On May 4, 2021, the Consumer Financial Protection Bureau (CFPB, or Bureau) released two new reports that reflect twice its announcement in early April 2021 that the Bureau is strengthening its supervisory and enforcement review of mortgage services. See April 2021 GT Alert, CFPB Pays More Focus on Mortgage Servicing Amid Pandemic… The first study report analyzed the racial and ethnic distribution of borrowers in mortgage deferral or mortgage abstinence programs, and found that black and Hispanic mortgage borrowers were overrepresented in these groups. The second report summarized 38,100 mortgage-related complaints the Bureau received in the first quarter of 2021, highlighting that mortgage-related complaints rose to their highest level in three years, while claims related to payments and abstinence have contributed significantly to this growth. …
CFPB Releases Research Report Highlights Racial Inequality For Borrowers In Delay Or Patience
On May 4, 2021, CFPB published a research report entitled “Characteristics of mortgage borrowers during the COVID-19 pandemic… “The report specifically looked at characteristics, including demographics, of patient borrowers, borrowers who were late but not lenient, and borrowers who had ongoing mortgage payments during the COVID-19 pandemic.
Under the Coronavirus Relief, Relief and Economic Security Act (CARES), homeowners with government-sponsored businesses and government-backed mortgages were eligible to request and receive a grace period of up to 180 days if they experienced difficulties. associated with COVID-19. Such borrowers in the future were eligible for an extension for another 180 days. According to the Bureau, as of March 2021, almost 5% of active loans were still on hold, and another 0.75% of active loans were 30+ days overdue. Notably, the Bureau’s research shows that these adverse impacts disproportionately affect communities of color, with black and Hispanic borrowers accounting for “a significantly larger proportion of borrowers” who were lenient or late in payments compared to the overall percentage of mortgage borrowers. Specifically, the report found that:
Black and Hispanic borrowers, who together account for 18% of all mortgage borrowers, accounted for 33% of patient borrowers and 27% of late borrowers;
the share of loans with a loan-to-value ratio above 60% was significantly higher for borrowers with deferred payment (50%) or late payment (51%) compared to current borrowers (34%);
loans reported as late or overdue in March 2021 were more likely than current loans to be loans to a single borrower and overdue more than 30 days in February 2020, and abstinence and delinquency were also associated with problems on non-mortgage products ; as well as
leniency and delinquency were more common among borrowers on questionnaires, where the majority were in a minority, and in areas with lower relative incomes.
CFPB Complaints Bulletin May 2021
On May 4, 2021, the Bureau also issued Complaints Bulletin summarizing the complaints filed with the Bureau in the first quarter of 2021 regarding the mortgage industry. The CFPB collects consumer complaints about covered financial services under the Dodd-Frank Act, and it publishes its analysis of such complaints periodically, viewing complaints as a useful indicator of potential problems in a covered area and reflecting the belief that “where there is smoke, there is fire.” See Dodd-Frank Wall Street Reform and Consumer Protection Act 2010, Pub. L. No. 111-203 Section 1013 (b) (3). Indeed, the Bureau has frequently cited consumer complaints as a justification for oversight and enforcement, not only in specific industries, but also against specific companies.
The Bulletin’s main findings reflect an increase in mortgage complaints in general, as well as various problems associated with abstinence and termination plans. In particular, the bulletin highlights:
the total volume of mortgage complaints increased to over 3400 complaints in March 2021 – the highest monthly mortgage complaint in nearly three years;
consumers face a variety of communication challenges associated with abstinence plans, including understanding what options they may have at the end of those plans;
complaints reflect confusion with mandatory account notices during abstinence; as well as
some consumers reported long delays in resizing their loans to cover outstanding payments.
While neither the research report nor the grievance bulletin details the specific actions taken by the CFPB, and there are no recommendations for the mortgage industry, when read alongside its recent guidance on mortgage servicing, proposed rulemaking and public statements, it is clear that the Bureau’s attention is emphasis was placed on the efforts of mortgage services to assist problem borrowers and to ensure that these efforts are fully in line with applicable anti-discrimination laws. These concerns lie at the intersection of two pillars of the CFPB’s 2021 agenda – preventing damage to borrowers affected by the pandemic and promoting racial equality. For example, in its April 2021 bulletin 2021-02, the CFPB first warned mortgage officers that being “unprepared” for an approaching wave of borrowers leaving moratoriums and abstinence plans was “unacceptable,” and later that month in its Fair Lending Report To Congress, the CFPB has made it clear that in its pursuit of racial and economic justice, it will “use all the tools provided by Congress,” including but not limited to coercion.
The May 4 reports thus mark an ongoing drumbeat on the part of the Bureau to strengthen controls during exams, by initiating investigations and enforcement actions, and by setting rules to ensure that service providers treat borrowers fairly and equitably in accordance with the leniency plans of the CARES Act. As we noted in previous alerts, now is the time for service personnel to ensure that their processes for assisting borrowers exiting abstinence plans support the expected growth in problem borrowers and that their compliance management systems are robust. On the specific issue of adherence to fair service, mortgage services should ensure that they (1) have a consistent multi-channel plan for dealing with borrowers, including borrowers in majority minority census areas, (2) happy with their strategy for dealing with constrained borrowers. proficient in English, (3) document all steps prior to direction they take in terms of coverage, consideration of mitigation options, etc., and (4) consider assistance with historical data testing and mitigation, as appropriate … results.
© 2021 Greenberg Traurig, LLP. All rights reserved. Review of National Legislation, Volume XI, Number 126