Government Roundup: FHA Publishes 40-Year Loan Mod Final Rule; CFPB Targets ‘Junk Fees’
In this week’s Government Roundup, FHA published a final rule that would permit 40-year terms for loan modifications; and the Consumer Financial Protection Bureau released a special edition of its Supervisory Highlights targeting allegedly unlawful junk fees uncovered in deposit accounts and in multiple loan servicing markets, including in mortgage, student and payday lending.
FHA Publishes 40-Year Loan Modification Final Rule/Mortgagee Letter
FHA published a final rule in the Federal Register, Increased Forty-Year Term for Loan Modifications. The final rule would allow mortgagees to increase the maximum term of a loan modification from 360 to 480 months for FHA-insured mortgages after a default episode. FHA also published Mortgagee Letter 2023-06, Establishment of the 40-Year Loan Modification Loss Mitigation Option, establishing the standalone 40-year loan modification policy.
Specifically, the final rule would permit mortgagees to provide a 40-year loan modification to borrowers. Provisions of the final rule would expand FHA’s loss mitigation options to include a standalone 40-year loan modification. FHA said the 40-year loan modification can “assist borrowers in avoiding foreclosure by spreading the outstanding mortgage balance over a longer period, thereby making their monthly payments more affordable.”
“Public comments to the proposed rule were overwhelmingly supportive of the 40-year loan modification option and recognized the many benefits to borrowers,” FHA said.
Mortgage Bankers Association President & CEO Robert Broeksmit, CMB, issued a statement supporting the final rule.
“This additional tool will allow mortgage servicers to help struggling FHA borrowers stay in their homes through a more affordable and sustainable mortgage payment,” Broeksmit said. “Adding the 40-year loan modification to FHA’s loss mitigation toolkit creates better alignment across the government and with Fannie Mae and Freddie Mac, a long-standing MBA priority that we most recently recommended in our new white paper on the future of loss mitigation. Better alignment will improve consumer experience and lead to consistency and simplicity when addressing adverse market conditions, national emergencies and natural disasters.”
Broeksmit added MBA appreciates FHA’s engagement with mortgage servicers and other industry stakeholders on this issue – especially from the onset of the pandemic through the upcoming end to the national emergency. “We will continue to work with FHA and Ginnie Mae to ensure effective solutions and favorable outcomes for distressed borrowers, while also protecting the Mutual Mortgage Insurance Fund and ensuring secondary market certainty,” he said.
The regulations in the final rule are effective on May 8.
CFPB Alleges Illegal Junk Fees on Bank Accounts, Mortgages, Student and Auto Loans
The Consumer Financial Protection Bureau released a special edition of its Supervisory Highlights alleging unlawful junk fees uncovered in deposit accounts and in multiple loan servicing markets, including in mortgage, student and payday lending.
CFPB Director Rohit Chopra said these fees “corrode family finances, force up families’ banking and borrowing costs, and are not easily avoided – even by financially savvy consumers.”
In a previous edition of Supervisory Highlights, the CFPB identified illegal fees being charged in the mortgage servicing market, and, in November 2022, the CFPB took action against a mortgage servicer for cheating homeowners out of CARES Act rights.
CFPB examiners have identified old and new ways that mortgage servicers attempt to run-up unlawful fees that are charged to homeowners. Specifically, CFPB examiners found mortgage servicers charged:
• Excessive late fee amounts: Mortgage servicers charged the top late fee amount allowed by relevant state laws, even when homeowners’ mortgage contracts capped late fee amounts below state maximums.
• Fees for unnecessary property inspections: Mortgage servicers charged consumers $10 to $50 fees for every property inspection visit to addresses that were known to be incorrect. Servicers continued to pay inspectors to go to the known incorrect addresses and continued to charge consumers for those visits.
• Fake Private Mortgage Insurance premium charges: Servicers included monthly PMI premiums that homeowners did not owe in their monthly statements.
• Failure to waive fees for homeowners entering some loss mitigation options: CARES Act mortgage forbearance covered not only a mortgage’s principal and interest but also stopped servicers from charging late fees during the period of forbearance. The Department of Housing and Urban Development (HUD) put further protections in place for homeowners that exited forbearance and went into permanent COVID-19 loss mitigation options, including waiving certain fees or other charges that accrued outside of forbearance periods. However, CFPB examiners found that some servicers failed to adhere to HUD’s additional protections, and charged homeowners late charges, fees, and penalties that should have been waived.
In the student loan servicing market, CFPB examiners found servicers sometimes charged late fees and interest after payments were made on time. Specifically, the servicers’ policies did not allow borrowers to pay by credit card; however, sometimes their customer representatives erroneously accepted credit card payments. The servicers then cancelled the payments, and did not offer borrowers the chance to pay again. Instead, the servicers acted as if no payment had been made; and charged the borrowers late fees and additional interest.