Last year the Consumer Financial Protection Bureau (CFPB) gave consumer lenders temporary flexibility in areas like HMDA reporting, mortgages, credit reporting, and credit cards in response to the COVID-19 pandemic. Now over one year into the pandemic, the CFPB is walking back this flexibility, saying that financial institutions have had time to adapt, and protecting consumers is the CFPB’s top priority.
The bureau is also very concerned about preventing a repeat of the foreclosure crisis of 2008.
Read on to learn more about the CFPB’s rescission of pandemic-related policy statements and the agency’s top mortgage concerns.
As of April 1, the CFPB has rescinded seven policy statements that provided temporary flexibility to financial institutions. Here are the five that most impact lenders.
1. Quarterly HMDA reporting is back. In March 2020, the CFPB suspended mandatory quarterly HMDA reporting for required institutions. The CFPB’s recent action brings back quarterly HMDA reporting (for those who are required). First-quarter data is due by May 31.
2. CARES Act credit reporting flexibility rescinded. The flexible supervisory and enforcement approach the CFPB applied regarding the Fair Credit Reporting Act (FCRA) and Regulation V compliance during the pandemic was also rescinded. The CFPB says it plans to fully enforce Dodd-Frank in this area because FIs have had plenty of time to adapt.
3. Information collection for credit cards and prepaid accounts. In March 2020, the CFPB said it wouldn’t be citing financial institutions for failing to submit information collections relating to credit card and prepaid accounts required by TILA, Regulation Z, and Regulation E. That exception has ended, and all data must be reported as in the past.
4. Rescinded modifications. The CFPB has withdrawn from the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus and the Interagency Statement on Appraisals and Evaluations for Real Estate Related Financial Transactions Affected by the Coronavirus.
5. Old billing resolution timeframe reintroduced. Last May the CFPB issued a statement saying that lenders wouldn’t be cited for taking too long to resolve billing errors (Reg Z) as long as it had made a good-faith effort. It was a concession made because of the reduced headcount at many financial institutions; as employees were sick, taking care of those who were sick, homeschooling children, or otherwise unable to perform their job duties at full capacity.
Now the CFPB expects financial institutions to be staffed up and able to meet the old requirements.
With federal moratoriums on foreclosures expected to expire at the end of June, the CFPB is concerned about a large wave of foreclosures. The CFPB estimates there are 3 million mortgages in delinquency, including 2 million in long-term forbearance.
In the compliance bulletin Supervision and Enforcement Priorities Regarding Housing Insecurity, the CFPB announced it expects mortgage servicers to have the resources and in place to respond to increased requests and applications for loss mitigation assistance to reduce “avoidable” foreclosures. In short, servicers should be staffed up and ready to deal with increased volume.
“There is a tidal wave of distressed homeowners who will need help from their mortgage servicers in the coming months. Responsible servicers should be preparing now. There is no time to waste, and no excuse for inaction. No one should be surprised by what is coming,” said CFPB Acting Director Dave Uejio.
The CFPB will be paying extra attention to whether servicers are:
The CFPB is encouraging mortgage servicers to “use all available” tools when communicating with homeowners, providing several suggestions in a blog.
These include:
The CFPB’s “first priority” is helping “struggling families,” noting “Servicers who put struggling families first have nothing to fear from our oversight, but we will hold accountable those who cause harm to homeowners and families.”
This raises important questions.
What is a “struggling” borrower? Is it someone who is behind on a payment? Someone who has reached out to the servicer for help? Different people within your institution may have different answers. To ensure borrowers receive consistent treatment, your institution needs a clear definition of a “struggling” borrower and everyone must be trained to identify struggling borrowers and understand the policies and procedures that must be followed. Failing to define “struggling” could invite not only fair lending issues by treating similarly situated borrowers differently but UDAAP issues as well.
What is an “avoidable” foreclosure? This is another vague term your institution needs to define. How long will you let borrowers fall behind in the cycle? Do you follow pre-pandemic servicing rules, or do you need to reconsider them and their timeframes? How will you define avoidable and apply consistent practices?
What is engagement? With so many communication channels, it can be hard to identify first engagement with a customer. It may not be a letter or a phone call. How are you tracking engagement and what are you doing to ensure similarly situated borrowers are treated similarly when it comes to outreach? This is a potential fair lending tripwire.
It is important to demonstrate that your financial institution has been proactive in protecting consumers. Make sure you develop and implement a plan that defines and documents your policies, procedures, activities, and communications. Do not leave discretion in the hands of individual staff members. That can result in potential harm or fair lending issues. Practices need to be clearly defined.
It is also important to recognize that while the federal moratorium on foreclosures may expire, individual states have their own rules. At least half a dozen states have recently released new foreclosure rules. (Meanwhile, the CFPB’s debt collection rules scheduled to take effect in November have been pushed back another 60 days.)
As mortgage servicers adjust to a new environment, it’s important that they have a strong compliance management system in place to ensure they are keeping pace with regulatory expectations and that employees are consistently following the institution’s policies and procedures for dealing with struggling borrowers. Standards must be put in place to serve as guardrails against regulatory action.
To learn more about what examiners will be looking for in 2021, download our on-demand webinar What Will Examiners Be Looking for in 2021?