Airbnb: No Listings Coming from Pandemic-Era Evictions

Airbnb wants to “send a strong message” that helps keep people in homes and won’t accept new short-term rentals if told a tenant was evicted for nonpayment of rent.

NEW YORK – The CDC’s eviction moratorium is set to expire June 30, and property owners could turn some of their newly empty units into short-term rentals rather than looking for a long-term tenant.

But Airbnb says it’s taking steps to prevent that from happening.

The short-term rental site announced a new COVID-19 Renter Protection Policy. Under that policy, it will work with cities to ban property owners from listing any property if their tenant was evicted due to nonpayment of rent. In doing so, Airbnb wants to prevent short-term rentals from occurring quickly in units where the tenant had been protected by the CDC moratorium.

Airbnb plans to have the policy in place until the end of the year, but to implement it, cities must participate. Airbnb says it will ban such listings “when a city notifies us” that those listings are located at rental properties that were part of the CDC moratorium.

“By working with cities to prevent landlords from using our marketplace to profit from removing a vulnerable long-term tenant from their home based on nonpayment of rent, we believe we can send a strong message that will help keep people in their homes at this critical time,” the company notes in a blog post.

More than 11 million Americans are behind on their rent, according to an analysis by The Center on Budget and Policy Priorities.

Source: “Airbnb Commits to Help Protect Renters as CDC Eviction Moratorium Expires,” Airbnb (June 15, 2021) and “Airbnb Wants to Ban Listings of Apartments Freed Up by Post-Moratorium Evictions,” Fast Company (June 15, 2021)

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688

Not yet, But When?

Fed Accelerates Plans to Raise Interest Rates – But Not Yet

By Paul Davidson

Low rates directly keep adjustable-rate loans low and help, indirectly, fixed-rate loans. At one time, the Fed had no rate-hike plans until 2024; now it’s two in 2023.

WASHINGTON – With the economy and inflation set to surge this year as the nation emerges from the COVID-19 recession, the Federal Reserve is starting to ease back from pandemic era policies aimed at jolting growth.

Citing an upgraded economic outlook and a spike in inflation, the Fed on Wednesday held its key interest rate near zero and vowed to maintain its bond buying stimulus, but it’s now forecasting two rate hikes in 2023, up from none previously.

Fed officials foresee its benchmark short-term rate at a range of 0.5% to 0.75% in 2023, according to their median estimate. While most of the officials said they want to hold the rate near zero through next year, only five foresee rates at that level in 2023. Two prefer one rate increase in 2023, while three envision two hikes and eight foresee an even higher rate by then.

Fed officials “are more comfortable that (the economic conditions for raising rates) will be met somewhat sooner than previously anticipated,” Fed Chair Jerome Powell said at a news conference. “We’re going to be in a strong labor market pretty quickly here.”

“Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain,” the Fed said in a statement after a two-day meeting.

Yet Powell noted Fed officials’ rate forecasts are merely estimates, adding that “liftoff is well into the future.” In its statement, the Fed reiterated it would keep its benchmark short-term rate near zero until the economy returns to full employment and inflation has risen above its 2% target “for some time.”

Powell said the Fed’s focus in the short term is on when to begin tapering its bond purchases. The central bank repeated that it would continue to purchase $120 billion a month in Treasury bonds and mortgage-backed securities to hold down long-term rates “until substantial further progress has been made toward” the Fed’s employment and inflation goals.

Powell said the Fed discussed reducing the purchases this week and would provide more guidance “at a future meeting.”

‘A ways from our goal’

“The economy has made progress but it’s still a ways from our goal of substantial progress,” he said, declining to provide a timetable for tapering. Some top economists think the Fed will begin paring back purchases early next year.

The Fed also boosted its economic forecast, predicting growth of 7% this year, up from 6.5% at its March meeting, before slowing to a still healthy 3.3% pace in 2022. It projects unemployment will fall from 5.8% to 4.5% by year-end. Fed officials believe a core inflation measure that strips out volatile food and energy items will close the year at 3% before dropping back down to 2.1% in 2022.

While Powell told reporters that officials still believe the current climb in inflation is “transitory,” he added, “Inflation could turn out to be higher and more persistent than we expect.” That could force the Fed to pull back its stimulus measures earlier.

The central bank is grappling with conflicting signals. The U.S. economy is close to completely reopening, COVID-19 cases have plunged, and more than half the adult population is fully vaccinated. Americans also have saved about $2.5 trillion in aggregate as a result of government stimulus checks and a year of COVID-19 restrictions and are they’re eager to bust out.

Yet employment growth, while brisk by historical standards, has been less robust than anticipated, with an average 418,000 jobs a month added in April and May, about half the tally economists expected.

The shortfall largely has been blamed on worker shortages, with many Americans still caring for children who are distance-learning from home or preferring to stay on enhanced unemployment insurance. Those hurdles are likely to fade by fall as schools reopen and the extra jobless benefits run out.

Inflation heats up

Meanwhile, however, a core measure of inflation that the Fed watches closely increased 3.1% annually in April, up from 1.9% the prior month and well above the Fed’s 2% target. Fed officials largely have downplayed the rise as a temporary byproduct of a reopening economy and supply-chain bottlenecks that have caused myriad product shortages.

