Loans

GENERAL  |  FORBEARANCE  |  PARTICIPATIONS  |  MODIFICATIONS

GENERAL

Has there been any clarification on waiving certain required waiting periods under the TILA-RESPA Integrated Disclosure Rule and Regulation Z rescission rules?

Yes. On 4/29/30 the Consumer Protection Bureau (Bureau) issued an interpretive rule clarifying that consumers can exercise their rights to modify or waive certain required waiting periods under the TILA-RESPA Integrated Disclosure Rule and Regulation Z rescission rules. The Bureau also issued an FAQ document that addresses when creditors must provide appraisals or other written valuations to mortgage applicants in order to expedite access to credit for consumers affected by the COVID-19 pandemic.

In the Rule, the Bureau clarifies that (1) if a consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency, (2) the consumer’s brief statement describing the emergency identifies a financial need that is due to the COVID-19 pandemic, and (3) the emergency necessitates consummating the credit transaction before the end of an applicable TRID Rule waiting period or must be met before the end of the Regulation Z Rescission Rules waiting period, then the consumer has a bona fide personal financial emergency that would permit the consumer to utilize the modification and waiver provisions, subject to the applicable procedures set forth in the TRID Rule and the Regulation Z Rescission Rules.

Regulation Z does not mandate that creditors inform consumers of their ability to use the modification and waiver provisions in the TRID Rule or the Regulation Z Rescission Rules if the consumer has a bona fide financial emergency. Some consumers may be unaware that these provisions may be available to them. Thus, the Bureau encourages creditors to consider voluntarily informing consumers during the COVID-19 pandemic of their ability to utilize the modification and waiver provisions for bona fide personal financial emergencies if the consumer has a need to obtain funds due to the COVID-19 pandemic prior to the end of an applicable waiting period.

FORBEARANCE

WHAT IS MORTGAGE PAYMENT FORBEARANCE?

A forbearance plan allows borrowers experiencing a temporary hardship to make a reduced mortgage payment or no mortgage payment at all during the plan’s term. Freddie and Fannie have authorized suspended payments up to 12 months. If you are doing a general forbearance, then a new flood and modified deed of trust are not needed. That is typically just a separate agreement between the member and the credit union and doesn’t involve actually modifying the note. With that said, this is something you should work with legal counsel on to ensure everything is compliant and all the Ts are crossed and the Is are dotted.

It is after the forbearance period where a true modification could take place. Following forbearance, the borrower can bring the loan current (reinstatement), or the servicer can work with the borrower on a repayment plan or loan modification. Fannie Mae’s Lender Letter (LL-2020-02) describes post-forbearance mortgage loan modification options for borrowers impacted by COVID-19.

Is there any type of summary tip sheet regarding TDR Mortgage Reporting under the CARES Act?

Yes The League has compiled a three-page Troubled Debt Restructure — Accounting for Loan Modifications tip sheet for credit unions navigating compliance of mortgage forbearances under Sections 4013 and 4021 of the CARES Act. Topics include TDR accounting under Section 4013 versus not under Section 4013; reporting past-due loans to credit reporting agencies under Section 4021; and reporting delinquent loans on call reports. We’ve also included sample reporting guidelines in a table format for CARES Act Section 4013 scenarios and non-CARES Act Section 4013 scenarios.

Credit unions should also consult with their own accounting practitioner regarding accounting for TDRs and loan modifications.

DO WE SUSPEND CREDIT REPORTING FOR MORTGAGE LOANS IN AN ACTIVE FORBEARANCE PLAN?

Fannie Mae’ Lender Letter (LL-2020-02) does say to suspend credit reporting of affected loans during an active forbearance plan, as long as the delinquency is related to a hardship resulting from COVID-19. This is in sync with Fannie’s Servicing Guide, section C-4.1-02, Suspending Credit Bureau Reporting (06/13/2018). If the forbearance is a result of an eligible disaster, then credit reporting is suspended.

In addition, the NCUA and other agencies state that with regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal loan documents. If a financial institution agrees to a payment deferral, this may result in no contractual payments being past due, and these loans are not considered past due during the period of the deferral. (Source: Interagency Statement on Loan Modifications and Reporting [April 7, 2020]) 

Is there more information regarding mortgage loan forbearance as it relates to the CARES Act?

The CARE Act includes provisions on forbearance for federally-backed mortgage loans. In its present form, the CARES Act permits borrowers with federally-backed mortgage loans to obtain a 180-day forbearance by submitting a request to their mortgage servicer and affirming that they are experiencing a financial hardship during the COVID-19 crisis. The forbearance can be extended by an additional 180 days upon borrower request. During the forbearance period for federally-backed mortgage loans, servicers are prohibited from assessing fees, penalties, or interest above what would have been due under the contract had payments been timely made.

