Uncle Sam Wants YOU to Stay in Your Home: What Actions the Federal Government is Taking to Help You Avoid Foreclosure

For over a year, the Federal Government and its related agencies have taken action to help the American people through what has become one of the worst economic crises in our lifetime.

In order to help everyday Americans, avoid losing their homes, the Federal Government extended the foreclosure mortarium and mortgage forbearance enrollment periods from the start of the Pandemic to July 31, 2021 and September 30, 2021, respectively.

Now, with the hope that we are on the cusp of an economic recovery, the Federal Government is enacting measures to ensure Americans stay in their homes and support a return to a more stable housing market.

The Department of Housing and Urban Development (HUD), Department of Agriculture (USDA), and Department of Veterans Affairs (VA) have all announced their own plans to aid homeowners. Borrowers of federally backed loans will be offered Loan Modifications and Payment Reductions.

The Federal Housing Administration (FHA) enacted enhanced loss mitigation tools and a simplified COVID-19 Recovery Modification to help homeowners with FHA insured mortgages. HUD has enacted two options to aid borrowers- one for those who can resume their monthly payments and one for those who cannot.

COVID-19 Recovery Standalone Partial Claim- For those borrowers who can resume their monthly payments, HUD will provide a zero interest, subordinate lien which will be repaid when the mortgage insurance or mortgage terminates- i.e., upon sale or refinance.

COVID-19 Recovery Modification- For borrowers who cannot resume their monthly payments, HUD will extend the term of the mortgage to 360 months at market rate. The goal is to reduce the principal and interest portion of the monthly payment by 25%.

The USDA, VA and FHFA have also implemented their own changes.

COVID-19 Special Relief Measure- The USDA measure provides borrowers an option to reduce their principal and interest payments by 20% through interest rate reductions, term extensions and a mortgage recovery advance.

COVID-19 Refund Modification- The VA measure aims to reduce the principal and interest payment by 20% by purchasing from the servicer a borrower’s COVID-19 arrearages and then placing a junior lien, payable to the VA at 0% interest on the loan. Additionally, servicers can now reduce the monthly payments by modifying the loan and adding up to 120 months to the original maturity date.

The FHFA offers borrowers a payment deferral option that allows borrowers to resume their pre-COVID monthly payment after deferring up to 18 months into a non-interest-bearing balloon. Those missed payments do not have to be paid until the borrower sells or refinances the property.

The Federal Government is also offering the following assistance:

The Homeowner Assistance Fund, where borrowers may access funds to be used to pay for mortgage payments, homeowner’s insurance, utility payments and other specified purposes.

The Government National Mortgage Association (Ginnie Mae) created a new security product for modified loans that provides government agencies the flexibility to extend mortgage terms up to 40 years.

The Consumer Financial Protection Bureau’s Final Rule: Changes Every Homeowner Should be Aware Of

The Consumer Financial Protection Bureau issued its Mortgage Servicing COVID-19 Final Rule (“Final Rule”) on June 28, 2021. The Final Rule is effective August 31, 2021, and amends Regulation X. The Final Rule enacts temporary provisions that: (1) require special COVID19 loss mitigation procedural safeguards ensuring Americans have a meaningful opportunity to apply for loss mitigation before they are referred to foreclosure; (2) provide servicers the ability to offer borrowers certain COVID-19 related streamlined loan modifications without completion of a loss mitigation application; (3) require the provision of additional information immediately after early intervention live contacts are established; and (4) establish timing requirements for when servicers must renew reasonable diligence efforts to obtain complete loss mitigation applications from certain borrowers.

Although, the Effective Date of the Rule comes one month after the expiration of the federal foreclosure mortarium on July 31, 2021, the CFPB has emphasized that no servicer will be penalized for enacting the changes before the effective date and the Federal Housing Finance Agency announced Fannie Mae and Freddie Mac servicers must comply with the foreclosure protections starting August 1, 2021.

What Loans are Subject to the Final Rule?
The Final Rule applies to a mortgage loan secured by the borrower’s principal residence. As a result, the Final Rule does not apply to investment properties or second homes. Additionally, the Final Rule does not apply to reverse mortgages and some small servicers may be exempt from the provisions as well.

What protections for borrowers were added by the Final Rule?
The Final Rule adds temporary safeguards to the Mortgage Servicing Rules already in place. These enhanced safeguards will be in place from August 31, 2021 to December 31, 2021, unless an exception applies. During that time, the servicers must ensure at least one of the temporary procedural safeguards have been met.