Powell noted most of the price increases are for products and services related to the reopening economy, such as air fares and used cars, which have been plagued by shortages tied to manufacturing snarls.

Some analysts believe the price increases could be more enduring as the labor shortages push up wages and lead consumers and businesses to expect stronger inflation.

Before the Fed’s statement was released, Goldman Sachs reckoned it was too soon for the central bank to hint at tapering the bond buying because the labor market “has not yet come far enough.”

Copyright 2021, USATODAY.com, USA TODAY

I found much of this article insulting, but I’ll leave this to you to process.

Millions Fear Eviction as U.S. Housing Crisis Worsens

By Ken Sweet

Groups that want to see an end to the eviction-foreclosure ban agree with housing advocacy groups in one important way: They both say the U.S. needs to do something about housing production because the U.S. soon won’t have enough units for its growing population.

NEW YORK (AP) – More than 4 million people say they fear being evicted or foreclosed upon in the coming months, just as two studies released Wednesday found that the nation’s housing availability and affordability crisis is expected to worsen significantly following the pandemic.

The studies come as a federal eviction moratorium is set to expire at the end of the month. The moratorium has kept many tenants owing back rent housed. Making matters worse, the tens of billions of dollars in federal emergency rental assistance that was supposed to solve the problem has not reached most tenants.

The housing crisis, the studies found, risk widening the housing gap between Black, Latino and white households, as well as putting homeownership out of the reach of lower-class Americans.

“The unprecedented events of 2020 both exposed and amplified the impacts of unequal access to decent, affordable housing,” wrote researchers at the Joint Center for Housing Studies at Harvard University. “These disparities are likely to persist even as the economy recovers, with many lower-income households slow to regain their financial footing and facing possible eviction or foreclosure.”

The reports were released on the same day as the Census Bureau’s biweekly Household Pulse Survey came out. It showed that nearly 4.2 million people nationwide report that it was “likely or somewhat likely” they will be evicted or foreclosed upon in the next two months.

Many of those tenants are waiting to see what becomes of the Centers for Disease Control and Prevention measure, which is set expire June 30. Housing advocates are pressuring President Joe Biden’s administration to extend it. They argue extending it would give states the time to distribute more than $45 billion in rental assistance and protect vulnerable communities from Covid-19. The rental assistance has been slow to reach tenants.

“The latest data confirm two things – emergency rental assistance is very slow to reach renters in need, and millions of renters remain behind on rent and at heightened risk of evictions,” Diane Yentel, president of the National Low-Income Housing Coalition, said in an email interview. “President Biden must extend the eviction moratorium to give more time for rental assistance to reach renters and landlords and to avoid a historic wave of evictions this summer and fall.”

The reports by Harvard University and the National Association of Realtors® come from different perspectives, but ultimately reach the same conclusion: the United States isn’t building enough housing to address population growth, causing record low home availability, and rising home prices are putting homeownership out of reach of millions of Americans.

The housing crisis, the studies also found, risk widening the housing gap between Black, Latino and white households, as well as putting homeownership out of the reach of lower-class Americans.

Without substantial changes in homebuilding and home affordability, both reports say, the result will be a more-or-less permanent class of renters contrasted with what will likely be a mostly white class of homeowners. While these problems were known before the coronavirus pandemic, the economic impact of the pandemic exacerbated the problem, the reports say.

“The unprecedented events of 2020 both exposed and amplified the impacts of unequal access to decent, affordable housing,” researchers at Joint Center for Housing Studies at Harvard University wrote. “These disparities are likely to persist even as the economy recovers, with many lower-income households slow to regain their financial footing and facing possible eviction or foreclosure.”

A separate study commissioned by the National Association of Realtors released Wednesday found that the U.S. housing market needs to build at least 5.5 million new units to keep up with demand and keeping homeownership affordable over the next 10 years. That’s on top of the roughly 1.2 million units built per year on average, or a roughly 60% increase in home construction for the next decade, just to keep up with demand.

“The scale of underbuilding and the existing demand-supply gap is enormous and will require a major national commitment to build more housing of all types by expanding resources, addressing barriers to new development and making new housing construction an integral part of a national infrastructure strategy,” wrote Kenneth Rosen, David Bank, Max Hall, Scott Reed and Carson Goldman with the Rosen Consulting Group, in its report to NAR.

The National Association of Realtors report points out several geographies that require substantial increases in homebuilding; not surprisingly many parts of California and the West are on the top of the list. NAR also says substantial homebuilding is required in Southern Florida, as well as the Northeast, particularly the New York-New Jersey metropolis region.

Without additional housing, an increasing share of Americans are likely to become renters in the coming years. While renting is not necessarily a bad thing since it provides more flexibility, homeownership has been the primary driver of wealth generation in the U.S. since World War II. Home equity is often a way for Americans to have a financial safety net at times of economic trouble, as seen in the pandemic.

These problems get worse when broken out by racial backgrounds. Black and Latino homeowners have less in savings than their white counterparts. White potential homeowners also have generational wealth to potentially tap in the form of a down payment.

