United States: FHFA suspends foreclosure for borrowers seeking HAF assistance
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On April 6, 2022, the Federal Housing Finance Agency (“FHFA”) announcement that Fannie Mae and Freddie Mac will require repairers to suspend foreclosure activity for up to 60 days if the repairer has been notified that a borrower has sought assistance from the Homeowners Assistance Fund (“HAF”). HAF was created by the American Rescue Plan Act of 2021, and the program is designed to distribute funds to states, tribes, and territories to help homeowners who have been financially impacted by the pandemic with housing-related costs. For example, among other uses, the funds can be used to reduce mortgage principal or pay arrears so homeowners can benefit from affordable loan modifications. The specific HAF programs available to borrowers and the required application procedures depend on the state or territory of the borrowers.
Many COVID-related borrower protections expired in 2021, including federal moratoriums on foreclosures and the Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) Regulation X temporary restrictions on foreclosure initiations. However, the CFPB valued that as of March 1, 2022, more than 700,000 borrowers remained in a forbearance period and were at risk of being seized. According to FHFA Acting Director Sandra L. Thompson, FHFA’s foreclosure stay for borrowers who have applied for HAF “will provide borrowers who need temporary mortgage assistance additional time to be assessed by through their state-approved home equity fund.”
Fannie Mae and Freddie Mac issued guidance providing that servicers of loans sold to either entity must delay the initiation of any judicial or non-judicial foreclosure process, seek a foreclosure judgment or order of sale, or execute a sale foreclosure up to 60 days if the following criteria are met:
1. The Managing Agent has been notified that the Borrower has requested the HAF, with Fannie Mae’s guidelines specifying that the notification must come from a Mortgage Assistance Fund program provider participating in the HAF program, such as a housing finance agency or other designated person;
2. The repairer either
- has sufficient time to delay or suspend the initiation of the foreclosure process or the move for a foreclosure judgment or sale order, or
- in the case of a foreclosure sale, the repairer is notified at least 7 days before the sale; and
3. Any trial or foreclosure proceeding or any execution of a foreclosure sale may be delayed without dismissal of the action.
The guidelines further provide that if an administrator determines that they have not had sufficient time to delay or suspend a foreclosure, they must document why they are unable to do so in the loan file. Fannie Mae’s guidelines also require that if approved funds do not fully reinstate the mortgage, the servicing agent should attempt to contact the borrower to establish contact with the correct party to resolve the remaining default. Fannie Mae is also asking repairers to get prior approval from Fannie Mae to suspend lockdown-related activities beyond 60 days.
The new Fannie Mae and Freddie Mac requirements, and the HAF program more generally, interact with the provisions of Regulation X which require repairers to maintain reasonably designed policies and procedures to ensure that repairer personnel can provide borrowers with specific information about the loss mitigation options available and about the circumstances under which the repairer can make a foreclosure referral. In addition to these specific provisions of Regulation X, the general prohibition of unfair, deceptive and abusive acts or practices applies to communications by service agents with borrowers and loss mitigation activities. Thus, it is not surprising that the CFPB has recently encouraged repairers providing training and information to customer service representatives regarding the HAF program and reviewing existing policies and procedures to ensure borrowers are not unduly referred to foreclosure. Additionally, the CFPB said it expects managers to focus on preventing avoidable foreclosures wherever possible and encouraged managers to give borrowers ample time to navigate the HAF application process. before entering. The Office also pointed out that entering a borrower while an HAF application is pending “will merit further consideration.”
Currently, only Fannie Mae and Freddie Mac have a formal foreclosure stay in place for borrowers who have applied for HAF assistance and whose loans fall within the guidelines. It remains to be seen whether other federal agencies that regulate residential mortgage programs, such as the Federal Housing Administration, the United States Department of Veterans Affairs and the United States Department of Agriculture’s Rural Housing Service, or investors in other mortgage portfolios, will implement similar guidelines.
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This article by Mayer Brown provides information and commentary on interesting legal issues and developments. The foregoing is not a complete treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action regarding the matters discussed here.
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