WASHINGTON, D.C. – Today, District of Columbia Attorney General Karl A. Racine and 20 other attorneys general urged the federal government to take critical and needed actions to help borrowers by addressing failures to implement mortgage restructuring programs to ensure those most financially impacted by the COVID-19 pandemic can afford their mortgages and remain in their homes.
“The purpose of the federal program is to reduce the displacement of families from their homes, and, as a result, thwart homelessness during the pandemic,” said AG Racine. “The truth is that too many FHA approved mortgage loan servicers have not been honest and transparent about the FHA’s protections for borrowers. Indeed, too many of them continue to send borrowers letters that fail to provide legally required information, impose unnecessary burdens, including cumbersome forms and inapplicable legal qualifications, and wrongly deny the existence of applicable programs that protect buyers. These practices are illegal, unacceptable, and dangerous, and they discriminate against low-income borrowers and borrowers of color. The FHA must take immediate and firm action to ensure that mortgage loan servicers comply with the law by proactively implementing required policies and programs that provide borrowers with accurate information that they need. Failure to act, puts families at risk."
During the pandemic, the Federal Housing Administration (FHA) has helped borrowers in need remain in their homes by implementing payment pauses and forbearance programs. The agency has implemented COVID-19 Recovery Loss Mitigation Options to help borrowers in need who were unable to pay the cost of their pre-pandemic mortgages plus the arrears that had accrued during forbearance. These programs aim to help set families lower their principal and interest so that they have affordable monthly mortgage payments that allow a sustained and stable financial recovery—specifically for low-income households, first-time homeowners, and households of color disproportionately affected by the pandemic. All lenders of FHA-insured loans were required to implement these programs by no later than October 21, 2021.
In a letter to FHA, the attorneys general detail that several mortgage loan servicers employed and approved by FHA have failed to adequately implement the FHA COVID-19 Recovery Modification, as well as other COVID-19 relief programs to support borrowers. The letter calls on the FHA to ensure that its approved and employed mortgage loan servicers are taking the necessary steps to implement the FHA COVID-19 Recovery Modification in its entirety.
AG Racine led the letter with the attorneys general joining from California, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington.
A copy of the letter AG Racine and 20 other attorneys general sent today to the FHA is available here and the full text is below.
Dear Ms. Kolluri:
I write on behalf of the Attorneys General for California, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington. In the wake of the unprecedented hardship caused by the COVID-19 pandemic, the Federal Housing Administration (“FHA”) has aided borrowers by implementing payment pauses and forbearance programs to ensure that those most financially impacted by the pandemic can remain in their homes. On July 23, 2021, through Mortgage Letter 2021-18, the FHA revised its COVID-19 Recovery Loss Mitigation Options and established the COVID-19 Recovery Modification to help all eligible borrowers who are unable to afford their pre-pandemic mortgage payments to achieve a 25 percent reduction in their principal and interest payments through refinancing and restructuring their FHA-insured loans. This loan modification option is designed to create a pathway for sustained recovery for families, and the FHA anticipated that it would particularly help low-income households, first-time homeowners, and households of color that have been disproportionately impacted by the pandemic. This program became effective on July 23, 2021 and was required to be implemented no later than by October 21, 2021 by all lenders of FHA-insured loans.
The FHA’s COVID-19 Recovery Modification can only reach its intended goals, however, if it is implemented by lenders. It has come to our attention that a number of mortgage loan servicers employed by FHA-approved lenders are failing to adequately implement COVID-19 relief programs, including the FHA COVID-19 Recovery Modification. Rather, even after the required implementation date of October 21st, mortgage servicers of FHA-insured loans are routinely sending borrowers letters that fail to include the COVID-19 Recovery Modification as an available option, are requiring paperwork and imposing qualifications that are not necessary under the FHA’s guidelines, and are instructing borrowers during customer-service phone calls that this option does not exist.
Given the hardships that so many borrowers have faced during the pandemic and the laudable goals of the FHA’s COVID-19 Recovery Loss Mitigation Options, we are deeply concerned about these reports. We request that the FHA take immediate action to ensure that all FHA-approved lenders and mortgage servicers servicing FHA-backed loans are fully implementing the FHA’s COVID-19 Recovery Loss Mitigation Options, including the COVID19 Recovery Modification for all qualified borrowers, and providing accurate and up-to-date information for borrowers attempting to access relief programs. Specifically, we request that FHA require FHA-approved lenders to show that their loan servicers are taking affirmative steps to implement all portions of the COVID-19 Recovery Loss Mitigation Options, including affirmatively offering the COVID-19 Recovery Modification to eligible borrowers, ensuring that all written and oral communication to borrowers includes complete information about their options under the COVID-19 Recovery Modification, and adequate training of all customer service staff to ensure that borrowers are aided in accessing COVID-19 Recovery Modification.
Finally, as the U.S. Treasury Department approves programs to distribute Homeownership Assistance Funds (“HAF”) around the nation, it is critical that FHA ensure that servicers engage in the required loss mitigation, both in educating their borrowers and in evaluating them for loan modifications. HAF should be a fund of last resort and should not replace servicers’ obligations to evaluate homeowners for all loss mitigation options.
Thank you for your attention to this matter.