[Federal Register Volume 87, Number 186 (Tuesday, September 27, 2022)]
[Notices]
[Pages 58487-58492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20898]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
[Docket No. CFPB-2022-0059]
Request for Information Regarding Mortgage Refinances and
Forbearances
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Request for information.
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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) is
seeking comment from the public about (1) ways to facilitate mortgage
refinances for consumers who would benefit from refinancing, especially
consumers with smaller loan balances; and (2) ways to reduce risks for
consumers who experience disruptions in their financial situation that
could interfere with their ability to remain current on their mortgage
payments.
DATES: Comments must be received by November 28, 2022.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2022-
0059, by any of the following methods:
Electronic: Go to https://www.regulations.gov. Follow the
instructions for submitting comments.
Email: [email protected].
Include Docket No. CFPB-2022-0059 in the subject line of the message.
Mail/Hand Delivery/Courier: Comment Intake Mortgage
Refinances and Forbearances RFI, Consumer Financial Protection Bureau,
1700 G Street NW, Washington, DC 20552.
Instructions: The Bureau encourages the early submission of
comments. All submissions must include the document title and docket
number. Please note the number of the topic on which you are commenting
at the top of each response (you do not need to address all topics).
Because paper mail in the Washington, DC area and at the Bureau may be
subject to delay, commenters are
[[Page 58488]]
encouraged to submit comments electronically. In general, all comments
received will be posted without change to http://www.regulations.gov.
In addition, comments will be available for public inspection and
copying at 1700 G Street NW, Washington, DC 20552, on official business
days between the hours of 10 a.m. and 5 p.m. eastern time. You can make
an appointment to inspect the documents by telephoning 202-435-7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Proprietary information or sensitive personal information, such as
account numbers or Social Security numbers, or names of other
individuals, should not be included. Comments will not be edited to
remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Daniel Tingley, Counsel, or Mark
Morelli, Ruth Van Veldhuizen, or Priscilla Walton-Fein, Senior
Counsels, Office of Regulations, at 202-435-7700. If you require this
document in an alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
America's housing finance system provides important opportunities
for consumers to access credit for housing and strengthen their
financial standing. When broader macroeconomic forces result in
declining interest rates, transparent and competitive markets should
allow borrowers to benefit from lower rates, including through
refinancing opportunities.\1\ These lower interest rates may allow
borrowers to improve their financial condition by reducing their
monthly payments, allowing borrowers to save more or pay down their
mortgages more rapidly, making it easier for them to build wealth and
equity. In addition, when that equity is threatened by temporary
disruptions in the economy or in consumers' lives, products and
policies that offer repayment flexibility may help mitigate those
risks. In this Request for Information (RFI), the Bureau is seeking
information about ways to help ensure that consumers have access to
these opportunities. In particular, the Bureau is requesting
information about (1) ways to facilitate residential mortgage loan
refinances for borrowers who would benefit from refinances, especially
borrowers with smaller loan balances; \2\ and (2) ways to reduce risks
for borrowers who experience disruptions that could interfere with
their ability to remain current on their mortgage payments.
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\1\ Although mortgage interest rates are higher than they were
one year ago, they have fluctuated in recent months and remain
sensitive to monetary policy changes and market forces. See https://www.freddiemac.com/pmms (last visited Sept. 15, 2022). Accordingly,
even with higher current interest rates, short-term fluctuations or
market developments may provide some consumers with opportunities to
refinance.
\2\ Smaller loan balances are generally defined as balances
substantially lower than the national average. Policymakers and
researchers have used a range of specific dollar thresholds for
defining smaller loan balances, including mortgages below $114,847
(current General QM threshold), below $150,000 (Kenneth P. Brevoort,
Do Low Mortgage Balances Limit Refinancing Opportunities? (July 14,
2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4163151,
Pew Charitable Trusts Home Fin. Project, https://www.pewtrusts.org/en/projects/home-financing (last visited Sept. 15, 2022)), or below
$70,000 (Bing Bai et al., Small-Dollar Mortgages for Single-Family
Residential Properties, Policy Discussion Paper Series 93558, Fed.
