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