On April 6, 2022, the Federal Housing Finance Agency (“FHFA”) announced that Fannie Mae and Freddie Mac will require servicers to suspend foreclosure activities for up to 60 days if the servicer has been notified that a borrower has applied for assistance from the Homeowner Assistance Fund (“HAF”). HAF was established 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 may be used to reduce mortgage principal or pay arrearages so that homeowners can qualify for affordable loan modifications. The specific HAF programs available to borrowers and the required application procedures depend on the borrowers’ state or territory.
Many COVID-related borrower protections expired in 2021, including federal foreclosure moratoriums and the Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) temporary Regulation X restrictions on foreclosure initiations. However, the CFPB estimated that, as of March 1, 2022, over 700,000 borrowers remain in forbearances and are at risk of foreclosure. According to FHFA Acting Director Sandra L. Thompson, FHFA’s foreclosure suspension for borrowers who applied for HAF “will provide borrowers who need temporary mortgage assistance with additional time to be evaluated for relief through their state’s approved Homeownership Assistance Fund.”
Fannie Mae and Freddie Mac have issued guidance providing that servicers of loans sold to either entity must delay initiating any judicial or non-judicial foreclosure process, moving for a foreclosure judgment or order of sale, or executing a foreclosure sale for up to 60 days if the following criteria are met:
1. The servicer has been notified that the borrower has applied for HAF, with the Fannie Mae guidance clarifying 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 designee;
2. The servicer either
- has sufficient time to delay or suspend initiation of the foreclosure process or moving for a foreclosure judgment or order of sale, or
- in the case of a foreclosure sale, the servicer is notified at least 7 days before the sale; and
3. Any foreclosure trial or proceeding or any execution of a foreclosure sale can be delayed without dismissal of the action.
The guidance further provides that if a servicer determines that it did not have sufficient time to delay or suspend a foreclosure, it must document why it is unable to do so in the loan file. The Fannie Mae guidance also requires that, if the approved funds do not fully reinstate the mortgage loan, the servicer must attempt to contact the borrower to achieve right party contact to resolve the remaining delinquency. Fannie Mae also instructs servicers to obtain Fannie Mae’s prior approval to suspend foreclosure-related activities beyond 60 days.
Fannie Mae and Freddie Mac’s new requirements, and the HAF program more generally, interact with Regulation X provisions that require servicers to maintain policies and procedures reasonably designed to ensure that servicer personnel can provide borrowers with accurate information about available loss mitigation options and about the circumstances under which the servicer may make a foreclosure referral. In addition to these specific Regulation X provisions, the general prohibition against unfair, deceptive, and abusive acts or practices applies to servicers’ communications with borrowers and loss mitigation activities. Thus, it is no surprise that the CFPB has recently encouraged servicers to provide training and information to customer service representatives regarding the HAF program and to review existing policies and procedures to ensure that borrowers are not improperly referred to foreclosure. In addition, the CFPB stated that it expects servicers to focus on preventing avoidable foreclosures to the maximum extent possible and encouraged servicers to provide borrowers with sufficient time to move through the HAF application process prior to proceeding with foreclosure. The Bureau has also emphasized that foreclosing on a borrower while a HAF application is pending “will merit increased scrutiny.”
Currently, only Fannie Mae and Freddie Mac have implemented a formal foreclosure suspension for borrowers who have submitted an application for HAF assistance and whose loans are subject to the guidance. It remains to be seen whether any other federal regulators of residential mortgage loan 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 loan portfolios, will implement similar guidance.