Complete Loss Mitigation Evaluation: The Servicer must confirm the borrower was evaluated based on a complete loss mitigation application. To meet this safeguard, the servicer must confirm: (1) the borrower submitted a complete loss mitigation application and the servicer based their findings on a complete loss mitigation package; (2) the borrower remained delinquent at all times since submitting the application; and (3) the evaluation process was exhausted pursuant to existing criteria in the Rule (i.e. all appeals have been exhausted or the borrower rejected the loss mitigation options, or borrower failed to perform under loss mitigation options).

Property is Abandoned: The property subject to foreclosure must be deemed abandoned pursuant to state or local laws.

Borrower Unresponsive to Servicer Outreach: To meet this safeguard, the servicer must not have received any communication from the borrower in the 90 days prior to the foreclosure referral and must confirm: (1) it has complied with the early intervention live contact requirement; (2) it has provided the early intervention 45 day written notice required by the Mortgage Servicing Rules. This notice must be sent at least 10 but no more than 45 days before foreclosure referral; (3) the servicer has complied with all loss mitigation notice requirements (i.e. the notice of an incomplete loss mitigation application; and (4) the borrower’s forbearance program, where applicable, ended at least 30 days before the foreclosure referral.

What are the Exceptions to the Final Rule?
The temporary procedural safeguards do not apply to those loans in which: (1) foreclosure referral occurs on or after January 1, 2022; (2) the borrowers were more than 120 days delinquent prior to March 1, 2020; and/or (3) the statute of limitations will expire before January 1, 2022.

What are my options if my loss mitigation application is incomplete?
The Final Rule offers an option for Servicers who receive an incomplete loss mitigation package. Specifically, the Final Rule permits servicers to offer certain COVID-19 related streamlined loan modification options based on the evaluation of an incomplete application. To qualify for this exception the loan modification program must: (1) limit loan term extensions to no more than 40 years from the effective date; (2) limited period payment increases; (3) prohibit interest accrual on delayed amounts; (4) be made available to borrowers with COVID-19 related hardships; (5) end preexisting delinquency; and (6) servicer cannot charge fees in connection with the loan modification and must waive existing fees the borrower owes, such as late fees, penalties or step fees that incurred on or after March 1, 2020.

What does “reasonable diligence” mean under the Final Rule?
The Final Rule provided clarification for what “reasonable diligence” efforts are required by the servicer to help the borrower complete a loss mitigation application, if the borrower is in a COVID-19 forbearance program. In this scenario, the servicer must contact the borrower, no later than 30 days prior to the scheduled end of the forbearance plan to determine if the borrower wishes to complete the loss mitigation application and receive a full loss mitigation evaluation. If the borrower requests further assistance, the servicer must reinstate reasonable diligence efforts to complete the application before the end of the forbearance period.

What are the new “live contact” requirements as they pertain to early intervention?
Currently, the Mortgage Servicing Rules require servicers to make good faith efforts to establish live contact with delinquent borrowers no later than 36 days after the borrower’s delinquency and again no later than 36 days after each payment due date for as long as the borrower is delinquent.

The Final Rule adds a temporary requirement through October 1, 2022 requiring Servicers to provide additional information to delinquent borrowers.

For borrowers not in a forbearance plan at the time of live contact, the servicer must:

Program availability statement: Inform the borrower that forbearance programs are available for borrowers experiencing a COVID-19-related hardship.

List and description of applicable program- Unless the borrower states they are not interested in receiving information about programs offered, the servicer must list and briefly describe to the borrower any forbearance programs made available at that time and the actions the borrower must take to be evaluated for such forbearance programs.

Homeownership counseling services Inform the borrower of at least one way the borrower can find contact information for homeownership counseling services, such as referencing the borrower’s periodic statement.

For borrowers in a forbearance plan at the time of live contact, the servicer must:

Scheduled end date: Inform the borrower of the date the borrower’s current forbearance plan is scheduled to end.

List and description of applicable program- the Servicer must provide a list and brief description of any loss mitigation programs, including any forbearance extensions or repayment options, that are available to the borrower, and how the borrower can apply for those options.

Homeownership counseling services Inform the borrower of at least one way the borrower can find contact information for homeownership counseling services, such as referencing the borrower’s periodic statement.

Allow Us to Help

A home is so much more than a piece of property and that is why it is imperative that all Americans understand what options are available to them in protecting their biggest asset. The Government has taken historical measures to ensure Americans stay in their homes. Unfortunately, too many Americans are unaware of what protections, safeguards, and options have been put in place. The Attorneys of Scarnecchia Mullin have worked with servicers throughout their careers and understand how to best keep you in your home. Contact us today to set up an initial consultation to go over your rights and protections.