On May 4, 2021, the Consumer Financial Protection Bureau (CFPB) issued two reports detailing mortgage borrowers' continuing challenges related to the COVID-19 pandemic: a research brief on the characteristics of mortgage borrowers and the challenges they face; and a consumer complaint bulletin detailing common issues in mortgage complaints, which were made at an all-time high during the month of March 2021. The challenges and issues detailed in these reports, combined with a renewed focus on consumer protection under the Biden-Harris Administration, serve as important reminders to financial institutions to consider the hardships faced by their customer bases and to also consider what measures may be taken to mitigate adverse consequences and potential disparate impact on various customers.
The first report analyzed borrower demographics from nearly 662,000 mortgage loans and, in particular, explored the characteristics, including demographics, of borrowers in forbearance, borrowers who were delinquent but not in forbearance, and borrowers who were current during the COVID-19 pandemic. Among other findings, the study identified: Black and Hispanic borrowers, who accounted for 18% of all mortgage borrowers, made up a significantly larger share of borrowers who were in forbearance or delinquent than other borrowers; the share of loans with loan-to-value ratios above 60% was significantly larger for borrowers in forbearance or delinquent than those who were current; and loans in forbearance or that were delinquent tended to have been delinquent before the pandemic started and were also associated with distress on non-mortgage products.
The second report, which analyzed mortgage complaints and forbearance topics, found that more than 3,400 mortgage complaints were received by the CFPB in March 2021-the greatest monthly mortgage complaint total in nearly three years.1 The report also found that mortgage complaints mentioning forbearance keywords increased significantly in March and April 2020 and, after remaining steady for a number of months, increased again in March 2021. Common topics raised by the complaints include:
- Long delays and/or outright denials from servicers regarding forbearance and/or modification requests;
- Account statements and notices not effectively conveying forbearance status;
- Difficulty reaching a servicer representative to talk through options;
- Inaccurate credit information furnished about a loan in forbearance;
- Inaccurate principal balances after a deferral plan becomes effective;
- Poor communication, or receiving inaccurate information, about loan status, relief options during forbearance, and options available upon the ending of forbearance periods;
- Inaccurately communicating that no written application would be required to extend a forbearance plan;
- Improperly imposing an inspection fee, late payment fee, or modification fee during a CARES Act forbearance period; and
- Inaccurately applying payments while a loan is in forbearance or while the post-forbearance review is ongoing, including after a servicing transfer.
These reports were issued on the heels of the CFPB's April 2021 Notice of Proposed Rulemaking that sought comments on proposed amendments to Regulation X to assist borrowers affected by the COVID-19 emergency. Specifically, the proposed amendments would establish a temporary COVID-19 emergency pre-foreclosure review period, or a moratorium on new foreclosures, until December 31, 2021. The amendments would also temporarily require servicers to enhance communications with borrowers who are delinquent or are in forbearance and allow servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships.
Over a year into the COVID-19 pandemic, more borrowers are behind on their mortgage than at any time since the height of the Great Recession.2 As pandemic-related emergency mortgage protection programs expire during the summer and fall, mortgage servicers will face a surge of distressed borrowers contacting them for help to avoid losing their homes. Drawing on the lessons learned in the past, mortgage lenders and servicers should plan proactively to protect against avoidable foreclosures, including by developing communication plans to effectively work through issues with borrowers (including those with limited English proficiency), identifying and contacting borrowers before forbearance periods lapse, assessing portfolios to identify potential disparities between borrowers that may give rise to fair servicing issues, and applying extra scrutiny to forbearance-related communications and decisions to assure borrowers are provided with a clear understanding of their options and to avoid supervisory criticism.
2 See CFPB's press release.
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