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12.3.1 Overview and Practice Tips

Significant Law Change

This section covers the relief measures available for borrowers facing hardship from the COVID-19 pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) Act covered most of the residential mortgage market; however, it only addressed short-term assistance to borrowers and not long-term relief. The CARES Act did not apply to many loan types, and it left crucial details about programs up to the covered investors. While the particular options for avoiding foreclosure offered by federal guarantors and insurers share features, there has not been a consistent set of rules across all loan types. In fact, for loans held in portfolio or in trust through private label securities, there are no mandatory relief measures.

It is critical for advocates assisting clients with COVID-19 hardships to understand the current system, help borrowers navigate it, and share with other advocates and policymakers what works and what does not. The economic upheaval from the COVID-19 pandemic has impacted millions of borrowers, and many of them have failed to obtain the relief Congress and federal agencies designed for them.1 Borrowers of color, especially Black borrowers, face the greatest threat if the assistance in place proves ineffective or hard to access.2 While investors have streamlined relief and have required no submission of financial documentation for many options, it is unclear how well borrowers will be able to access them and if servicers will provide the correct relief. Experience from the previous financial crisis suggests this will not be easy.

The most important initial step an advocate should take to assist a client facing a COVID-19 hardship is to determine the relevant investor. The Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, have created online loan lookup tools to help identify loans they own or guarantee.3 Borrowers with FHA-insured loans may be able to identify the status from the loan documents, their mortgage statements, or closing documents. VA-guaranteed loans are generally clear from the text of the mortgages and notes. The United States clearly identifies itself as the lender for USDA direct loans, and the USDA services these loans through its national servicer. The most challenging loan type to identify is a USDA guaranteed loan, because it generally has no specific loan language. Advocates should review the HUD-1 settlement statement and any attachments to the note to see if the loan is guaranteed by the USDA.

In helping borrowers identify the proper loss mitigation options per investor type, advocates should use the Request for Information (RFI) under RESPA to identify the type of loan, available loss mitigation options, and the process for accessing loss mitigation.4 The RESPA Notice of Error (NOE) provides an enforceable means to ensure that the servicer implements the appropriate option. Sections 3.3.4, supra, (RFI) and 3.3.3, supra, (NOE) cover the mechanics and uses of RFIs and NOEs in depth.

It is important to note, however, that the CFPB and other federal agencies issued a Joint Statement on April 3, 2020 that relaxes application of some of the rules during the pandemic.5 The Joint Statement generally provides that no agency enforcement or supervisory actions will be taken against a servicer if the servicer fails to meet a time deadline for compliance in the rule. For example, a borrower’s request for a forbearance is a loss mitigation application that triggers certain servicer requirements under section 1024.41 of Regulation X, including the requirement under section 1024.41(b)(2) to send an acknowledgement letter within five days of receipt of an incomplete application.6 The Joint Statement states that no agency enforcement or supervisory action will be taken if the servicer misses the five-day deadline, provided that notice is sent before end of the forbearance period. Similarly, if a servicer makes a good faith effort to comply, no agency action will be brought for delays in taking the following actions: sending the written early intervention notice under section 1024.39(b);7 sending the forbearance notice required under 1024.41(c)(2)(iii),8 evaluating a complete loss mitigation application and sending related notices required by section 1024.41(b)–(d),9 and sending appeal notices required by section 1024.41(h)(4) and (k).10

Importantly, the rules that apply to notices of error and requests for information are not affected by the Joint Statement. For the rules that are affected, the Joint Statement applies only to agency actions and does not limit the borrower’s right to enforce the requirements by bringing an action under RESPA’s private right of action.11 However, advocates should be mindful that courts will not likely respond favorably to claims based solely on a servicer’s noncompliance with time deadlines during the pandemic. Moreover, claims based on technical violations of RESPA time deadlines are typically not actionable even in normal circumstances, because the borrower must prove that any noncompliance caused the borrower to suffer actual damages. The Joint Statement should nevertheless not deter advocates from bringing claims for violations occurring while the Joint Statement in effect based on a servicer’s failure to take a required action when such noncompliance has caused the borrower to suffer damages.