“The diverging circumstances between those with the resources to weather the economic shutdowns and those struggling to simply stay afloat thus widened already large inequalities in income and wealth,” said the Harvard researchers.

Outside of a massive increase in homebuilding, researchers at Harvard pointed to government home affordability programs as likely the best solution to address the problem long term.

“Any of a number of new proposals to provide down payment assistance to socially disadvantaged buyers would potentially bring millions of low-income households and households of color into homeownership.”

Copyright 2021 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

Daily MLS Stats

Today we are at an all time low in Residential Listing for Indian River County. I’ve been tracking these numbers every day at the same to and today we hit 438 Residential listings (including condo’s) for all of Indian River County, FL.

Click the link to see the chart: https://docs.google.com/spreadsheets/d/e/2PACX-1vS8FiByc8pS9Wl6taRUqD7sG8cGhcQIEZN1NnzBIcRj5DK3QnqUKhLAQ9x_2n6xZ25uMEtMRX3Tpbgh/pubchart?oid=329629950&format=interactive

Inflation Is Up – So Why Aren’t Mortgage Rates?

Investors fear inflation and mortgage rates usually rise. But investors appear to believe the Fed when it says the U.S.’s current bout of inflation is only temporary.

NEW YORK – The 30-year fixed-rate mortgage averaged 2.96% for the week ending June 10, according to Freddie Mac’s weekly report – down three basis points from the previous week.

The 15-year fixed-rate mortgage fell four basis points to an average of 2.23%. The five-year Treasury-indexed adjustable-rate mortgage averaged 2.55%, down nine basis points from the prior week.

Mortgage rates usually move roughly in tandem with long-term bond yields, including the 10-year Treasury, and the past week was not an exception. However, it’s not common to see inflation rising without stocks falling at the same time.

“The Freddie Mac fixed rate for a 30-year loan dropped along with the 10-year Treasury yield this week, as investors seem to accept the Federal Reserve’s view that the current inflation is temporary, and a patient monetary response continues to be warranted,” says Realtor.com chief economist Danielle Hale. “Housing bubble and crash worries are common, even showing up in a record-low share of people saying it’s a good time to buy a home.”

Source: MarketWatch (06/10/21) Passy, Jacob

Mortgage Rates Keep Hovering but Down Slightly This Week

The 30-year, fixed-rate mortgage averaged 2.96% this week, down marginally from last week’s 2.99% as it remains in under-3% territory.

By Kerry Smith

MCLEAN, Va. – The 30-year fixed-rate mortgage (FRM) averaged 2.96% this week, according to Freddie Mac’s weekly survey. It’s a slight drop from last week when the FRM came close to the 3% mark, averaging 2.99%.

“The economy is recovering remarkably fast, and as pandemic restrictions continue to lift, economic growth will remain strong over the coming months,” says Sam Khater, Freddie Mac’s chief economist.

“Despite the stronger economy, the housing market is experiencing a slowdown in purchase application activity due to modestly higher mortgage rates,” Khater adds. “However, it has yet to translate into a weaker home price trajectory because the shortage of inventory continues to cause pricing to remain elevated.”

For the week of June 10, 2021:

  • The 30-year fixed-rate mortgage averaged 2.96% with an average 0.7 point, down from last week’s average 2.99%. A year ago, it averaged 3.21%.
  • The 15-year fixed-rate mortgage averaged 2.23% with an average 0.6 point, down from last week’s 2.27%. A year ago, it averaged 2.62%.
  • A 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.55% with an average 0.2 point, down from last week’s 2.64%. A year ago, it averaged 3.10%.

© 2021 Florida Realtors®

Inflation: Jump in Prices Tightens Squeeze on U.S. Consumers

It just got harder to save for a down payment, but the Fed still sees price spikes as temporary – the result of interrupted supply chains and soaring post-pandemic demand.

By Martin Crutsinger

WASHINGTON (AP) – American consumers absorbed another surge in prices in May – a 0.6% increase over April and 5% over the past year, the biggest 12-month inflation spike since 2008.

The May rise in consumer prices that the Labor Department reported Thursday reflected a range of goods and services now in growing demand as people increasingly shop, travel, dine out and attend entertainment events in a rapidly reopening economy.

The increased consumer appetite is bumping up against a shortage of components, from lumber and steel to chemicals and semiconductors, that supply such key products as autos and computer equipment, all of which has forced up prices. And as consumers increasingly venture away from home, demand has spread from manufactured goods to services – airline fares, for example, along with restaurant meals and hotel prices – raising inflation in those areas, too.

In its report Thursday, the government said that core inflation, which excludes volatile energy and food costs, rose 0.7% in May after an even bigger increase in April, and has risen 3.8% over the past 12 months. Among specific items, prices for used cars, which had surged by a record 10% in April, shot up an additional 7.3% in May and accounted for one-third of last month’s overall price jump.

But the price increases in May were widespread in a variety of categories, including household furnishings, clothing and airline fares. Food prices rose by 0.4. Energy costs were unchanged, but they’re still up 28.5% from a year ago.

From the cereal maker General Mills to Chipotle Mexican Grill to the paint maker Sherwin-Williams, a range of companies have been raising prices or plan to do so, in some cases to make up for higher wages that they’re now paying to keep or attract workers.

