Bulletin 2021-02: Supervision and Enforcement Priorities Regarding Housing Insecurity

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Compliance bulletin and policy guidance.

SUMMARY:

The Bureau of Consumer Financial Protection (Bureau) is issuing this Compliance Bulletin and Policy Guidance (Bulletin) on Supervision and Enforcement priorities regarding housing insecurity in light of heightened risks to consumers needing loss mitigation assistance in the coming months as the COVID-19 foreclosure moratoriums and forbearances end. Consequently, the Bureau will be paying particular attention to how mortgage servicers respond to borrower requests for loss mitigation assistance and process loss mitigation applications. The Bureau urges servicers to dedicate sufficient resources and staff to ensure they can communicate clearly with borrowers, effectively manage borrower requests for assistance, promote loss mitigation, and ultimately reduce avoidable foreclosures and foreclosure-related costs. Accordingly, the Bureau intends to consider a servicer's overall effectiveness at achieving such goals, along with other relevant factors, in using its discretion to address violations of Federal consumer financial law in supervisory and enforcement matters. The Bureau recognizes that some homeowners will not be able to resume making payments on their mortgages and that some foreclosures are unavoidable; nonetheless, the Bureau will hold mortgage servicers accountable for complying with Regulation X with the aim of ensuring that homeowners have the opportunity to be evaluated for loss mitigation prior to the initiation of foreclosure.

DATES:

This bulletin is applicable on April 7, 2021.

FOR FURTHER INFORMATION CONTACT:

Allison Brown, Deputy Assistant Director, Office of Supervision Policy, Division of Supervision, Enforcement, and Fair Lending, at (202) 435-7107, or James Savage, Senior Counsel, Office of Enforcement, at (202) 734-2777. If you require this document in an alternative electronic format, please contact CFPB_Accessibility@cfpb.gov.

SUPPLEMENTARY INFORMATION:

I. Background

Mortgage servicers play a vital role in assisting borrowers when they face challenges in paying their mortgages. The Bureau is committed to using its authorities, including its authority under Regulation X mortgage servicing requirements and under the Consumer Financial Protection Act (CFPA), to ensure that homeowners facing the ongoing economic impact of the Coronavirus Disease (COVID-19) national emergency receive the benefits of critical legal protections and that avoidable foreclosures are avoided.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. Among other things, the CARES Act provides borrowers with “Federally backed mortgage loans” with access to forbearance options regardless of whether they are delinquent. The Bureau understands from its market monitoring that many private investors have also provided forbearances on similar terms to those provided by servicers of federally backed loans.

Since the CARES Act was enacted, 6.9 million borrowers have entered a forbearance program. As of January 2021, more than 2.1 million borrowers in forbearance programs were more than 90 days behind on their mortgage payments (including borrowers who have forborne three or more payments), and they could still be experiencing severe hardships when their payments are to resume. Black and Hispanic homeowners were more than two times as likely to be behind on housing payments as of December 2020.

Of the borrowers not in forbearance programs, as of January 2021, around 242,000 were 90 days or more delinquent. Both populations of delinquent borrowers are at heightened risk of referral to foreclosure soon after the foreclosure moratoria end if they do not resolve their delinquency or reach a loss mitigation agreement with their servicer. If borrowers who are currently in an eligible forbearance program request an extension to the maximum time offered by the government agencies, those loans that were placed in a forbearance program early in the pandemic (March and April 2020) will reach the end of their forbearance period in September and October of 2021. Black Knight data suggests there could be just under 1.7 million borrowers still in forbearance in September 2021, with roughly 800,000 borrowers exiting their forbearance programs after 18 months of forborne payments in September and October of 2021.

Borrowers facing more permanent hardships will likely need to apply for loss mitigation options as the end of the forbearances periods approach.⁶ Therefore, as consumers approach the end of forbearance periods in the coming months, the Bureau expects an extraordinarily high volume of loans needing loss mitigation assistance at relatively the same time. During this period in which there may be large increases in requests for loss mitigation assistance, the Bureau is specifically concerned that some borrowers may not be receiving effective communication from servicers and that some borrowers may be at risk of not having their loss mitigation applications adequately processed.