Has there been additional guidance from the regulators on loan accommodations related to COVID-19?

Yes.  Interagency Statement on Additional Loan Accommodations Related to COVID-19   (08/03/20)

PARTICIPATIONS

HAS THE NCUA ISSUED TEMPORARY RELIEF RELATED TO LOAN PARTICIPATIONS DURING THE COVID-19 PANDEMIC?

The NCUA Board approved an interim final rule in April that temporarily raises the maximum aggregate amount of loan participations that a federally insured credit union may purchase from a single originating lender without needing a waiver from an NCUA regional director. Under this final rule, the aggregate loan participation amount from a single originating lender will now be the greater of $5 million or 200 percent of a federally insured credit union’s net worth. This relief will remain in place until December 31, 2020. See Letter to Credit Unions 20-CU-09.

 

MODIFICATIONS

CAN I PROCESS LOAN MODIFICATIONS?

The NCUA and other agencies issued a joint statement to encourage financial institutions to work with borrowers affected by COVID-19. The agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID19 related loan modifications as troubled debt restructurings (TDRs). The agencies have confirmed with FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs. Please refer to the Interagency Statement on Loan Modifications and Reporting (April 7, 2020).

What is the NCUA's stance on credit unions offering small-dollar loans to consumer and small businesses?

Federal financial regulators, including the NCUA, issued a Joint Statement Encouraging Responsible Small-Dollar Lending in Response to COVID-19 on March 26, 2020. This letter summarizes the joint statement and reiterates the NCUA’s support of small-dollar lending.

The joint statement expressly encourages credit unions to offer responsible small-dollar loans to consumer and small business members. The NCUA recognizes that appropriately structured small-dollar loans can help members meet their needs for credit due to temporary cash-flow imbalances, unexpected expenses, or income short-falls during periods of economic stress or disaster recovery.

Read the Letter to Credit Unions

HAVE THE REGULATORS ISSUED ANY GUIDANCE FOR LOAN SERVICERS?

The federal financial regulators, including the NCUA, issued an Interagency Joint Statement on Supervisory and Enforcement Practices Regarding the Mortgage Servicing Rules on April 3, 2020 to inform servicers of the agencies’ flexible supervisory and enforcement approach during this emergency regarding certain consumer communications required by the mortgage servicing rules. This Joint Statement is intended to clarify the application of the Regulation X mortgage servicing rules and the agencies’ approach to supervision and enforcement related to the rules during this emergency, including those applicable to short-term options.

Concurrent with the above Joint Statement, the CFBP, as the agency with rule writing authority for the mortgage servicing rules, separately issued Mortgage Servicing Rules FAQs related to the COVID-19 Emergency. The FAQs provide mortgage servicers with enhanced clarity about existing flexibility in the mortgage servicing rules that they can use to help consumers during the current emergency.

In addition, on April 8, 2020, Fannie Mae, in an update to Lender Letter 2020-02, and Freddie Mac, in Bulletin 2020-10, announced updates to their temporary servicing guidance due to COVID-19.

Can you clarify how California regulations apply when providing loan accommodations for members affected by the crisis?

California Code of Regulations (CCR 30.801) generally limit loan extensions to two 60-day extensions per loan for the life of the loan. Some credit union members may have already received two extensions (Carr Fire, Camp Fire, etc.), and credit unions are concerned about this limit for extensions related to the current Coronavirus crisis. In addition, credit unions have asked for clarification regarding the permissibility of adding missed payments to the backend of a loan.

The California Credit Union League, working with the Department of Business Oversight (DBO), has reviewed the relevant codes to ensure credit unions can help members affected by the COVID-19 crisis. Please click here for clarification on these issues.

For a listing of credit unions offering financial relief, visit the DBO webpage listing.

Should my credit union proceed with or initiate foreclosure procedures during the pandemic?

California Governor Newsom requested all financial institutions implement a moratorium on foreclosures and foreclosure-related evictions that arise out of a substantial decrease in household or business income, or substantial out-of-pocket medical expenses which were caused by the COVID-19 pandemic, or by any local, state, or federal response to COVID-19. (See Executive Order N-28-20.) The NCUA also encourages credit unions to work with members and affected borrowers. (See LCU 20-CU-02.)

In addition, on March 18, the Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac (the Enterprises) to suspend foreclosures and evictions for at least 60 days due to the coronavirus national emergency. The foreclosure and eviction suspension applies to homeowners with an Enterprise-backed single-family mortgage. FHFA Press Release. In addition, the Secretary of HUD authorized a moratorium on foreclosures and evictions for 60 days. The moratoriums apply to properties secured by FHA-insured Single Family mortgages. HUD Mortgage Letter 2020-04.