The inflation pressures, which have been building for months, are not only squeezing consumers but also posing a risk to the economy’s recovery from the pandemic recession. One risk is that the Federal Reserve will eventually respond to intensifying inflation by raising interest rates too aggressively and derail the economic recovery.

The Fed, led by Chair Jerome Powell, has repeatedly expressed its belief that inflation will prove temporary as supply bottlenecks are unclogged and parts and goods flow normally again. But some economists have expressed concern that as the economic recovery accelerates, fueled by rising demand from consumers spending freely again, so will inflation.

The question is, for how long?

“The price spikes could be bigger and more prolonged because the pandemic has been so disruptive to supply chains,” Mark Zandi, chief economist at Moody’s Analytics, said in advance of Thursday’s inflation report.

But “by the fall or end of the year,” Zandi suggested, “prices will be coming back to earth.”

That would be none too soon for consumers like Carmela Romanello Schaden, a real estate agent in Rockville Centre, New York. Schaden said she’s having to pay more for a range of items at her hair salon. But she is feeling the most pain in the food aisle. Her monthly food bill, she said, is now $200 to $250 for herself and her 25-year-old son – up from $175 earlier in the year.

A package of strip steak that Schaden had normally bought for $28 to $32 jumped to $45. She noticed the increase right before Memorial Day but bought it anyway because it was for a family picnic. But she won’t buy it again at that price, she said, and is trading down to pork and chicken.

“I’ve always been selective,” Schaden said. “When something goes up, I will switch into something else.”

So far, Fed officials haven’t deviated from their view that higher inflation is a temporary consequence of the economy’s rapid reopening, with its accelerating consumer demand, and the lack of enough supplies and workers to keep pace with it. Eventually, they say, supply will rise to match demand.

Officials also note that year-over-year gauges of inflation now look especially large because they are being measured against the early months of the pandemic, when inflation tumbled as the economy all but shut down. In coming months, the year-over-year inflation figures will likely look smaller.

Still, last month, after the government reported that consumer prices had jumped 4.2% in the 12 months ending in April, Fed Vice Chair Richard Clarida acknowledged; “I was surprised. This number was well above what I and outside forecasters expected.”

And the month-to-month readings of inflation, which aren’t subject to distortions from the pandemic have also been rising since the year began.

Some economists say they fear that if prices accelerate too much and stay high too long, expectations of further price increases will take hold. That, in turn, could intensify demands for higher pay, potentially triggering the kind of wage-price spiral that bedeviled the economy in the 1970s.

“The market is starting to worry that the Fed may be going soft on inflation, and that could let the inflation genie out of the bottle,” said Sung Won Sohn, a professor of economics and finance at Loyola Marymount University in Los Angeles.

Rising commodity costs are forcing Americans to pay more for items from meat to gasoline. Prices for corn, grain and soybeans are at their highest levels since 2012. The price of lumber to build homes is at an all-time high. More expensive commodities, such as polyethylene and wood pulp, have translated into higher consumer prices for toilet paper, diapers and most products sold in plastic containers.

General Mills has said it’s considering raises prices on its products because grain, sugar and other ingredients have become costlier. Hormel Foods has already increased prices for Skippy peanut butter. Coca-Cola has said it expects to raise prices to offset higher costs.

Kimberly-Clark, which makes Kleenex and Scott toilet paper, said it will be raising prices on about 60% of its products. Proctor & Gamble has said it will raise prices for its baby, feminine and adult care products.

This week, Chipotle Mexican Grill announced it was boosting menu prices by roughly 4% to cover the cost of raising its workers’ wages. In May, Chipotle had said that it would raise hourly wages for its restaurant workers to reach an average of $15 an hour by the end of June.

“There is stronger demand for hotel rooms, air travel, restaurant dining,” said Gus Faucher, chief economist at PNC Financial. “Many businesses are also facing upward pressure on their costs such as higher wages.”

Gregory Daco, chief U.S. economist at Oxford Economics, noted that in some cases, a jump in the price of goods such as autos is raising the price of car rental services.

“It is going to be a muggy summer on the inflation front,” Daco said. “There will be a pass-through from higher goods prices to higher prices for services.”

Copyright 2021 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission. AP Business Writer Anne D’Innocenzio contributed to this report from New York.

Dear Buyers: Think of It as an Auction Rather than an Offer

Buyers who think they can point out a property’s problems and submit a low offer aren’t … well, buyers. Those who consider it an auction will probably fare better.

NEW YORK – Buyers who head into the housing market believing they should get a home for less than the listing price may be very disappointed. Instead, they may want to think of an asking price more like the opening bid at an auction.

Every listing in today’s market receives an average of 5.1 offers, according to the National Association of Realtors® (NAR). And half of homes sell above list price.

“Due to the low supply of houses for sale, many homes are now being offered in an auction-like atmosphere in which the highest bidder wins the home,” according to an article at Keeping Current Matters.

In actual auctions, sellers often set a reserve price, which is the minimum amount a seller will accept. In today’s market frenzy, a home’s listing price may be more like that reserve price – the starting point of a negotiation, knowing the seller will consider anything above that amount.