In the wake of the COVID-19 pandemic, the Bureau has taken numerous steps to protect and assist mortgage borrowers. The Bureau has created and disseminated extensive consumer education resources in coordination with Federal agencies and State regulators. The Bureau plans to use all of its tools, including consumer and industry outreach and regulatory initiatives, to protect homeowners and assist those mortgage servicers who are also working to reduce avoidable foreclosures. The Bureau recognizes that mortgage servicers have also experienced challenges as a result of the pandemic and intends to support servicers in their efforts to provide timely assistance to mortgage borrowers.

II. Supervision and Enforcement Priorities

The Bureau plans to monitor servicers' engagement with borrowers at all stages in the process in the coming months and prioritize mortgage servicing oversight work in deploying its enforcement and supervision resources in the coming year. The Bureau expects servicers to plan for the expected increase in loans exiting forbearance programs and related loss mitigation applications, as well as applications by borrowers who are delinquent but not in forbearance. The Bureau expects servicers to resource those activities appropriately and urges servicers to dedicate sufficient resources and staff to ensure they can communicate clearly with borrowers, effectively manage borrower requests for assistance, and thereby reduce foreclosures. Accordingly, the Bureau intends to look at a servicer's overall effectiveness at helping consumers manage loss mitigation, along with other relevant factors, when using its discretion to address violations of Federal consumer financial law in supervisory and enforcement matters. On the other hand, consistent with the flexibilities announced in the April 3, 2020 joint statement, companies that are unable to adequately manage loss mitigation can expect the Bureau to take enforcement or supervisory action to address violations under its Regulation X, CFPA, or other authorities.

In its oversight work, the Bureau plans to pay particular attention to:

1. Whether servicers are providing clear and readily understandable information to borrowers about their options for payment assistance;

2. Whether servicers are complying with the outreach requirements in Regulation X to ensure that borrowers are getting needed information about loss mitigation options, including:

• For borrowers who request further assistance, whether servicers are promptly resuming reasonable diligence in obtaining documents and information to complete loss mitigation applications;

• For borrowers in forbearance, whether servicers are contacting borrowers before the end of the forbearance period to determine if the borrower wishes to complete the loss mitigation application and proceed with a full loss mitigation application;

3. Whether servicers are complying with the Equal Credit Opportunity Act's (ECOA's) prohibition against discriminating against any applicant, with respect to any aspect of a credit transaction, including:

• Whether servicers are managing communications with limited English proficiency borrowers while maintaining compliance with applicable laws;

• For applicants who are recipients of income derived from part-time employment, alimony, child support, separate maintenance payments, retirement benefits, or public assistance, whether servicers evaluate such income in accordance with the ECOA and Regulation B when determining eligibility for loss mitigation options, to the extent the servicer is otherwise required to use income in determining eligibility for loss mitigation options;

4. Whether servicers promptly handle loss mitigation inquiries and avoid unreasonably long hold times on phone lines; for example, the Bureau plans to scrutinize servicer conduct where hold times are significantly longer than industry averages;

5. Whether servicers maintain policies and procedures that are reasonably designed to achieve the continuity of contact objectives to ensure that delinquent borrowers receive accurate information about their loss mitigation options;

6. For borrowers who submit complete loss mitigation applications, whether servicers evaluate the applications consistent with the Regulation X requirements to promote timely and consistent evaluations;

7. Whether servicers comply with foreclosure restrictions in Regulation X and other Federal or State foreclosure restrictions; and

8. Whether servicers are complying with the Fair Credit Reporting Act's requirements to report the credit obligation or account appropriately.

IV. Conclusion

The Bureau issues this policy statement to highlight supervisory and enforcement priorities with respect to mortgage servicing and to confirm that the Bureau will hold servicers accountable if they are unable to manage an expected increase in borrowers needing loss mitigation assistance.

V. Regulatory Requirements

The Bulletin constitutes a general statement of policy exempt from the notice and comment rulemaking requirements of the Administrative Procedure Act (APA). It is intended to provide information regarding the Bureau's general plans to exercise its supervisory and enforcement discretion for institutions under its jurisdiction and does not impose any legal requirements on external parties, nor does it create or confer any substantive rights on external parties that could be enforceable in any administrative or civil proceeding. Because no notice of proposed rulemaking is required in issuing the Bulletin, the Regulatory Flexibility Act also does not require an initial or final regulatory flexibility analysis. The Bureau has also determined that the issuance of the Bulletin does not impose any new or revise any existing recordkeeping, reporting, or disclosure requirements on covered entities or members of the public that would be collections of information requiring approval by the Office of Management and Budget under the Paperwork Reduction Act.