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Servicers and Regulators Unite for Struggling Borrowers

house hands homesThe Legal League 100 Special Initiatives Working Group recently held the webinar "Applying the American Rescue Plan Act and the End of Forbearance Plans," discussing the application of the American Rescue Plan Act to troubled homeowners, curbing relevant loss mitigation in the CFPB, and detailing current FHA, VA, and USDA forbearance plans.

Moderated by Marissa Yaker, Managing Attorney of Foreclosure for Padgett Law Group, participants included Ryan Bourgeois, General Counsel and Partner, BDF Law Group; Michelle Garcia Gilbert, Managing Partner, Gilbert Garcia Group; Seth Greenhill, Bankruptcy Attorney, Padgett Law Group; Stephen Hladik, The HOF Law Group; and J. Anthony Van Ness, Van Ness Law Firm.

Hladik began the event by discussing Section 3204 of the American Rescue Plan (ARP) Act, where Congress appropriated $100 million to the “Neighborhood Reinvestment Corporation” to be used for housing counseling for consumers who are behind on their mortgages.

Servicers have been deluged since the outset of the pandemic with inquiries from American homeowners seeking solutions to remain up to date on their housing payments. The ARP provides such answers to consumers who are looking to keep current on their mortgages or are seeking forbearance options.

“Section 3204 of the ARP is strictly for counseling,” said Hladik. “It does not allocate funds for direct relief.”

Gilbert continued the discussion by introducing key aspects of Section 3205 of the ARP, the Homelessness Assistance and Supportive Services Program, which allocates $5 billion to the HUD Secretary for individuals or families qualified for assistance under the Cranston-Gonzalez National Affordable Housing Act.

Cranston-Gonzalez created the Home Investment Partnership Program (HOME), which provides grants to cities, counties, and states, including Sonoma County in California, the Home Consortium in Wisconsin, and the Texas Department of Housing and Community Affairs as examples. These groups provide tenant-based rental assistance, the development and support of affordable housing (pursuant to Section 212(a) of Cranston-Gonzalez), and other services to the homeless population.

“We are not exactly sure how this Act is going to be implemented … that is going through on the regulatory side,” said Gilbert. “The U.S. Congressional Budget Office did estimate the budgetary effects of the Act, and it did add quite a bit to the deficit without adding a lot of corresponding revenue.”

Greenhill detailed Section 3206: Homeowner Assistance Fund of the ARP, which provides direct relief to Americans, via $9,961,000 allocated to state or local governments for “Qualified Expenses,” funds geared toward preventing mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services, which are available to homeowners experiencing financial hardship after January 21, 2020.

The topic switched to the subject of forbearances, and Van Ness detailed specifically GSE-related forbearance plans.

“What this means big picture is that on April 24, 3.4 million homeowners or 6.4% of all mortgages have entered into COVID-19 mortgage forbearance plans,” said Van Ness. “I looked up a report from June 9, 2020 which said that 8.8% or 4.66 million were in forbearance plans. It has actually gone down 1.2 million loans. To put that into perspective, we have about 1.5 million or 46% of all homeowners in COVID-19 forbearance plans are Enterprise loans.”

For homeowners coming out of forbearance, three basic resolution paths can be followed when a loan is still in default following a forbearance term of 12 months or more, including reinstating the loan upon expiration or over time; modification/deferral changing the loan structure; or other workout options.

And while the panel did discuss the fact that the Consumer Financial Protection Bureau (CFPB) has “suggested” a foreclosure moratorium until 2022, they are asking for input, but the panelists agreed that by the Summer of 2021, all loans or some loans will require additional review in terms of forbearance options.

The panel then turned to Bourgeois who examined the topic of FHA COVID loss mitigation options available to struggling homeowners. Options outlined included the COVID-19 Standalone Partial Claim; the COVID-19 Owner-Occupant Loan Modification; the COVID-19 Combination Partial Claim and Loan Modification; and the COVID-19 FHA Home Affordable Modification Program (FHA-HAMP), Combination Loan Modification and Partial Claim with Reduced Documentation, which may include principal deferment and requires income documentation.

With the Consumer Financial Protection Bureau (CFPB) proposing changes to curb impending foreclosure actions as the emergency federal foreclosure protections are set to expire, the Bureau is seeking public comment in order to prevent the windfall of foreclosures that may overwhelm servicers. The panel highlighted some of these changes and their potential impact.

“I personally enjoyed the read of these changes,” said Yaker. “In a nutshell, the CFPB was stating that there was going to be such a large amount of borrowers coming out of forbearance in September and October, the fear was that borrowers who had been delinquent throughout their forbearance would not have ample time to be reviewed for any loss mitigation.”

When asked what the future holds for servicers and borrowers beyond the July 1, 2021 date when the moratorium is to be lifted, the panel was cautious.

“Even with the exceptions, it sounds like the CFPB won’t allow foreclosures until the servicer has at least attempted contact after the effective date of the rule,” said Greenhill. “I don’t anticipate much movement until after the effective date of the CFPB rules.”

Van Ness said, “My guess is the CFPB will still have the prohibition on FHA, Fannie Mae, and Freddie Mac loans,” said Van Ness. “Hopefully they will allow the conventional loans to proceed in the borrower’s best interest. I am hoping the CFPB will meet the servicers halfway in allowing us to get the borrowers moving where they can.”

Click here to access a recording of the Legal League 100 webinar “Applying the American Rescue Plan Act and the End of Forbearance Plans.”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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