Two groups of people that might not be thought about when it comes to COVID-19 are our service members and veterans. However, in a recently issued joint-notification letter the CFPB and Department of Justice noted that in the coming months thousands of service members and veterans will be exiting mortgage forbearance. In preparation for this mass exodus, the CFPB and DOJ have called attention to the loss mitigation rights of our service members and veterans and the importance of identifying and addressing any issues that arise.
Complaints regarding the treatment of service members and veterans over COVID-19 forbearance issues were highlighted in this recent notice, and included the following:
1) Mortgages reported as delinquent to credit bureaus, despite the borrowers being current when entering forbearance. CARES Act guidance additionally states that even if a borrower entered forbearance in a delinquent status, if the loan was brought current during the forbearance period, then the mortgage must be reported as current.
2) Requiring lump sum payments for the mortgages to be reinstated. Guidance indicates that borrowers of a federally backed mortgage cannot be required to repay their forbearance amount in a lump sum payment if the borrower indicates they cannot afford to do so.
3) Incorrect or confusing communication about hardship forbearances. A mid-2021 amendment to Regulation X established temporary early intervention obligations to ensure that financial institutions communicated critical information to borrowers about their options and clarified when institutions are required to resume reasonable diligence efforts for borrowers exiting certain COVID-19 related hardship forbearances.
The Regulation X amendment also established temporary COVID-19 hardship protections for borrowers until the end of 2021 to help ensure that borrowers have a meaningful opportunity to be reviewed for loss mitigation before an institution can make the first notice or filing required for foreclosure on certain mortgages.
As a refresher, financial institutions must comply with the SCRA when it comes to foreclosures for service members and veterans. Creditors must obtain a court order prior to foreclosing on a mortgage for active-duty military and for one year after the service member has left active-duty military service. Foreclosures obtained in court where the servicemember does not make an appearance require creditors to file an affidavit with the court stating whether or not the individual is in military service or that, after making a good-faith effort, the creditor is unable to determine whether or not the individual is in military service..
So, it’s important to remember that the CARES Act granted new protections, Regulation X was amended to do likewise, and both Regulation Z and the SCRA provide their normal protections for borrowers. Together these laws and regulations form of a web of important lending-related protections for United States’ service members and veterans, and financial institutions are reminded as these borrowers exit forbearance to provide all the rights provided to them.