About 40% of potential buyers who searched for a home this spring said they haven’t bought yet because they keep getting outbid, according to a survey from the National Association of Home Builders.

Knowing they have the upper hand, sellers have come to expect a bidding war for their home. A recent realtor.com survey found that 24% of homeowners expect to get more than their asking price, and 29% plan to set a list price that’s more than what they think their home is worth.

As a result, some buyers go to extremes to win a home they want. Real estate pros report that individual listings have received as many as 20 offers – one even got 97 bids – as the homebuying frenzy continues.

To win a bidding war, buyers may be willing to waive contingencies and stretch their budgets to the absolute max. Some buyers have offered more than $100,000 above asking price, says Debbie Barrera, a broker at Realty Austin in Austin, Texas, told The Wall Street Journal. She had one buyer offer $500,000 above asking price for a home with a pool.

Source: “In Today’s Market, Listing Prices are Like an Auction’s Reserve Price,” Keeping Current Matters (2021)

© Copyright 2021 INFORMATION INC., Bethesda, MD (301) 215-4688

When Will Buyers Again See Foreclosures Listed for Sale?

By Laurence E. Platt

The question is simple – the answer not so much. CFPB (Consumer Financial Protection Bureau) wants to wait until 2022. A request for rule comments, however, received a range of suggestions. And as a practical matter, can lenders handle thousands of foreclosures all at once?

WASHINGTON – As COVID-19 infections continue to decline in the United States, Americans are slowly coming out of isolation and returning to a sense of normalcy – a return to on-site work and school, a return to indoor dining, a return to travel, a return to in-person visits with friends and loved ones, and a return to sports arenas, ballparks, and arts venues, among other types of returns.

But a return to normalcy is not a positive for all. A case in point: There are many home loan mortgagors for whom forbearance from their regularly scheduled monthly mortgage payments will soon come to end, along with an end to the moratorium on initiations and continuations of foreclosure.

Will a return to normalcy for delinquent mortgagors necessarily mean a rapid return to home foreclosures? That is the question that the Consumer Financial Protection Bureau (CFPB) is trying to answer in the negative in its proposed amendments to the default servicing regulations that are part of Regulation X under the Real Estate Settlement Procedures Act (RESPA). The comment period on the proposed amendments (the Proposal) closed on May 10, 2021, with a proposed effective date of August 31, 2021.

This laudable public policy goal, however, raises interesting questions about the CFPB’s legal authority to impose additional temporary limitations on a loan holder’s right to pursue foreclosure against delinquent mortgagors. This Legal Update synthesizes certain of the comments to the Proposal regarding an attempt to increase the time before a loan holder or servicer may initiate a foreclosure.

Background

The context is well known to those in the residential mortgage industry and related stakeholders. It has been over a year since Congress enacted the CARES Act, which, among lots of other provisions, gave mortgagors during the “covered period” the right to receive forbearance for up to a year on their regularly scheduled home mortgage payments if they attested to a financial hardship directly or indirectly caused by COVID-19.

The law also imposed a moratorium on home foreclosures and evictions during the “covered period.”

The CARES Act only applied to loans that were sold to Fannie Mae or Freddie Mac, insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs or the Department of Agriculture – labeled “federally backed mortgage loans” – but various states enacted somewhat similar provisions.

While the CARES Act failed to define the term “covered period,” the relevant federal entities, either at their own initiative or as a result of a subsequent executive order by President Biden, extended the time limits on forbearance and the foreclosure/eviction moratoria. But the time limits are rapidly approaching.

As the CFPB noted in its Proposal, “… the foreclosure moratoria that apply to most mortgages are scheduled to end in late June 2021. In addition, most borrowers with loans in forbearance programs as of the publication of this proposed rule are expected to reach the maximum term of 18 months in forbearance available for federally backed mortgage loans between September and November of this year and will likely be required to exit their forbearance program at that time.”

And that is just for federally backed mortgage loans, although the extension of forbearance from 12 months to 18 months is limited to certain borrowers. Forbearance and foreclosure relief voluntarily provided by private investors or required under applicable state law also will soon sunset or may already have ended.

Unless they have been making regularly scheduled monthly mortgage payments notwithstanding their award of forbearance, mortgagors generally are delinquent for the number of months they were in forbearance, and even more if they were delinquent before the commencement of forbearance because they had not paid the amounts due under the terms of their loan documents.

This means that a graduation from forbearance likely results in a seriously delinquent borrower who may not be eligible for home retention loss mitigation options and, as a result, risks the loss of the borrower’s home.

Existing Regulation X

The existing Regulation X prohibits a precipitous push to foreclosure. Unlike the CARES Act, the applicability of Regulation X is not limited to “federally backed mortgage loans.” It does not require a residential mortgage loan holder or servicer to offer a borrower any loss mitigation at all or any particular types or forms of loss mitigation. But it requires servicers of residential mortgage loans to follow detailed procedures to ensure that the borrower is informed by the servicer of available loss mitigation options, given the opportunity to apply and be timely considered for such options, appeal the denial of any loan modification option, and not be subject to a dual track of foreclosure while the borrower’s application for loss mitigation is being evaluated.