Reserve Bank of Chic. (2018), https://ideas.repec.org/p/fip/fedhpd/93558.html). See Bureau of Consumer Fin. Prot., Truth in Lending
(Regulation Z) Annual Threshold Adjustments (Credit Cards, HOEPA,
and Qualified Mortgages) (Nov. 2, 2021) https://www.consumerfinance.gov/rules-policy/final-rules/truth-lending-regulation-z-annual-threshold-adjustments-card-act-hoepa/; Brevoort,
supra; Pew Charitable Trusts Home Fin. Project, supra; Bai et al.,
supra.
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A. Facilitating Beneficial Refinances
Most borrowers seeking to lower their interest rate must refinance
their mortgage. But recent research has shown that many consumers do
not take advantage of falling market interest rates by refinancing.
Some borrowers may find it challenging to determine whether they are
likely to benefit from refinancing. In general, for refinancing to be
beneficial for consumers, the costs of refinancing must be offset by
the benefits of lower interest rates. While these benefits are greater
for borrowers with large loan balances and those who stay in their
homes longer, other borrowers may also benefit from refinancing to a
lower interest rate. If these consumers do not refinance, they can
experience adverse long-term financial consequences. In particular,
they are likely to continue paying higher interest rates, leading them
to accumulate less wealth over time and potentially face a higher risk
of default than they would have if they had refinanced.\3\
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\3\ Several studies have leveraged policy-induced variation in
the availability of refinances to estimate causal declines in
mortgage default for borrowers who refinance. See Joshua Abel &
Andreas Fuster (2021), How Do Mortgage Refinances Affect Debt,
Default, and Spending? Evidence from HARP, Am. Econ. Journal:
Macroeconomics, https://www.aeaweb.org/articles?id=10.1257/mac.20180116; Kadiri Karamon, Douglas McManus & Jun Zhu (2017),
Refinance and Mortgage Default: A Regression Discontinuity Analysis
of HARP's Impact on Default Rates, Journal of Real Estate Fin. &
Econ., https://ideas.repec.org/a/kap/jrefec/v55y2017i4d10.1007_s11146-016-9566-z.html.
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One particular area of concern is the availability of refinance
opportunities for consumers with smaller loan balances. Larger
mortgages make up a growing share of the mortgage market, with smaller
mortgages comprising a steady or declining share.\4\ If the market
provides limited opportunities for consumers to refinance smaller
mortgages, Black and Hispanic consumers and consumers with low to
moderate incomes would be disproportionately affected, as they are more
likely to own homes with lower market values.\5\ These patterns may
have contributed to the much lower rate of refinancing by Black and
Hispanic consumers during recent periods of low interest rates.\6\ The
Bureau is also concerned about the relative availability of refinance
opportunities for consumers in rural areas, whose property might
similarly have lower market values than in higher-priced geographic
regions.
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\4\ Bai et al., supra.
\5\ Id.
\6\ Kristopher Gerardi, Laurie Lambie-Hanson & Paul Willen
(2021), Racial Differences in Mortgage Refinancing, Distress, and
Housing Wealth Accumulation during COVID-19, Fed. Reserve Bank of
Boston Current Policy Perspectives, https://www.bostonfed.org/publications/current-policy-perspectives/2021/racial-differences-in-mortgage-refinancing-distress-and-housing-wealth-accumulation-during-covid-19.aspx.
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Several factors may help explain the differences in rates of
refinancing. The large fixed costs of mortgage origination may limit
the availability of mortgages for consumers with smaller loan balances,
including beneficial refinances. The benefits of refinancing a smaller
loan may be insufficient to offset the costs of refinancing. In
addition, creditor capacity constraints and lower profitability on
refinances of smaller loan balances may limit access to beneficial
refinances for some borrowers. Research has shown that some--but not
all--of the differences in refinancing rates across the population can
be explained by common risk-based underwriting factors like credit
scores and loan-to-value ratios.\7\ In addition, for consumers who
primarily shop for credit in their local neighborhoods, a geographic
concentration of higher cost lenders may lead to higher costs or
reduced availability of refinancing
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options.\8\ Finally, researchers have noted more difficult-to-quantify
potential barriers, including consumers' shopping behavior,\9\ trust of
financial institutions,\10\ or the complexity and documentation
involved in the refinancing process.\11\
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\7\ Kristopher Gerardi, Paul Willen & David Hao Zhang (2020),
Mortgage Prepayment, Race, and Monetary Policy, Fed. Reserve Bank of
Atl. Working Paper Series, https://www.bostonfed.org/publications/research-department-working-paper/2020/mortgage-prepayment-race-and-monetary-policy.aspx (Gerardi et al.).
