On January 21, 2021, the Consumer Financial Protection Bureau (CFPB) released the 23rd issue of its Supervisory Highlights report, a special edition focusing entirely on the COVID-19 Prioritized Assessments that have been going on since the summer. The report provides general observations on the Prioritized Assessments and then moves into the areas of risk across nine product lines that were identified by the CFPB in the course of its work.
While we always stress the importance of tracking and analyzing the issues highlighted by the CFPB in every Supervisory Highlights report, this time it is particularly important. As the nation transitions to the Biden administration and we undergo a change in leadership at the CFPB, the priorities and strategies employed by the agency regarding consumer financial protection are likely to change as well. Entities that are subject to the CFPB’s supervisory and enforcement authority should take time to understand where there may be risk and promptly address it moving forward.
In the area of mortgage servicing, the CFPB highlighted six potential areas of risk:
- Providing incomplete or inaccurate information to consumers about forbearance;
- Sending collections and default notices, assessing late fees, and initiating foreclosures for borrowers enrolled in forbearance;
- Cancelling or providing inaccurate information about borrowers’ preauthorized electronic funds transfers;
- Failing to timely process forbearance requests;
- Enrolling borrowers in automatic or unwanted forbearances; and
- Loss mitigation process deficiencies.
Other areas of the Supervisory Highlights report, such as Consumer Reporting and Furnishing, are likely also relevant to the mortgage servicing industry and should be analyzed accordingly.
Most of the issues that are described are similar to, and consistent with, themes that Allison Brown from the CFPB discussed during the Bradley-hosted webinar that she joined in October. For example, Brown emphasized that, during reviews of COVID-19 practices, the CFPB would be looking to validate that servicers conveyed information to borrowers about forbearance and other loss mitigation options that was accurate when it was provided. The CFPB is also very concerned about borrowers being told that they will have to repay forborne amounts in a lump sum at the end of the forbearance period. Finally, as we previously discussed, loss mitigation procedural requirements are likely to be implicated when borrowers need assistance due to a COVID-19 hardship and must be adhered to.
We believe a couple of the issues highlighted by the CFPB are particularly noteworthy in our opinion. For instance, the CFPB notes that some servicers sent collection notices while borrowers were on a CARES Act forbearance and that such notices present risks of direct financial harm and significant confusion for those borrowers. This is an issue that the mortgage servicing industry has been grappling with since the pandemic started, and additional guidance from the CFPB may still be needed. While it is likely prudent to suppress routine collection notices, questions linger regarding other notices required by applicable law. For example, certain states require that various notices must be sent by a particular date of delinquency. The CFPB’s mortgage servicing rules even require that an early intervention notice be sent by the 45th day of delinquency, and those notices are likely to contain the CFPB’s model clause indicating that the longer a borrower waits, or the further the borrower falls behind on payments, the harder it will be to find a solution. Finally, when a borrower is more than 45 days delinquent, the CFPB’s periodic billing statement requirements in Regulation Z mandate that each monthly statement contain “[a] notification of possible risks, such as foreclosure, and expenses, that may be incurred if the delinquency is not cured.” While the sentiment expressed by the CFPB here – that collection notices could be inconsistent and confusing for a borrower in forbearance – makes sense, there are additional nuances that have to be fleshed out, particularly regarding notices that are required by applicable law and that contain language that could lead to the same confusion that the CFPB is concerned about.
Another noteworthy mortgage servicing issue in the CFPB’s Supervisory Highlights relates to the practice of automatically enrolling borrowers in forbearance. Servicers were under considerable pressure at the start of the pandemic to implement the practice that the CFPB now finds problematic. The New York attorney general sent letters to 35 mortgage servicers in April recommending that, for all mortgage loans serviced, the servicers “[p]lace accounts in a 90-day forbearance automatically and where necessary retroactively.” As a result, this is an issue that may have been caused or exacerbated by guidance from government regulators.
In sum, the CFPB’s COVID-19 issue of Supervisory Highlights is particularly important in the present environment. In 2021, the CFPB will transition to new leadership, and we expect a more aggressive posture, particularly as it relates to issues with a nexus to the COVID-19 crisis. Scrutiny of mortgage servicers will likely be a high priority for the new CFPB leadership. The Supervisory Highlights report lays out numerous areas of potential concern that the industry must work to address. As always, we will continue to discuss the issues raised by the CFPB on this blog and on our weekly compliance roundtables.