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Most FHA borrowers who sought mortgage relief during the coronavirus pandemic were not given the proper help after their forbearance expired, according to two audit reports released Thursday by the federal housing watchdog.
Nearly half of FHA borrowers who exceed forbearance were not offered the right loss mitigation assistance, such as loan modification, or their options were not properly calculated, the U.S. Department of Housing and Urban Development’s Office of Inspector General (HUD OIG) concluded in broad audit industry as a whole.
About 1 in 4 borrowers received the correct loss mitigation options, “but servicers did not follow the COVID-19 loss mitigation guidelines to assist borrowers with payments that were not missed during relief,” the HUD OIG audit concluded.
“The impact of HUD’s COVID-19 loss mitigation program cannot be overstated,” the HUD OIG said. notification. “When servicers provided borrowers with proper loss mitigation assistance, it helped borrowers pay off their mortgages. However, when servicers failed to provide borrowers with adequate loss mitigation assistance, HUD OIG found that this sometimes worsened the borrower’s financial situation.”
The lending giant’s Mr. Cooper, which was the subject of another HUD OIG audit, said in a statement that the company was “deeply disappointed” that the report focused on findings that were often “very technical in nature” rather than borrower outcomes. .
“Most importantly, none of the homes in the sample population went into foreclosure, and the vast majority of customers were provided solutions that brought them up-to-date credit, often resulting in material payment savings,” Mr. Cooper said in a statement provided by Inman.
In his Mr. Cooper’s audit — “business name” of Nationstar Mortgage LLC — HUD OIG alleged that the company failed to provide proper loss mitigation assistance to 83 percent of FHA borrowers after their COVID-19 forbearance ended.
In a nine-page response to the HUD OIG, Mr. Cooper’s executive director, Jay Jones, said the audit contained factual inaccuracies and mischaracterized the assistance Mr. Cooper provided to homeowners.
Jay Jones
“During the pandemic, Mr. Cooper assisted more than 550,000 customers, including approximately 170,000 FHA customers, as they embarked on pandemic forbearance plans,” Jones said in a response given at the end of the conference. full audit report. “As of this month, approximately 90 percent of those customers have received repayment assistance or otherwise become current on their loan.”
Mr. Cooper said the HUD OIG audit looked at a sample of 67 loans from a group of customers who exited relief without first entering into a permanent loss mitigation option. The company says it offered permanent loss mitigation solutions to 59 of the 60 borrowers HUD OIG said had been delinquent, and that 53 of those borrowers accepted and brought their loans current.
Of the remaining six borrowers HUD OIG says were mistreated, Mr. Cooper said three had paid off their loans or were in active loss mitigation review and two had been transferred to another servicer. Only one loan was not in active loss mitigation review, Mr. Cooper said.
During the pandemic, Jones said Mr. Cooper “sought in good faith to quickly implement new, comprehensive HUD loss mitigation options to help homeowners in need. While there were a few limited technical exceptions in addressing the FHA guidelines … these exceptions do not reflect broad noncompliance with HUD’s loss mitigation requirements, but rather reflect the practical difficulties Mr. Cooper encountered.”
“Blackmail tactics” as a tool of regulation
Last fall, another major lender, Carrington Mortgage Services, fell victim to “extortion tactics” when it agreed to pay $5.25 million to settle allegations by the Consumer Financial Protection Bureau that it made mistakes in implementing borrower protections granted to homeowners during pandemic.
The CFPB alleged that Carrington Mortgage Services falsely told borrowers they could not have 180 days of forbearance upon application, improperly imposed fees and reported false information to credit reporting companies.
In reaching the settlement with the CFPB, Carrington denied wrongdoing and said he acted in good faith in an effort to help borrowers affected by the COVID-19 pandemic.
“The CFPB’s use of extortion tactics as its primary regulatory tool does nothing to help the industry or consumers,” Bruce Rose, founder and CEO of Carrington Cos. he said in a statement at the time. “Ultimately, it’s consumers who end up paying more because of the additional regulatory costs of lending and servicing.”
CFPB Director Rohit Chopra said va Thursday’s blog post that the authority intends to identify ways to simplify and streamline the existing rules for mortgage servicing.
“Last fall, the CFPB asked the public for information on ways to reduce risk for borrowers who are struggling to make mortgage payments, including information about mortgage repayment options available to borrowers,” Chopra wrote. “In particular, we sought information on the functions of pandemic forbearance programs and whether there are ways to automate and streamline long-term loss mitigation assistance.”
Commenters told the CFPB that borrowers seeking help “may face a paperwork conveyor belt that hurts both homeowners and mortgage servicers,” Chopra wrote.
The HUD OIG audits recommended that HUD work with mortgage servicers to determine the reasons for noncompliance and develop mitigation plans. The HUD OIG also recommended that HUD “review loans that did not receive appropriate loss mitigation options to ensure servicers provide relief to affected borrowers and, where appropriate, take administrative action.”
Rae Oliver Davis
“It goes without saying that the COVID-19 pandemic has been unprecedented in the ways it has affected Americans, including those with FHA-insured loans,” HUD OIG Inspector General Rae Oliver Davis said in a statement. “HUD’s resolution efforts have necessarily evolved over time, and mortgage servicers have struggled to adapt to those changes. These reports identify challenges and provide a roadmap to help HUD avoid similar difficulties in the future.”
How the debtors fared
If the Federal Reserve’s continued tightening pushes the U.S. into recession, lenders will play an important role in keeping borrowers from losing their homes to foreclosure.
But mortgages are doing well so far. The percentage of homeowners who are considered “severely delinquent” because they haven’t paid their mortgage within 90 days has dropped to roughly pre-pandemic levels in the past year. While more than 200,000 homes are in foreclosure, more than 10 times as many were in foreclosure at the height of the Great Recession of 2007-09.
According to a recent analysis from Black Knight, 1.4 percent of homeowners were in serious default in April, down from 1.87 percent at the same time a year ago. While 502,000 borrowers were in serious default, this is down from 1.946 million in April 2021, when the pandemic was just beginning.
In April, lenders started enforcement proceedings against 4.9 percent of seriously delinquent borrowers. But only 24,800 homes entered the foreclosure process — the lowest level since September 2022. Overall, 234,000 homes were in some stage of foreclosure in April, compared with 2.909 million in December 2009.
Current status of relief related to COVID-19
Source: Black Knight mortgage monitor
Black Knight data shows that the vast majority of the 8.5 million borrowers granted COVID-19 forbearance during the pandemic have successfully exited the program, with 51 percent having current loans and another 35 percent paying off their loans by refinancing or selling their homes.
But 4 percent of borrowers whose forbearance expired — about 377,000 homeowners — are in default on their loans. Another 100,000 borrowers who were granted relief are in foreclosure and 74,000 have lost their homes.
Another 412,000 borrowers who received relief related to COVID-19 are still applying for active relief, including 270,000 homeowners who have had their relief extended.
Status of COVID-19 benefits by month of plan termination
Source: Black Knight mortgage monitor
Black Knight data also shows that borrowers who have left repayment plans in recent months are more likely to have a loss mitigation plan, be in default on their loan, or be in foreclosure.
Editor’s note: This story has been updated to note that Consumer Financial Protection Bureau Director Rohit Chopra says the CFPB intends to simplify and streamline existing mortgage servicing rules.
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