\8\ Gerardi et al., supra, find a role for neighborhood in
disparities, but Bhutta & Hizmo (2021) find no price disparities
within creditor: Combining these two findings suggests that the
composition of creditors serving different neighborhoods may play a
role. Frame, Huang, Mayer & Sunderam (2022) also find that minority
underrepresentation among mortgage loan officers has adverse effects
on credit access for minority consumers. See Neil Bhutta & Aurel
Hizmo, Do Minorities Pay More for Mortgages?, Review of Fin.
Studies, Vol. 34, Issue 2 (Feb. 2021), https://doi.org/10.1093/rfs/hhaa047; and W. Scott Frame, Ruidi Huang, Erik J. Mayer & Adi
Sunderam (2022), The Impact of Minority Representation at Mortgage
Lenders, NBER Working Paper No. 30125, https://www.nber.org/papers/w30125.
\9\ Alexei Alexandrov & Sergei Koulayev (2017), No Shopping in
the U.S. Mortgage Market: Direct and Strategic Effects of Providing
Information, Consumer Fin. Prot. Bureau Office of Research Working
Paper No. 2017-01, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2948491; Neil Bhutta, Andreas Fuster & Aurel
Hizmo (2020), Paying Too Much? Price Dispersion in the U.S. Mortgage
Market, FEDS Working Paper, Bd. of Governors of the Fed. Reserve
Sys., https://www.federalreserve.gov/econres/feds/paying-too-much-price-dispersion-in-the-us-mortgage-market.htm.
\10\ Eric J. Johnson, Stephan Meier & Olivier Toubia (Feb.
2019), What's the Catch? Suspicion of Bank Motives and Sluggish
Refinancing, Rev. of Fin. Studies, Vol. 32, Issue 2, https://doi.org/10.1093/rfs/hhy061.
\11\ Anthony A. DeFusco & John Mondragon (2020), No Job, No
Money, No Refi: Frictions to Refinancing in a Recession, Journal of
Fin., https://onlinelibrary.wiley.com/doi/10.1111/jofi.12952; Thomas
Piskorski & Amit Seru (2018), Mortgage Market Design: Lessons from
the Great Recession, Brookings Papers on Econ. Activity, https://www.brookings.edu/wp-content/uploads/2018/03/PiskorskiSeru_Text.pdf.
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The Bureau is requesting information to better understand what
barriers may prevent consumers from accessing falling interest rates
and what interventions could lower those barriers, particularly for
borrowers with smaller loan balances. Several potential policies and
mortgage products are discussed below, and the Bureau requests
information on the benefits and limitations of these ideas, as well as
on alternative options to help consumers access lower interest rates.
1. Targeted and Streamlined Refinances
As described above, mortgage refinancing has the potential to
provide important benefits to consumers through reductions in interest
rates and monthly payments. During periods of falling interest rates,
widely available refinancing allows homeowners to benefit from lower
borrowing costs. In some circumstances, refinances can help borrowers
at risk of delinquency and default. Targeted and ``streamlined''
refinance programs have been used to facilitate refinancing through
reduced underwriting and documentation requirements, typically with
lower transaction costs than traditional refinances. These programs,
which may have specific eligibility requirements, are largely aimed at
lowering interest rates and monthly payments for consumers who may
otherwise be unlikely or unable to refinance.
Despite its potential benefits, refinancing also can pose risks to
consumers. Serial refinancing \12\ can be costly and reduce borrowers'
equity in their property. Many targeted and streamlined refinance
programs include protections against potential harms associated with
refinances, such as requirements that the new loan reduce the
consumer's monthly payment and interest rate by certain threshold
amounts and seasoning requirements. Some programs either prohibit or
limit cash-out payments from the refinance.
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\12\ Serial refinancing is used herein to mean repeat refinances
over a short period of time. In some cases, serial refinancing,
which was a common practice in the period leading up to the 2008
financial crisis, is the result of lenders engaging in loan churning
to extract fees from a consumer.
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Targeted and streamlined refinance programs played a significant
role in facilitating beneficial refinances during the period that
followed the financial crisis, particularly for borrowers who were
otherwise unable to refinance due to declines in their home value.
During this period, the Federal Housing Administration (FHA), U.S.
