United States: House Financial Services Committee Considers CARES Act Implementation Issues

At a hearing titled "Protecting Homeowners during the Pandemic: Oversight of Mortgage Servicers' Implementation of the CARES Act," the U.S. House Committee on Financial Services Subcommittee on Oversight and Investigations considered CARES Act mortgage servicer implementation issues and economic inequity.

Specifically, the Committee examined issues with how mortgage servicers are carrying out the mandated relief, noting that several servicers failed to:

• include forbearance information on their websites;
• offer borrowers the initial 180-day forbearance;
• notify borrowers that they may elect a one year forbearance period; and
• explain to borrowers that servicers cannot request post-forbearance lump sum payments.

Testimony

Alys Cohen, a staff attorney from the National Consumer Law Center, urged Congress and Federal regulators to fix the "broken mortgage servicing system" (which has not been addressed since the housing market reemerged after the financial crisis) by stopping avoidable disclosures and creating a sustainable housing market. She asked Congress to (i) offer forbearance options to all borrowers with mortgage loans; (ii) provide automatic forbearance for delinquent borrowers undergoing hardship; (iii) require servicers to provide written notice to borrowers of their options and rights under the CARES Act; (iv) hold servicers accountable for failing to provide accurate forbearance information to borrowers in a timely manner; (v) post multi-language CARES Act information on servicers' websites; (vi) issue a moratorium on negative credit reporting; (vii) provide assistance to the "hardest hit communities"; and (viii) prevent "zombie foreclosures" and ensure resale of vacant properties to prevent "neighborhood blight."

Marcia Griffin, President and Founder of HomeFree-U.S.A., advocated for the widespread use of housing counselors to protect borrowers and free up servicers' time and expenses. According to Ms. Griffin, housing counselors have reported "widespread issues" in the CARES Act-related mortgage servicing, such as pressuring borrowers to make lump sum repayments and providing misinformation on payment and deferral options. To begin addressing such issues, she urged Congress to implement federal coordination and affirmation plans between the CFPB, FHFA and HUD. Additionally, she asked servicers to help borrowers in non-federally backed loans, who are "at a serious disadvantage" compared to government-backed loan borrowers.

Donnell Williams, President of the National Association of Real Estate Brokers, outlined a five-part action plan for supporting Black homeowners during the pandemic. The plan is composed of: (i) providing specific funds to safeguard Black homeownership; (ii) offering additional options to borrowers who are not covered by the CARES Act; (iii) mandating that the FHA and servicers notify borrowers of their right to apply for forbearance; (iv) raising public awareness of borrowers' right to forbearance; and (v) ensuring that FHA and government-sponsored enterprise borrowers are able to access their "forbearance protections, financial relief, and assistance."

Edward J. DeMarco, President of the Housing Policy Council ("HPC"), defended mortgage servicers, noting that HPC and other servicers have:

• shifted almost all operations from offices to homes;
• trained staff and modified technology to handle the "enormous inflow of borrower inquiries";
• established automated online tools for borrowers to easily request payment relief;
• offered homeowner forbearance options prior to the passage of the CARES Act;
• provided forbearance to homeowners with non-federally backed mortgages; and
• responded to the "evolving series of program and regulatory announcements from FHA, VA, USDA, Ginnie Mae, the GSEs, FHFA, and the CFPB."

Commentary

Today's hearing was intended to put a spotlight on the role of mortgage servicers in implementing mortgage forbearance and other consumer relief mandated by the CARES Act. We expect that mortgage servicers will be increasingly scrutinized by their primary regulators (e.g., CFPB, federal banking regulators) regarding their compliance with and implementation of borrower protections in the CARES Act.

Primary Sources