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12.3.10 Portfolio and Private Label Securities

Significant Law Change

As discussed above, CARES Act protections do not generally apply to mortgage loans held in lender portfolios or in private label securities (PLS).145 While these loans are generally “federally-related” for Real Estate Settlement Procedure Act (RESPA) coverage,146 they do not meet the definition of “federally-backed” under the CARES Act.147 Only a few states have provided relief for borrowers with non-federally-backed loans.148

Nonetheless, advocates responding to portfolio or PLS servicers that will not offer forbearance should argue that the CARES Act sets the relevant industry standard for servicing during the pandemic, and that a failure to provide forbearance breaches that standard.149 This argument is bolstered by the significant numbers of forbearance that some PLS and portfolio servicers have offered to their borrowers notwithstanding any inapplicability of the CARES Act.150 It should also be determined whether the servicer is providing accurate information about available loss mitigation options, as a loan forbearance may in fact be an option offered by the loan owner. This can be determined by sending a request for information to the servicer.151 Advocates should also argue that servicers requiring a lump sum payments at the end of forbearance violate industry standards, as demonstrated by the GSEs and FHA guidance, providing for deferrals and other loan workouts.

Moreover, borrower advocates addressing servicers that will not defer payments should also cite to regulatory statements encouraging deferrals and modifications. A March 2020 Interagency Statement is especially relevant. “The agencies encourage financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. The agencies view loan modification programs as positive actions that can mitigate adverse effects on borrowers due to COVID-19.”152

While the CARES Act may not apply to portfolio and PLS loans, advocates should still use RESPA’s RFI provisions to identify the type of loan, available loss mitigation options, and the process for accessing loss mitigation.153