The House Financial Service Committee’s Subcommittee on
Oversight and Investigations held a hearing on Thursday entitled, “Protecting Homeowners During the Pandemic: Oversight
of Mortgage Servicers’ Implementation of the CARES Act.” Scheduled witnesses
were Alys Cohen, staff attorney, National Consumer Law Center; Marcia
Griffin, Founder and President, HomeFree-USA; Donnell
Williams, President, National
Association of Real Estate Brokers; and Ed DeMarco, President, Housing Policy Council and
former acting director of the Federal Housing Finance Agency (FHFA).

The
subcommittee’s memorandum lays out some of the issues the hearing is designed
to air concerning the servicer industry’s response to the CARES (Coronavirus
Aid, Relief, and Economic Security Act. Cares was enacted on March 27, 2020, in
part to provide protections for homeowners facing economic hardships due to the
pandemic.

As of
the mid-June, nearly 33 million people claimed unemployment benefits compared
to 1.6 million a year earlier, and at the end of May 7.76 percent of mortgages
were a month or more past due. While the protections in the CARES Act do not
cover all residential mortgages in the United States, federally backed
mortgages represent about 70 percent of outstanding single-family mortgages and
increase opportunities for homeownership among low- and moderate- income
borrowers. As of June 28, 8.39 percent of all mortgages in mortgage servicers’
portfolios, were in forbearance.

The
memorandum says that there has been at times inconsistent and potentially
confusing
guidance provided to those who must administer to protections
afforded by the act which include an initial forbearance period of up to 180
days with a possible extension to one year and a moratorium on foreclosures.
Fannie Mae and Freddie Mac have issued different guidance about the forbearance
duration and there has been other guidance provided by the Consumer Financial
Protection Bureau (CFPB) and the Conference of State Bank Supervisors.

A
review of servicers websites conducted by the Housing and Urban Development (HUD)
Office of Inspector General found many with no consumer information about the
CARES Act and others with inconsistent or incorrect guidance. There is also
concern that the requirement that servicers continue to advance principle and
interest payments to investors and pay property taxes and insurance premiums
for homeowners in forbearance will provide serious liquidity issues for
servicers.

Each
of the witnesses provided transcripts of their prepared testimony. Highlights
are summarized below.

Cohen said she was appearing
on behalf of a dozen or more consumer groups as well as the National Consumer
Law Center. She called the forbearance provisions of the CARES Act “an
important first step in preserving homeownership and helping struggling homeowners
but called for additional action


  • Renewed
    efforts to protect and expand Black and Latinx homeownership, as rates of Black
    and Latinx homeownership had not yet recovered from the Great Recession when
    the pandemic began.

  • Collection
    of loan-level borrower, loan performance, and loss mitigation data on at least a
    quarterly basis, with public reporting.

  • Expansion
    of CARES Act protections to prevent avoidable foreclosures, mitigate the
    impact of foreclosures that do occur, and limit spillover effects from the
    housing market to neighborhoods and the broader economy. These protections should
    include: standardized forbearance options for all mortgage loans, timely and
    accurate information to borrowers about loss mitigation options; affordable
    repayment options; a moratorium on negative credit reporting; targeted support
    for the hardest-hit communities; and measures to prevent neighborhood blight.

  • Increased
    federal oversight, improved regulations, and future reforms in the mortgage
    servicing industry. This would include amending CFPB’s one-sided
    relaxation of the mortgage servicing rules, clarifying and improving FHA loss
    mitigation policies; and revising FHFA programs to prevent avoidable
    foreclosures and support the origination market; She also suggested addressing
    needed mortgage servicing reform to better align servicer incentives with those
    of borrowers and investors.

Williams said the pandemic has had a crushing and devastating
effect on black homeowners because of mass unemployment. Roughly 24 percent of
them reported some difficulty in making their June mortgage payments and there
is a 13-percentage point gap between white and Black homeowners in their rates
of forbearance.

He urged Congress to
take action to ensure that their actions and those of the government to
maintain homeownership are equitable.