To afford sufficient time for a borrower to be evaluated for available alternatives to foreclosure, Regulation X presently prohibits a servicer, including a small servicer, from making the first notice or filing required under applicable law for any judicial or non-judicial foreclosure process unless:

  1. the mortgage loan is more than 120 days delinquent or
  2. the foreclosure is based on a borrower’s violation of a due-on-sale clause or
  3. the servicer is joining the foreclosure of a superior or subordinate lienholder

This is referred to as the required “pre-foreclosure review.” Of course, borrowers exiting a COVID-19 forbearance may be well over 120-days delinquent. In other words, the pre-foreclosure review period under existing regulations already would have expired.

Proposed amendment to Regulation X relating to special pre-foreclosure review

As an overlay or supplement to the existing requirement for a 120-day pre-foreclosure review, the Proposal calls for a temporary COVID-19 emergency special pre-foreclosure review period that would generally prohibit servicers from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process until after Dec. 31, 2021.

The CFPB asked commentators to consider two potential exceptions. The first exception would permit a servicer to make the first notice or filing before Dec. 31, 2021, if the servicer has completed a loss mitigation review of the borrower and the borrower is not eligible for any non-foreclosure option. The second exception would permit a servicer to make the first notice or filing before Dec. 31, 2021, if the servicer has made certain efforts to contact the borrower and the borrower has not responded to the servicer’s outreach.

In addition, while not an explicit exemption, because the Proposal only applies to loans secured by the borrower’s principal residence, loans secured by abandoned properties may not be subject to this extension of the pre-foreclosure review period, depending on the facts and applicable state law.

Moreover, unlike the existing pre-foreclosure review period under Regulation X, “small servicers” would be exempt from the proposed special pre-foreclosure review period.

Public comments relating to the special pre-foreclosure review proposal

The relatively short duration of the extension of the pre-foreclosure review, coupled with the potential exceptions render the Proposal, are a relatively modest step to forestall foreclosures, and the public comments the CFPB received in response to the Proposal reflect that conclusion.

The comments generally break down into four categories:

  1. Is the special pre-foreclosure review period practically necessary or counterproductive?
  2. If adopted, should the special pre-foreclosure review period be based on a specific calendar date, Dec. 31, 2021, for all borrowers or instead on a specific number of days following the end of forbearance for any particular borrower?
  3. Should the exceptions be expanded and clarified?
  4. Does the CFPB have the legal authority to impose the special pre-foreclosure review period?

Is the special pre-foreclosure review period necessary or counterproductive?

Perhaps because of the potential availability of broad exceptions to the special pre-foreclosure review period, public comments focused less on the imposition of such an extended review period and more on what it should look like.

The Housing Policy Council (HPC) and the Bank Policy Institute (BPI), however, together expressed concern in their comment letter “… that the brief time when the review period will be effective suggests that the need for this regulatory change is limited and the proposal is unnecessarily complicated.” They expressed their belief that the existing protections afforded borrowers under the loss mitigation provisions of Regulation X, along with standard state foreclosure proceedings, are sufficient to achieve the CFPB’s general objective to provide every borrower with ample opportunity to avoid foreclosure when a borrower’s circumstances would permit such avoidance.

The Urban Institute (UI) in its comment letter makes a more practical point – namely, that the existing procedures for evaluating mortgagors for alternatives to foreclosure, whether by regulation or investor policies, “… require multiple rounds of communication and borrower notice and take several weeks or months.” This could take the foreclosure decision beyond Dec. 31, 2021. And for those borrowers who were delinquent pre-pandemic and already found to be ineligible for loss mitigation alternatives to foreclosure, additional time is unlikely to change the result and “[d]elaying the inevitable would serve neither the borrower nor the neighborhood in which the home is located.”

Moreover, UI highlights the fact that the current economic environment is different than the economic environment during the last housing crisis that featured a crashing real estate market with a substantial number of underwater loans. In light of the substantial home equity experienced by most borrowers resulting from strong home appreciation, “[m]ost uncurable loans, whether agency or non-agency, will be resolved via a market sale.”

The foreclosure route, as a result, will be much more limited. According to UI, “[T]his would render the proposed prohibition largely redundant-and counterproductive-as properties would be held back from the market at a time when supply is tight.”

The HPC/BPI comment letter identifies another counterproductive result of the proposed special pre-foreclosure review period. As the CFPB acknowledged in the preamble to its Proposal, the letter notes the notification of the foreclosure process “is the impetus to engage with the servicer” for some borrowers and “[d]elaying that notice may exacerbate this problem.”

If adopted, should the special pre-foreclosure review period be based on a specific calendar date or a specific number of days following the end of forbearance?

While the UI comment letter asserts that a special pre-foreclosure review period ending at the end of this calendar year does not offer protection for those whose forbearance ends after that date, it did not suggest either an extension of that deadline or the replacement with a fixed number of days.

Consumer advocates see the same problem and, not surprisingly, propose a different solution. The Center for Responsible Lending (CRL) and National Community Stabilization Trust (NCST) in their joint comment letter opine that “… a rule that pauses foreclosures until Dec. 31 would do nothing for those whose forbearance runs through or beyond that cutoff and who also face a risk of an avoidable home loss.”

