Recently, Covius hosted a webinar that looked at various dynamics within the servicing sector – a home outlook and analysis by leading economist Allan Weiss and tips on how to manage best borrower outcomes in the year ahead from Rocket Mortgage executives and Covius’ Joe Chappell. I also contributed to the webinar, and during my segment, I looked at the significant changes we’ve seen over the past few years in the regulatory environment and the CFPB’s agenda when it comes to loss mitigation. Here were some of the main takeaways:
Regulator-driven enforcement actions and consumer relief are key indicators of the level of activity of a regulator.
The CFPB has always been laser-focused on consumer protection; however, the level of the CFPB-directed consumer relief has shown fluctuations over time. Looking at the landscape of consumer relief and enforcement actions at the CFPB, there were notable spikes in 2014 and 2015 and more recently in 2022. There is usually a correlation between an enforcement action, which is a legal action taken against an entity for violating a regulation, and consumer relief, which focuses on providing assistance to affected consumers.
The higher level of consumer relief in 2014 and 2015 was in response to the mortgage crisis and the news that several financial institutions were implicated in predatory lending practices and other areas of general misconduct. During this period, the CFPB actively pursued settlements related to the mortgage crisis, and as part of these settlements, financial institutions were required to provide consumer relief. The sheer size and scope of these settlements significantly contributed to the higher levels of CFPB-directed consumer relief during this period.
Fluctuations in consumer relief figures can also be influenced by policy and political factors. Different administrations prioritize consumer protection uniquely, resulting in shifts in the CFPB’s enforcement actions and relief measures. Additionally, investigations and settlement agreements take time. So, the lower figures in the years preceding 2014 and 2015 may reflect the time it takes to complete investigations initiated during the earlier years of the CFPB’s existence.
The CFPB has set forth clear expectations to ensure that foreclosure is seen as a last resort.
The Bureau expects servicers to find alternative solutions to keep families in their homes and less-impactful strategies to liquidate homes if that’s the best option.
The Bureau is also placing a particular focus on non-bank mortgage servicers: a group that plays a vital role in assisting borrowers faced with hardships. At this year’s Consumer Bankers Association’s (CBA) conference, CFPB Director Rohit Chopra said non-bank servicers pose a risk to consumers: “As a general matter, I put much more emphasis on non-bank supervision. We’re not forgetting about the banks, but much more [focus] on non-bank supervision and especially consumer finance infrastructure and these players.”
The CFPB is also on the lookout for entities:
- Charging late fees to borrowers in CARES Act forbearance.
- Failing to review applications for loss mitigation options within 30 days.
- Incorrectly handling partial payments.
- Requiring consumers to make more detailed attestations than required.
- Providing incorrect or confusing information about payment options.
- Incorrectly reporting to the Credit Reporting Agencies.
- Failing to update written policies and procedures.
- Moving forward with foreclosure while the borrower is actively seeking help to save the home.
Loss mitigation requirements have been a bit of a moving target.
Since COVID-19, agencies and regulators have been trying to adjust their programs to address the unique challenges of the pandemic and the changing economic environment. In some cases, such as the recent FHA announcement regarding HAMP, agencies and regulators have announced a change only to come back later and adjust it due to concerns with the original directive.
The FHA has officially made COVID-19 loss mitigation options available to all homeowners even if the hardship was not a result of the pandemic. This wider approach is an effort to incorporate lessons learned during the pandemic into the industry’s “business as usual” loss mitigation options.
New programs to help homeowners regain financial stability while avoiding the threat of foreclosure are on the rise.
HUD has finalized a 40-year loan modification option that allows eligible homeowners to extend the term of their mortgage to 40 years, reducing their monthly payments and increasing affordability. It’s a significant step toward ensuring long-term housing stability for struggling families, especially in this higher interest rate environment. The GSEs have also issued updates expanding their payment deferral, loss mitigation option. This option allows borrowers to defer missed payments and add them to the end of their loan term without immediate penalty or credit implications. There have also been several new proposed programs. One of these is the FHA’s proposed new option, the Payment Supplemental Partial Claim, which would enable servicers to utilize the FHA partial claim to bring a borrower current and provide temporary reductions to their monthly payment for up to five years. Finally, the USDA has proposed updates to its Mortgage Recovery Advance program. The USDA is trying to adjust this program to a more streamlined option, similar to the payment deferral with the goal of providing more accessible assistance to homeowners facing financial distress.
The full webinar is available on demand here for download.