Department of Veterans Affairs (VA), and U.S. Department of Agriculture
(USDA), which have historically offered streamlined refinance programs
with reduced underwriting requirements, expanded their programs to
facilitate refinancing for consumers at risk of delinquency and
default.\13\ Similarly, after the Federal National Mortgage Association
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie
Mac) (collectively, the GSEs) were placed into Federal conservatorship
in late 2008, the Federal Housing Finance Agency (FHFA) created new
refinance programs with the aim of mitigating foreclosures for
consumers with existing GSE loans. FHFA announced the Home Affordable
Refinance Program (HARP) in March 2009, which allowed consumers with
high loan-to-value (LTV) ratios to refinance into lower interest rates
with reduced documentation and underwriting requirements and relatively
few eligibility criteria.\14\ HARP was expanded and renewed multiple
times before expiring on December 31, 2018.\15\ FHFA and the GSEs
implemented other high LTV refinance programs and provided some
refinance options to borrowers with existing GSE loans who were not
eligible for HARP.\16\ More recently, FHFA and the GSEs implemented
targeted programs aimed at encouraging refinances for low- and
moderate-income consumers, who have been less likely than higher-income
consumers to take advantage of a low interest rate environment.
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\13\ For a discussion of these programs, see 78 FR 35430, 35436
(June 12, 2013).
\14\ See Press Release, U.S. Dep't of Treas., Relief for
Responsible Homeowners (Mar. 4, 2009), http://www.treasury.gov/press-center/press-releases/Pages/200934145912322.aspx.
\15\ See Press Release, Fed. Hous. Fin. Agency (Aug. 17, 2017),
https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Modifications-to-High-LTV-Streamlined-Refi-Program-and-Extension-of-HARP-Thru-12-2018.aspx. The HARP program was originally set to
expire in June 2010 and was limited to consumers with an LTV ratio
that did not exceed 105 percent. However, HARP was modified over
time and the GSEs and FHFA eventually removed the LTV ratio cap,
facilitating refinances for all underwater consumers who otherwise
fit HARP's criteria. See Fed. Hous. Fin. Agency Refinance Report
(June 2012).
\16\ For example, Fannie Mae's Refi Plus program and Freddie
Mac's Relief Refinance program provided streamline refinancing
opportunities to consumers with LTV ratios of less than 80 percent.
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As part of the Bureau's monitoring of the mortgage market, some
stakeholders suggested that changes to the Bureau's ability-to-repay/
qualified mortgage rule (ATR-QM rule) could play a role in facilitating
beneficial refinances through targeted and streamlined programs, citing
the current rule as contributing to some existing frictions to
refinancing. While refinances originated pursuant to Federal agency
programs are not subject to the Bureau's ATR-QM rule,\17\ most other
refinance transactions are subject to the rule.\18\ Under the ATR-QM
rule,
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a creditor is prohibited from originating a covered mortgage without
making a reasonable and good faith determination, based on verified and
documented information, that the consumer will have a reasonable
ability to repay the loan.\19\ To satisfy the ability-to-repay
provisions of the rule, the creditor must, at a minimum, consider and
verify eight underwriting factors, including the consumer's current or
reasonably expected income or assets and current employment status.
Loans that satisfy the requirements to be a QM are presumed to comply
with the ability-to-repay requirement.\20\ The ATR-QM rule defines
several categories of QMs, all of which require the creditor to
consider and verify the consumer's income or assets relied on in making
the loan.\21\
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\17\ TILA section 129C(a)(5) gave authority to FHA, VA, and USDA
to exempt from the income verification requirement of the ATR-QM
rule certain streamlined refinances made, guaranteed, or insured by
those agencies if certain conditions are met. In addition, TILA
section 129C(b)(3)(B)(ii) requires those Federal agencies to
prescribe rules related to the definition of qualified mortgage (QM)
for their loan programs. Those agencies have defined categories of
loans made pursuant to streamlined refinance programs that are QMs
and therefore presumed to comply with the ability to repay
requirement. See 78 FR 75215 (Dec. 11, 2013) (providing the QM
definition for FHA loans); 79 FR 26620 (May 9, 2014) (providing the
ability to repay standards and QM definition for VA loans); 81 FR
26461 (May 3, 2016) (providing the QM definition for RHS loans).