They prefer a 120-day grace period at the end of a borrower’s forbearance period to a “one-size-fits-all pre-foreclosure review period.” Aside from wanting to protect borrowers who do not come out of forbearance until next year, the CRL/NCST letter expresses concern that “… servicer capacity to engage in effective loss mitigation will be strained with a large number of foreclosures filed at the beginning of 2022.”

The National Consumer Law Center (NCLC) articulates the same position as the CRL and NCST in even in more detail. It supports a 120-day grace period at the end of a borrower’s forbearance period instead of a Dec. 31, 2021, deadline. Its long list of objections to the December 31 proposal includes the “immense pressures on the entire foreclosure system if hundreds of thousands of foreclosures begin in January 2022,” the lack of protection for those whose forbearance ends after Dec. 31, 2021, and the arguable incentives to servicers to begin foreclosures before the new rule takes effect, given that the effective date will not occur for several more months.

The HPC/BPI letter takes a different tack. While it does not support a special pre-foreclosure review period in the first place, it recommends a shorter 60-day period if the CFPB elects to establish such a period.

Should the exceptions to the special pre-foreclosure period be expanded and clarified?

As noted above, the Proposal asks commenters to consider two possible exemptions to the special pre-foreclosure review period, although the Proposal does not include explicit language for the potential exceptions.

The first exception would permit a servicer to make the first foreclosure notice or filing before Dec. 31, 2021, if the servicer has completed a loss mitigation review of the borrower and the borrower is not eligible for any non-foreclosure option. The second exception would permit a servicer to make the first foreclosure notice or filing before Dec. 31, 2021, if the servicer has made certain efforts to contact the borrower and the borrower has not responded to the servicer’s outreach.

Not surprisingly, the major lender trade associations support both exceptions, albeit with clarification.

The possible exemption for completed loss mitigation reviews raises the question of when the review must have been completed. For example, the CFPB questioned whether the exemption only should be available for reviews after the effective date of the final rule. Both the Mortgage Bankers Association (MBA) and the American Bankers Association (ABA) in their respective comment letters advocate that the exemption should apply to loss mitigation evaluations completed prior to the effective date of the final rule, while the HPC comment letter provides that the exemption should include evaluations made within the six months prior to the effective date to account for the time frame (after March 1, 2021) when the various COVID-19 loss mitigation government programs currently available were put into effect.

The MBA and ABA letters also recommend that this exemption be expanded to include borrowers who have declined the proposed loss mitigation options or have failed to perform on the selected loss mitigation option.

The NCLC rejects the exemption for previously completed loss mitigation reviews, arguing that “… evidence from the Great Recession and from government note sales, as well as from current borrower experiences, demonstrates that loss mitigation reviews are often incomplete or inaccurate.” It believes that borrowers may not realize that they previously have been denied a loss mitigation option and mistakenly believe that they are safe until the end of the calendar year.

Perhaps more importantly, the NCLC comment letter agrees with the concern expressed by the CFPB in the Proposal that prior evaluations may have been completed prior to the borrower’s recovery from financial hardship and thus do not account for the borrower’s present financial circumstances.

The possible exemption based on unresponsive borrowers generated many requests for specificity regarding the scope of the “reasonable diligence” that the servicer must take before concluding a borrower is unresponsive. The HPC supports the CFPB’s recommendation to use the definition of “reasonable diligence” in the Home Affordable Modification Program (HAMP) and further recommends that the written notice requirements may be satisfied by using notices already required under Regulation X.

The CRL/NCST also support the incorporation of HAMP’s definition of “reasonable diligence,” but they proposed to condition the availability of this exemption on the adoption of another component of the CFPB’s proposal – namely, that the servicer, after exercising reasonable diligence in trying to reach the borrower, sends a “streamline payment modification offer or solicitation” to the borrower with a deadline for a response.

But the CFPB’s Proposal simply would permit a servicer to offer a “streamline payment modification” without a complete loss mitigation application. The CRL/NCST approach would convert a voluntary process available to servicers into a condition precedent to the availability of the exemption from the special pre-foreclosure review based on an unresponsive borrower. The CRL takes the same approach, claiming that an exemption based solely on the inability of the servicer to establish contact with the borrower “… would incentivize less rigorous, ineffective contact attempts.”

Two additional exemptions from the special pre-foreclosure review should be added according to some of the comment letters. First, some of the trade associations representing servicers want to exclude borrowers whose loans were delinquent prior to the onset of COVID-19. For example, the HPC/BPI letter requests that the CFPB clarify that the foreclosure review period does not apply to foreclosures that were initiated prior to the final rule’s effective date, regardless of whether state law requires refilling or restarting the foreclosure.

This is not really a new exemption, given that the requirement for a special pre-foreclosure review applies to the first notice or filing required by applicable law; by its terms, this requirement would not apply to loans where the servicer made this filing prior to the commencement of the foreclosure moratorium, but the trades want to be sure that a required refiling would not trigger the special pre-foreclosure review.

