Consumer Crossroads: Where Financial Services and Litigation Intersect

Loan servicers and their counsel are often sued by consumers during contested mortgage foreclosure proceedings. The United States Supreme Court’s opinions in Spokeo, Inc. v. Robins[1] and TransUnion v. Ramirez[2] continue to be an important precedent in defending consumer claims.

Last week, the Texas Supreme Court answered the Fifth Circuit’s certified question as to whether simultaneous rescission and reacceleration can reset the limitations period under Texas Law by holding that “a rescission that complies with the statute [Tex. Civil Practice and Remedies Code Section 16.038] resets limitations even if it is combined with a notice of reacceleration.” Moore v. Wells Fargo Bank, N.A., No. 23-0525, 2024 Tex. LEXIS 156, at *2 (Feb. 23, 2024).

In its recent Special Edition of Supervisory Highlights on COVID-19 Prioritized Assessments, the Consumer Financial Protection Bureau (CFPB) summarized challenges and risks with respect to several industries it had informally examined since the start of the pandemic. Beginning in May 2020, the Bureau rescheduled about half of its planned examinations and instead conducted "prioritized assessments" in response to the pandemic. These assessments included seeking information on how institutions were responding and communicating with consumers, and also examining how institutions were confronting and adapting compliance in response to the pandemic.

On June 17, 2020, New York Governor Andrew Cuomo signed Senate Bills 8243C and 8428 into law, adding Section 9-x to the Banking Law. The section creates new procedures for mortgagors and servicers in relation to forbearances of residential mortgage payments affected by the COVID-19 pandemic.

We previously reported on the impact of the CARES Act on federally backed mortgage loans, including the immediate availability of a 180 – 360 day forbearance plan for borrowers impacted by the pandemic. One key feature of this legislation and accompanying guidance publications is that servicers of GSE loans are required to evaluate borrowers for repayment options—including reinstatement, a repayment plan, modification, or some other workout—at the conclusion of the forbearance period. The forbearance plans do not offer loan forgiveness, and borrowers and their servicers are expected to resolve the forbearance amount at the end of the plan.

On May 7, 2020, New York Governor Andrew Cuomo issued Executive Order 202.28, which provides further temporary relief measures for tenants facing an eviction. The order also directly impacts mortgage loan holders, servicers, and borrowers, as it bars the "initiation" of certain residential and commercial mortgage foreclosures for another 60 days from June 20, 2020.

The Consumer Financial Protection Bureau (CFPB) recently published compliance guidance—effective immediately—on the handling of information and documents during the transfer of a mortgage loan to a new servicer. Following related guidance issued in 2014 on these mortgage servicer transfers, CFPB supervisory examiners have continued to document weaknesses in servicer compliance management systems and violations of Regulation X, including inadequate policies and procedures for transferring loan information and documents in a timely and accurate manner that ensures uninterrupted continuation of required servicing functions.

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General issued a COVID-19 bulletin for homeowners that revealed the HUD has been monitoring what readily accessible information FHA mortgage servicers are providing to borrowers on their websites. The Federal Housing Administration (FHA) has already provided guidance to FHA servicers regarding implementation of the CARES Act as it pertains to provisions related to forbearance. However, HUD's Inspector General warned in the bulletin that its review of the top 30 FHA servicers' websites revealed "incomplete, inconsistent, dated, and unclear guidance" to borrowers in connection with their forbearance options under the CARES Act.