The Conference of State Bank Supervisors (CSBS) and the Consumer Financial Protection Bureau (CFPB) recently issued a joint statement concerning mortgage loan forbearances under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The joint statement signals the types of conduct that may become the focus of CFPB and state banking regulators in examinations, including in servicer and originator communications with borrowers concerning their rights under the CARES Act.
As LenderLaw Watch has been tracking, the CARES Act, passed in response to the troubling economic impact of the COVID-19 pandemic, provides certain mortgage protections to borrowers with federally-backed residential mortgage loans. These include mortgage loans purchased or securitized by Fannie Mae or Freddie Mac, and loans made, insured, or guaranteed by the Department of Housing and Urban Development, Department of Veterans Affairs, or the Department of Agriculture. Mortgage servicers must, among other things, abide by the CARES Act, federal regulations, and investor servicing guidelines.
As summarized in the CSBS and CFPB joint statement, servicers of federally-backed mortgages must provide forbearance upon receiving a request for forbearance from a borrower and the borrower’s attestation to a financial hardship caused by the COVID-19 emergency. That forbearance period can last as long as two consecutive 180-day periods. Mortgage servicers may not impose additional interest, fees, or penalties beyond the amounts scheduled or calculated, as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract. The CSBS and CFPB also provide links to regulations and guidelines that they and other agencies have issued.
The CSBS and CFPB joint statement addresses, in a series of Q&As, the permissibility of certain actions observed or anticipated by mortgage servicers.
Servicers May Grant a Forbearance Shorter Than 180-Days.
The CARES Act provides for an initial forbearance period of “up to 180 days” if the borrower requests a forbearance and the borrower affirms financial hardship due to the COVID-19 emergency. The CSBS and CFPB advise that servicers may grant a forbearance term of less than 180 days at the borrower’s request or with the borrower’s consent. However, servicers must default to the term requested by the borrower, not to exceed 180 days, if the servicer and borrower cannot agree on a term or communication with the requesting borrower is not possible. If the borrower agrees to an initial forbearance term of less than 180 days, the servicer must extend that shorter term unless the borrower agrees to no extension, and no further attestation of financial hardship is required. The CSBS and CFPB also caution servicers to “effectively manage compliance with CARES Act forbearance requirements.” When granting a forbearance period of less than 180 days, the CSBS and CFPB advise that “the servicer’s board of directors and management must provide the additional resources necessary to continue forbearance as required under the CARES Act,” including by having management “assess its ability to adequately perform under shorter, incremental forbearance periods, including any supplemental systems or human resources needed.”
Servicers May Not Request Documentation or Proof of Hardship.
The CSBS and CFPB confirm that a servicer may not require any information from a borrower supporting a request for a forbearance, and borrowers do not need to prove a hardship. Attestation of a hardship due to COVID-19 is the only requirement established by the CARES Act for forbearance. A servicer may not determine that a borrower does not need a forbearance or limit the amount of the forbearance given. Servicers must grant forbearance to any requesting borrower with a federally backed mortgage loan attesting to a COVID-19-related hardship, regardless of delinquency status.
The joint statement notes that a servicer may work with a borrower to better understand the borrower’s situation, as long as the servicer does not mislead borrowers about the CARES Act forbearance requirements, or dissuade borrowers from proceeding with a forbearance if they have a COVID-19-related hardship. Any information obtained from a borrower shall have no bearing on the servicer’s provision of a forbearance.
Servicers May Not Steer Borrowers Away From Forbearance.
The CSBS and CFPB confirm that the CARES Act dictates that forbearance must be granted upon request by an attesting borrower, stating that “[e]xaminers will evaluate communications between borrowers and their servicers, including the servicer’s communication of repayment options for legal compliance or resulting consumer harm. A servicer that offers very limited repayment options when others are reasonably available could[,] depending on the facts and circumstances, be at risk of legal violation or causing consumer harm.”
Originators May Not Discourage Borrowers From Requesting a Forbearance.
The joint statement also addresses the use of loan closing attestations, notices, or other communications in a manner designed to discourage borrowers that subsequently experience a COVID-19-related-hardship from requesting forbearance. The CSBS and CFPB state that “[e]xaminers will evaluate originator communications with borrowers for legal compliance or causing consumer harm. An originator that misleads a borrower concerning [his or] her rights under the CARES Act could, depending on the facts and circumstances, be at risk of committing a legal violation or causing consumer harm.”
As mortgage industry companies continue to navigate federally backed mortgage lending and servicing requirements during the COVID-19 crisis, the recent CSBS and CFPB joint statement offers some additional guidance to the industry on consumer protection for borrowers impacted by the pandemic.