Interestingly, neither the CRL/NCST nor the NCLC letters comment on this issue. The ABA calls for an explicit exemption for borrowers who were 120-days delinquent on March 1, 2020, and, as of September 1, 2021, remain more than 120-days delinquent. Rather than seeking a new exemption or clarification of the Proposal, the MBA would include within the “unresponsive borrower” exemption borrowers who were seriously delinquent (over 120 days) prior to March 1, 2020, and who have not requested assistance or responded to servicer contact attempts made in accordance with Regulation X.

An explicit exemption for abandoned properties also is a request under some of the comment letters.

As noted above, the Proposal only applies to loans secured by the borrower’s principal residence, which based on the facts and circumstances may result in the exclusion of abandoned properties. For example, the HPC/BPI letter asks the CFPB to “explicitly and clearly exempt abandoned properties from the special pre-foreclosure review period”; the ABA and MBA letters make similar requests.

This is an issue on which consumer advocates and servicers seem to be aligned. The CRL/NCST letter highlights the concern that “[V]acant or abandoned homes that do not go through foreclosure risk blighting the community.” It wants a clear definition for abandoned properties to “… encourage servicers to foreclose on them and help avoid blight.”

Both the HPC/BPI and CRL/NCST letters ask the CFPB to consider adopting the definition of “abandonment” contained in the Uniform Home Foreclosure Procedures Act drafted by the National Conference of Commissions on Uniform State Law, unless state law otherwise defines the term.

Does the CFPB have the legal authority to impose a special pre-foreclosure review period?

When Congress enacted the CARES Act and imposed a home loan foreclosure/eviction moratorium and granted borrowers a statutory right to home loan forbearance, questions abounded whether the actions could be overturned as an unlawful “taking” under the Fifth Amendment of the US Constitution. This Amendment provides: “Nor shall private property be taken for public use, without just compensation.”

But over the years, courts have distinguished between a so called “per se taking” and a “regulatory taking,” accounting for the public interest asserted to justify the taking in the latter case. While some may want to attack the CFPB’s proposed special pre-foreclosure review as an unconstitutional taking, none of the major trades did so. The more likely question is whether the CFPB has sufficient delegation of authority from Congress to require servicers to delay the initial filing of a foreclosure.

A good example of challenging the delegation of congressional authority to undertake regulatory action arose under the nationwide eviction memorandum ordered by The Centers for Disease Control and Prevention (CDC) on Sept. 4, 2020. Concerned that eviction of tenants would exacerbate the spread of COVID-19, the CDC ordered a temporary prohibition on residential evictions. It believed that it had the authority to issue this order based on its statutory delegation of authority to “make and enforce such regulations as in his [the Secretary] judgment are necessary to prevent the introduction, transmission, or spread of communicable diseases …” On May 5, 2021, the United States District Court for the District of Columbia held that the CDC did not have the statutory authority to order the temporary residential eviction, finding that this order was invalid but staying its opinion pending appeal.

What about the CFPB? What is its statutory authority to require a delay in filing foreclosures under RESPA regardless of whether a loan is a “federally-backed mortgage loan” covered by the CARES Act?

Actually, this question about the CFPB’s statutory authority predates the Proposal and harkens back to the original issuance of the CFPB’s default servicing regulations in 2013. The answer requires a review of the provisions of the Dodd-Frank Act (the DFA) enacted by Congress on July 21, 2010.

The provisions in the voluminous DFA pertaining to residential mortgage servicing are limited. The DFA amended RESPA to clarify a servicer’s obligations with respect to “qualified written requests,” escrow accounts and force-placed insurance. It amended the Truth-in-Lending Act to clarify obligations with respect to periodic statements, crediting of payments, and payoff statements.

That’s it! Virtually none of the extensive default servicing regulations contained in Regulation X reflect specific provisions in the DFA.

There is one potentially broad delegation of authority under the DFA. Section 1463 of the DFA provides that “A servicer of a federally related mortgage loan shall not … fail to comply with any other obligation found by the Bureau of Consumer Financial Regulation, by regulation, to be appropriate to carry out the consumer protection purposes of this Act.”

This statutory provision purports to be very broad, but is limited by the consumer protection purposes of RESPA. The comment letter from the Structured Finance Association argues that the CFPB simply does not have the statutory authority to impose the special pre-foreclosure review. It notes, for example, “RESPA’s statement of congressional purpose does not speak to servicing at all. And the subjects to which Congress regulates servicers under Section 6 are limited.” It further notes that “there is nothing from the context of RESPA’s enactment to suggest that Congress delegated authority to the Bureau to prohibit foreclosures.”

Of course, under this argument, one could argue that the CFPB did not have statutory authority to require the pre-foreclosure review period in the original servicing amendments to Regulation X following the enactment of DFA, much less the additional time period occasioned by the proposed special pre-foreclosure review period. Arguably, both or neither should be valid, although perhaps there is a line in the sand that cannot be crossed before the CFPB’s authority to regulate foreclosure is deemed insufficient.

None of the other major trade associations raised this statutory delegation of authority issue in their comment letters to the Proposal. One reason may be the relatively modest scope and duration of the proposed special pre-foreclosure review, as well as their strong desire to work collaboratively with the CFPB to ease delinquent borrowers’ transition from forbearance. But this issue may gain added industry support if the comments of the consumer advocates to expand the special pre-foreclosure review find favor with the CFPB.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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