Democratic lawmakers are calling for critical consumer protections for all homeowners, after an inquiry of 11 mortgage servicers revealed significant disparities in implementation of coronavirus relief measures.
In a letter obtained exclusively by Yahoo Money, Senators Elizabeth Warren (D-MA), Sherrod Brown (D-OH), and Robert Menendez (D-NJ) urged leaders Chuck Schumer (D-NY) and Mitch McConnell (R-KY) to step up protections to help Americans across the country amid the pandemic.
“This inquiry revealed that while mortgage servicers are taking steps to comply with homeowner protection provisions guaranteed in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), there remain gaps in their implementation, as well as issues that were unaddressed by the CARES Act, that could result in significant harm to homeowners,” the senators stated.
In April, after the CARES Act was passed, Warren , Brown, Menendez, along with several others, had sent letters to the top mortgage servicers to ask how exactly the firms were carrying out the legislation.
Lender responses varied quite significantly in some cases.
Actions taken to help homeowners were not uniformly applied across lenders, from providing information to homeowners to forbearance to privately-held loans, according to the inquiry responses from lenders seen by Yahoo Money.
The CARES Act included payment deferrals up to a year for coronavirus-related hardships, but applied only to government-backed mortgages.
For instance, while banks such as Wells Fargo provided 360 days for those with Freddie Mac and Fannie Mae home loans, those with private mortgages only received up to 90 days of forbearance. The protections are set to expire next week.
“On March 9th, 2020, Wells Fargo implemented a 90-day forbearance relief, regardless of investor, for any borrower requesting assistance due to COVID-19,” said Michael DeVito, executive vice president of home lending at Wells Fargo. “Wells Fargo also secured temporary foreclosure sale and eviction suspensions for all loans, including the ones not protected by the CARES Act.”
The inquiry also highlighted how servicers were delayed in their responses to halt foreclosure activities.
The CARES Act had forbade lenders of federal backed mortgages from initiating “any judicial or non-judicial foreclosure process, move for a foreclosure judgement or order of sale, or execute a foreclosure related eviction or foreclosure sale,” for 60 days starting March 18.
But letters reveal that some servicers and mortgage lenders — such as Mr. Cooper — didn’t halt foreclosure activity related to FHA, VA and USDA backed loans until almost a week later on March 24.
Penny Mac, a national servicer headquartered in California, said it still has yet to rescind four foreclosure sales that went through on March 18 and March 19. The company is reviewing these foreclosures in current time.
“PennyMac acted quickly to ensure compliance with the foreclosure moratorium put in place under the CARES Act,” said David Spector, CEO of PennyMac. “Specifically three loans went to foreclosure sale on March 18th and one went to sale on March 19th; in light of the eviction moratorium, we have not taken possession of these homes, and we are re-evaluating the circumstances surrounding each sale to determine whether they should be rescinded.”
More than 10% of Penny Mac’s servicing volume consists of customers on a forbearance plan at this time.
What upcoming legislations should include
Based on the findings, the senators requested the following aid for homeowners:
An extension and expansion of foreclosure and forbearance protections created by the CARES Act, including a requirement for sustainable repayment options after forbearance
Automatic forbearance enrollment
An extended moratorium on foreclosures to avoid the “foreclosure cliff”
Safeguards from harmful credit reporting related to missed or late mortgage payments
Requirements that mortgage servicers proactively and clearly notify homeowners of their available foreclosure and forbearance protections.
One of their concerns is the foreclosure cliff. The CARES Act prohibits foreclosure activity for 60 days starting March 18. Only for mortgages backed by Freddie Mac and Fannie Mae had this period extended to June 30. All other homeowners who cannot meet their payments are susceptible to having their homes foreclosed.
“Federal Reserve System Chair Jerome H. Powell announced that ‘almost 40 percent of those in households making less than $40,000 a year had lost a job in March,’” the Democratic senators wrote. “With the expiration coming and no end in sight, it is imperative that we further extend the foreclosure moratorium immediately — and protect homeowners dealing with job losses and other financial disaster from losing their homes.”
The senators also emphasized how the HEROES Act, the Health and Economic Recovery Omnibus Emergency Solutions Act, passed on May 15 by the House would address the above recommendations if passed.
Read more: What is a mortgage? Here are the basics
The act would provide a year-long mortgage forbearance period for government-backed and private loans for single-family residences as well as buildings up to four units. The act would also create a $75 billion homeowner assistance fund to prevent mortgage defaults and property foreclosures for those who experienced COVID-19-related financial hardships after January 21.
“When the foreclosure moratorium ends, under current federal rules homeowners completing a forbearance who cannot immediately resume making payments or get a modification will immediately face foreclosure unless provisions in the HEROES Act are adopted to give homeowners additional time,” the senators wrote. “[This will ensure] that homeowners have an opportunity to resume mortgage payments or obtain more affordable payment terms prior to the initiation of any foreclosure process.”
Another area of improvement is providing homeowners information on their forbearance options. The senators’ inquiry also shows that of the 248,403 Mr. Cooper borrowers who did not make mortgage payments by April 15, more than 70,000 didn’t opt for forbearance.
“The results of our inquiry show that thousands of people are struggling to pay their mortgages,” the senators wrote, “but may be either unaware of or unable to activate the protections offered under the CARES Act.”