Operating a financial institution is always a challenge, but the COVID-19 outbreak has triggered a unique set of overlapping and sometimes conflicting concerns for mortgage originators and servicers. Here is what we know as of March 20:
- On March 18, 2020, HUD issued Mortgagee Letter 2020-04, announcing a 60-day moratorium for foreclosures and evictions, effective immediately. The moratorium applies to all properties secured by FHA-insured single-family mortgages and Home Equity Conversion Mortgages (more commonly known as HUD reverse mortgages). CFPB Director Kathleen Kraninger issued a statement commending HUD’s action and expressing support for “appropriate flexibilities” to benefit consumers.
On the same day, the Federal Housing Finance Agency (FHFA) announced a 60-day moratorium for foreclosures and evictions for properties secured by Enterprise-backed mortgages (i.e., mortgages held or securitized by Fannie Mae or Freddie Mac). Fannie Mae and Freddie Mac have yet to provide specific instructions for implementing the moratorium. For now, mortgage servicers should assume that the moratorium is as least as broad as the one announced by HUD.
We discuss the HUD Mortgagee Letter and the FHFA announcement in more detail here.
- Federal regulators have not provided definitive guidance for how mortgage servicers should report account information to the credit reporting agencies while the moratorium (or the COVID-19 outbreak generally) is in place. As discussed elsewhere, many policymakers have specifically identified adverse credit reporting as a potential problem and have urged lenders not to provide adverse information regarding borrowers who are delinquent or in default possibly as a result of the virus outbreak. Reporting such accounts as affected by a “natural disaster” carries some risk of being inaccurate and creating operational issues.
Fannie Mae issued a Lender’s Letter directing servicers to suspend credit reporting “during an active forbearance plan, or a repayment plan or Trial Period Plan where the borrower is making the required payments as agreed, even though payments are past due, as long as the delinquency is related to a hardship resulting from COVID-19.” Similarly, the Veterans Administration has issued a bulletin directing servicers to suspend adverse credit reporting for “affected” loans. Servicers should follow Fannie Mae’s and the VA’s guidance as to any applicable loan where the servicer has a basis for believing the default or deficiency is related to the virus outbreak. Servicers may want to consider implementing broader suppression policies that would cover loans that are delinquent or in default but for which the servicer has not received a request for forbearance or other indication that the delinquency or default is related to COVID-19. Each servicer will need to review its own system and assess whether suppressing reporting for all accounts would avoid inaccurate reporting without creating significant operational issues.
- Some states have stepped ahead of the federal regulators in seeking to provide relief to mortgagors. Gov. Andrew Cuomo of New York announced yesterday in a press conference that the State of New York would “waive” or “defer” (the announcement was unclear) certain mortgage payments for a period of 90 days and further mandate no negative reporting to the credit bureaus. Some jurisdictions, including Miami, San Jose, and Las Vegas, have effectively suspended judicial foreclosures and evictions by closing the courts responsible for those functions.
- State shut-down and “shelter in place” orders have also disrupted foreclosure operations, even in non-judicial foreclosure states. Borrowers and potential bidders may not be able to access sales locations, even if sales could otherwise proceed. Similarly, vendors providing document custody or other foreclosure-related services may be operating at a reduced capacity. Any company trying to pursue foreclosures should consult with counsel to identify and assess a number of legal and practical issues before proceeding.
- As many states have closed “non-essential” offices, jurisdictions across the country have shut down land recording offices. Lacking access to recording offices will create obvious issues for originators trying to originate new loans (as applications continue to pour in as a response to historically low interest rates), as well as for servicers handling an increased volume of reconveyances and releases for existing mortgages. Many jurisdictions allow for electronic recording; these jurisdictions are generally able to operate at lower staffing levels and may remain open even when other offices have closed. For jurisdictions where there are no options to record documents currently, originators and servicers need to be diligent about documenting their efforts to record the necessary documents and the hurdles in the way.
- As originators struggle to find ways to close loans in a social distancing environment, the use of remote notarization has found renewed support. On March 18, Sens. Kevin Cramer and Mark Warner proposed the bipartisan Securing and Enabling Commerce Using Remote and Electronic (SECURE) Notarization Act of 2020, which would permit the nationwide use of remote electronic notarizations. The bill is supported by the Mortgage Bankers Association, the National Association of Realtors, and the American Land Title Association.
- As originators move to having loan originators work remotely, they face potential risks associated with authorized licensing locations. In recent years, state licensing regulators have cracked down on licensing locations and penalized companies for allowing their loan originators to work remotely – such as at home or in coffee shops – if those locations are not specifically licensed. As discussed here, regulators in Washington, Connecticut, New York, Massachusetts, Michigan, Alabama, Idaho, Nebraska, Montana, Oregon, Alaska, Arkansas, Maryland, New Hampshire, North Dakota, Oklahoma, South Dakota, Vermont, Nevada, Rhode Island, Mississippi, Kansas, Wisconsin, Colorado, Iowa, Louisiana, New Mexico, Indiana, Minnesota, West Virginia, and Texas have issued guidance regarding whether loan originators may work from an unlicensed home location. We anticipate more guidance will be forthcoming.