letter LL-2020-02) and Freddie Mac (see Bulletin 2020-4) are subject to servicing guidelines that will help to implement CARES Act protections, and encourage loan modifications and forbearance. Both GSEs have updated their servicing guidelines (Fannie LL-2020-02 and Freddie Bulletin 2020-10) as of April 8, 2020.
Fannie and Freddie are authorizing suspension or forbearance of mortgage-installment payments for up to 12 months, waiver of late fees, and waiver of documentation requirements. But these are not automatic. Borrowers must apply for them. And, borrowers should expect to have to pay back the missing installment payments over a period of six months to a year.
Notably, Fannie is making available its “Extend-Mod” program normally only approved for FEMA disaster areas to COVID-19 related hardships. One advantage of Extend-Mod is that a qualifying borrower might be able to catch up their arrearage over a period of 60 months — without capitalization of past-due escrow amounts. (This writer has not had a chance to analyze Freddy’s analogous program. But it’s safe to assume it will be similar to Fannie’s.) Other modification programs (such as Fannie’s “Flex-Mod” as just one example) are also available but can’t be easily summarized. Each borrower’s situation has to be evaluated on its own merits.
To determine whether Fannie holds your loan check out their loan-lookup page here: Fannie loan Lookup; Freddie’s page can be found here: Freddie Loan Look-Up Tool.
A recent inter-agency statement from financial regulators — the Federal Reserve, FDIC, NCUA, OCC, CFPB, and CSBS — are encouraging (but not mandating) implementation of policies by financial institutions to “work with borrowers as part of a risk mitigation strategy.” Examples include the policy of re-categorizing temporary loan modifications that might otherwise have triggered debt-forgiveness income tax liability. Credit-reporting standards are also to be relaxed. And, banks will not be required to report non-performing (i.e., delinquent) loans as being in “nonaccrual” status during short-term forbearance arrangements.
Keep in mind that federal-agency and GSE mortgages represent the majority of — but not all — residential loans. Your mortgage may be held by a private bank or investor who is not necessarily subject to federal-agency or GSE guidelines and regulations.
Private investor and bank announcements
Private investors holding non-federal-agency / non-GSE mortgage portfolios or securitized mortgages have come under some pressure to voluntarily offer loss-mitigation services to their borrowers (of course, in lieu of potentially holding an inventory of foreclosed properties that they may not easily liquidate).
At press time this writer is aware that certain banks have announced policies authorizing their borrowers to make a request to defer mortgage payments on mortgages and lines of credit owned by the banks (but not loans regarding which a bank may act as a trustee on behalf of a securitized trust). This writer will attempt to update this information as it’s confirmed and collected.
UPDATE: Forbes has published this page to identify banks that are offering COVID-19 relief. Shout out to Kelly Anne Smith @keywordkelly. She appears to be regularly updating the page.
The FDIC has posted an FAQ page for bank customers affected by COVID-19 that is useful.
Selected links to individual mortgage-servicer pages that are dedicated either to COVID-19 relief, or mortgage-assistance in general are posted below.
● Nationstar / Mr. Cooper
● Bank of America (ID and password required)
● JPMorgan Chase
● CitiBank
● Wells Fargo
● HSBC
● US Bank
● PNC Bank
● Truist Bank (formerly SunTrust and BB&T)
Local and statewide court orders
According to Diane Cipollone with the National Fair Housing Alliance “[m]any state courts have issued administrative orders suspending trials, foreclosure sales, and evictions. If your local or state court has issued such an order, all homeowners are protected, regardless of the entity that owns or insures their loan.”
This writer will attempt to update this information as it’s confirmed and collected. In the meantime the NFHA is an excellent source of information for those presented with fair-housing and related issues.
This tenant-rights blog appears to be effective at capturing local and state eviction moratoria.
Observations and lessons
None of the protections mentioned here is a silver bullet. Here are just a few of this writer’s concerns and recommendations:
- Be proactive. There is no shame in asking for help with one’s mortgage. But losing one’s home to a foreclosure sale that could have been prevented is a regrettable occurrence.
- Installments aren’t forgiven, only deferred under the CARES Act. Moratoria on foreclosure sales and voluntary forbearance under CARES or other lender programs do not toll accruing interest or scheduled mortgage installment payments. They are typically deferred to a later date. Property taxes and home hazard insurance must be paid one way or another. And, at least Fannie and Freddie appear to be requiring deferred payments to be caught up within 36 months.
- Forbearance is not modification. Consider pursuing a modification of your mortgage with your servicer to reduce your interest rate, defer reinstatement payments until a later date, or extend the term of your loan. Forbearance to protect equity in one’s home through voluntary liquidation should be considered.
- Enforcement mechanisms are lacking. Unlike RESPA, there are no obvious private enforcement mechanisms under the CARES Act. A borrower cannot sue their lender / servicer for violating the CARES Act. However, it does appear to this writer that they might have an option to proceed under RESPA’s error-resolution regulations. The agency regulating the particular servicer may seek to enforce the Act’s letter and goals. If a borrower feels they have been treated unfairly or unlawfully, they should consider submitting a complaint to the CFPB’s complaint portal.
- On the bright side. This writer does not anticipate a downturn in real-estate markets and mass foreclosures of a magnitude akin to the crisis that began in 2008. Subprime mortgages, asset-based residential lending, and appraisal fraud aren’t nearly as prevalent in U.S. markets now as in the 2000s.
- Consultation. No two homeowners are alike. There is no one-size-fits-all solution to any mortgage situation. Consider consulting with a competent and caring consumer lawyer before making a decision that can’t be reversed. The National Consumer Law Center (whose updated consumer law page on Covid-19 & Consumer Protections is a valuable resource) and the National Association of Consumer Advocates (consumeradvocates.org | Consumer Protection Advocates and Attorneys – Help for Consumers) are excellent sources of education and for the location of the right consumer attorney for you (Find an Attorney).
- Key takeaway. You, as a borrower, should reach out as early as possible to your loan servicer to discuss available options… before it’s too late. Do not fall behind on your mortgage, if you can help it, without first attempting to communicate with your servicer.
Disclaimer: This Blog does not represent legal advice. Anyone seeking legal advice specific to their situation is encouraged to consult with a competent lawyer who can provide proper legal counseling after having reviewed and researched their client’s particular situation. To repeat: there is no one-size-fits-all solution to any mortgage situation.