  • Funds should be allocated specifically to the
    preservation of Black homeownership.

  • Assistance should be provided to borrowers not
    covered by the CARES Act.

  • Servicers must be required to notify borrowers
    of their rights to apply for forbearance and provide toll-free phone lines
    staffed with knowledgeable personnel to assist with the process.

  • The federal government is allocating resources
    to build public awareness around the health risks associated with the pandemic.
    Similar efforts should go toward informing borrowers of their rights.

Griffin said three months
after passage of the CARES Act, the housing counselors her organization
represents are still hearing of serious problems with servicers. They include:


  • Notwithstanding HUD and FHFA declarations to the
    contrary, consumers say they are being pressured to pay their arrearages in a
    lump sum. In extreme cases servicers have demanded that unemployment support be
    used to pay it.

  • When calling to request a discussion about
    payment forbearance options, consumers report that servicer scripts start with
    a lump sum payment at the end of the forbearance period and/or that taking
    advantage of a forbearance could prevent them refinancing their loan in the
    future. This sometimes scares the consumer away from taking advantage of CARES
    Act relief.

  • Counselors have had veterans who were denied
    forbearance of VA loans, consumers who claim that they have been denied
    forbearances for what they thought was a federally-backed loan, but was actually
    a portfolio loan and have seen challenges for homeowners who have recently gone
    through a loan modification or were delinquent heading into COVID-related
    furloughs.

  • Much of counselor assistance to date has been
    assisting borrowers who were improperly denied forbearance, and only approved
    with the intervention of a housing counselor. More and specific guidance around
    recently impaired loans should be provided.

  • Some consumers feel as though they are in limbo.
    After requesting forbearance, they have not been notified that their request
    for received or granted. This lack of communication may be partially responsible
    for the high (but recently declining) number of borrowers who have requested
    forbearances, but nonetheless paid their loan in April and May. There is also widespread
    confusion about the length of the payment forbearance that was granted.

The DeMarco
organization’s membership includes mortgage servicers and he said that industry
is quite different from the one he encountered while administering the FHFA
during the housing crisis. Its capacity and commitment to serve customers and
the tools available to provide near-term relief and long-term solutions is far
greater than it was twelve years ago.  The
challenges facing homeowners are different as well.

In the Great
Recession, delinquency rates took six years to grow from the low point to the
peak.  With the pandemic rates have gone
from record lows to a 9 percent forbearance rate in less than two months. In
response, servicers:


  • Shifted virtually all their operations out of
    call centers and office buildings to kitchens and family rooms.

  • Trained their staffs remotely and modified technology
    to manage the enormous inflow of borrower inquiries.

  • Set up automated on-line tools – in some cases
    in just a few days – for borrowers to educate themselves and request payment
    relief using efficient and streamlined processes.

  • Offered homeowners forbearance options before
    the passage of the CARES Act.

  • Extended forbearance to homeowners that do not
    have federally backed mortgages.

  • Executed against an evolving series of program
    and regulatory announcements from FHA, VA, USDA, Ginnie Mae, the GSEs, FHFA,
    and the CFPB.

By
late May, just two months since enactment of the CARES Act, nearly 4.8 million
households were on a forbearance plan. This happened because servicers, both
bank and nonbank, are better prepared and nimbler today than they were in the
past crisis. 

He
added that 9.6 percent of non-federally backed mortgages were also in
forbearance by the end of May. “This is a clear indication that bank portfolio
lenders and other investors have also responded voluntarily, without a federal
directive, providing borrower payment relief at an even greater rate than we
see for GSE loans,” he said. 

DeMarco cautioned that there are many challenges remaining in the effort to
quickly assist families facing disruptions to their financial circumstances. The
two biggest are (1) the unknown duration of the pandemic and the consequent
economic disruptions and (2) the transition from short-term payment relief to
permanent solutions, which must be tailored to affected households. Prompt and
effective borrower – servicer communication, combined with stability in program
rules, will be key to successful resolution. 

By Jann Swanson , dated 2020-07-16 16:29:31

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Courtesy of Mortgage News Daily

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