Exams Will Focus On Whether Servicers Are CARES-ful

FROM THE DESK OF THE ‘OM-BOBS-MAN’

Exams Will Focus On Whether Servicers Are CARES-ful

State regulated mortgage servicers should carefully review examination manual supplements recently published on the CSBS website. These procedures detail the requirements placed on mortgage servicers by the Coronavirus Aid, Relief, and Economic Security Act or CARES Act. The resources build upon the existing servicing exam worksheets and signals that state regulators should include CARES Act compliance in their 2021 servicing examinations.

The CARES Act was signed into federal law to help homeowners impacted by the pandemic. The act provides forbearance options and prohibits mortgage servicers from initiating or finalizing a foreclosure judgment or foreclosure sale on federally backed mortgage loans. Federally backed mortgage loans were defined as any loan which is secured by a first or subordinate lien on residential real property to include individual units of a condominium and cooperatives that were designed principally for the occupancy of one to four families.

The liens relate to mortgages that are backed or insured by Fannie Mae, Freddie Mac, USDA, VA, and FHA but do not always cover non-QM or portfolio loans. Some states and municipalities have layered additional restrictions and requirements, so state licensed mortgage services need additional compliance review beyond the multistate mortgage committee direction.

Examiners are advised of risks to consumers where mortgage servicers may have misled or not informed borrowers of all beneficial options that they were entitled. There has also been concern on initial forbearance and repayment discussions where servicers may have steered or dissuaded borrowers. The tools focus the examiner to review scripts used and servicing policies related to information provided and compared to the Fannie Mae and Freddie Mac preferred language.

The examiner is also asked to review the servicer’s specific CARES Act policies relating to forbearance terms, credit reporting during forbearance, communication, consumer attestations, and training materials. The lack of clear policy directs the examiner to focus on specific loan reviews and forbearance terms offered compared to the CARES Act. These questions focus on forbearance periods of 180-days even though many servicers offered initial 90-day terms under the language that entitled “up to” an initial 180-day period and a 180-day extension when needed. There is no mention of 90-day forbearance options or how they might be implemented in the exam supplement.

There is also direction to review the servicer’s consumer complaints and the tracking ability of the servicer to maintain complaints received since March 2020. The servicer should be able to identify any COVID-related complaints involving forbearance, foreclosure, and loss mitigation for evaluation. The complaint response formats, scripts used, and consumer communications are also to be reviewed for consistency and compliance with the CARES Act. It should be noted that when examiners select loan files for review, examiners are asked to select those files in which borrowers have submitted a complaint related to payment assistance or loss mitigation.

These resources can be found for on the CSBS website at: https://www.csbs. org/mortgage-examination-supplements. Once again, to all those who were impacted in one way or another by COVID or the response, prayers for for a better 2021.

"Om-Bobs-Man" is the nickname Bob Niemi earned while serving as the NMLS Ombudsman in 2014 and 2015. Bob is a former Ohio state regulator and nowan expert consultant on NMLS and state regulatory matters. Bob can be reached at BNiemi@Bradley.com.