Banking and Finance Law Daily CFPB, CSBS jointly guide mortgage servicers on CARES Act compliance
Friday, June 5, 2020

CFPB, CSBS jointly guide mortgage servicers on CARES Act compliance

By Charles A. Menke, J.D.

The guidance contains questions and answers relating to CARES Act forbearance requirements for servicers of federally backed mortgages.

The Consumer Financial Protection Bureau and Conference of State Bank Supervisors have issued joint guidance to assist mortgage services in complying with the Coronavirus Aid, Relief and Economic Security (CARES) Act provisions that grant a right to forbearance to borrowers impacted by the COVID-19 pandemic, the CSBS announced. The guidance, in the form of questions and answers, addresses the propriety of forbearance periods that are less than 180 days, requests for proof of hardship, steering borrowers away from forbearance, and using loan closing attestations to discourage future forbearance.

The guidance notes that the mortgage relief provided by the CARES Act has prompted questions regarding the Act’s forbearance provisions. The agencies further pointed out that mortgage companies managing the federally backed mortgage lending and servicing requirements during coronavirus pandemic, must, among other things, comply with the CARES Act, federal regulations, and investor servicing guidelines.

CARES Act requirements. Under the CARES Act, servicers of federally backed mortgages, such as Fannie Mae or Freddie Mac, Department of Housing and Urban Development, Department of Veterans Affairs, or Department of Agriculture loans, must grant borrowers with pandemic-related hardships forbearance lasting as long as two consecutive 180-day periods. Moreover, additional interest, fees, or penalties beyond the amounts scheduled or calculated should be waived without negatively impacting the borrower’s mortgage contract during the forbearance period.

Forbearance period. The CFPB and CSBS stressed that forbearance must be granted if requested by the borrower and the borrower attests to a COVID-related hardship. According to investor guidelines, servicers can grant CARES Act forbearance periods for less than 180-days at the borrower’s request or with the borrower’s consent. However, servicers must default to the term requested by the borrower, not exceeding 180 days, if the borrower and servicer cannot agree on an appropriate forbearance length or if communication with the requesting borrower is not possible under the circumstances.

Proof of hardship. Attestation of hardship due to COVID-19 is the exclusive requirement established by the CARES Act for forbearance, the guidance states, and a borrower does not need to prove hardship. Although servicers are prohibited from requesting information supporting the need for forbearance, servicers may work with the borrower to better understand the borrower’s situation provided that: (1) the borrower is not misled about the requirements of, or dissuaded from proceeding with, a CARES Act forbearance if they have a COVID-related hardship; and (2) any information obtained from the borrower has no bearing on the servicer’s provision of a CARES Act forbearance.

Steering away, discouraging borrowers. Because the CARES Act dictates that forbearance must be granted upon the request of an attesting borrower, examiners will evaluate communications between borrowers and servicers. "A servicer that offers very limited repayment options when others are reasonably available could depending on the facts and circumstances, be at risk of legal violation or causing consumer harm," the guidance states. Examiners will likewise evaluate originator communications with borrowers since "[a]n originator that misleads borrowers concerning their rights under the CARES Act could, depending on the facts and circumstances, be at risk of committing a legal violation or causing consumer harm.

Companies: Fannie Mae; Freddie Mac

MainStory: TopStory CFPB Covid19 FinancialStability GovernmentSponsoredEnterprises Loans Mortgages StateBankingLaws

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