\18\ 12 CFR 1026.43(a) and comment 43(a)-1. Regulation Z
provides a special rule for creditors refinancing a non-standard
mortgage--defined as an adjustable-rate mortgage with an
introductory fixed interest rate for a period of one year or longer,
an interest-only loan, or a negative amortization loan--into a
standard mortgage. Under this option, a creditor refinancing a non-
standard mortgage into a standard mortgage does not have to consider
the specific underwriting criteria required by the ATR-QM rule, if
certain conditions are met. These conditions include a requirement
that the monthly payment for the standard mortgage be ``materially
lower'' than the monthly payment for the non-standard mortgage and
payment history requirements. This option is available only for
refinances where the creditor for the standard mortgage is the
current holder or servicer of the non-standard mortgage. 12 CFR
1026.43(d).
\19\ 12 CFR 1026.43(c).
\20\ 12 CFR 1026.43(e).
\21\ Until recently, loans made pursuant to GSE refinance
programs were generally eligible for QM status under the Temporary
GSE QM loan definition. Under that definition, loans were presumed
to comply with the ATR-QM rule as long as the loans (1) met the
rule's prohibitions on certain loan features and limits points and
fees; and (2) were eligible to be purchased or guaranteed by the
GSEs while under FHFA conservatorship. Under this definition, GSE-
backed refinances could obtain QM status even if the loan did not
meet the requirements applicable under other QM definitions (for
example, verification of income and employment). In 2013, the Bureau
proposed to temporarily exempt from the ATR-QM rule certain
streamlined refinances made pursuant to GSE refinance programs
because of concerns that the ATR requirements could restrict credit
access for consumers seeking to refinance through HARP and other GSE
programs aimed at assisting at-risk consumers. See 78 FR 6621, 6650-
51 (Jan. 30, 2013). However, the Bureau later withdrew that
proposal. In withdrawing the proposal, the Bureau noted that loans
that would have been eligible for the proposed exemption were
eligible for QM status under the Temporary GSE QM loan definition,
which the Bureau determined struck the appropriate balance between
preserving consumers' rights to seek redress for violations of TILA
and ensuring access to responsible, affordable credit. See 78 FR
35430, 35473-74 (June 12, 2013).
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Research has suggested that frictions in the refinance process,
including potentially documentation requirements under the ATR-QM rule,
may limit some refinancing opportunities that could benefit consumers.
In the course of the Bureau's market monitoring, some stakeholders have
asserted that it may be appropriate to address those frictions in some
circumstances in which borrowers would receive a demonstrated benefit
from refinancing, such as lower interest rates or lower monthly
payments, and where other protections are in place, such as protections
against serial refinances.
Consistent with the Bureau's overall goal of ensuring that
consumers have access to the financial opportunities presented by the
housing finance system, the Bureau is requesting information about
whether and how the Bureau can facilitate beneficial refinances through
targeted and streamlined refinance programs. The Bureau is also
requesting information about whether and how the Bureau's existing
rules, including the ATR-QM rule, could be amended to facilitate
beneficial refinances while preserving important protections for
consumers.
2. New Products To Facilitate Beneficial Refinances
Some creditors have introduced mortgage products designed generally
to promote beneficial refinances by, for example, offering reduced
closing costs for future refinances with that same creditor.\22\
Another potential option that could allow more consumers to take
advantage of lower interest rates is through the introduction of other
new mortgage products that would further facilitate refinances or allow
more borrowers to obtain the benefits of lower interest rates without
refinancing. Examples of these products include loans that would
automatically trigger an offer to refinance or would reduce the loan's
interest rate in certain circumstances, which might benefit homeowners
by allowing them to make lower monthly payments or pay less total
interest over the duration of the loan. The Bureau is seeking
information about the risks and benefits if creditors were to develop
and offer new mortgage products with these or similar features.
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\22\ See, e.g., Brandon Ivey, Lenders Getting Innovative as Refi
Business Dwindles, Inside Mortg. Fin. (Aug. 4, 2022), https://www.insidemortgagefinance.com/articles/225298-lenders-getting-innovative-as-refi-business-dwindles.
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In particular, some researchers and stakeholders have proposed that
creditors should offer an ``auto-refi'' mortgage.\23\ An ``auto-refi''
mortgage is a mortgage loan that provides for automatic or streamlined
refinancing in the future when certain market conditions are met, with
little or no affirmative action by the consumer. This product might
decrease borrowing costs for consumers who would otherwise not
refinance their loans for a variety of reasons, including the
complexity of the refinancing process, documentation requirements, lack
of knowledge or time, or creditor marketing practices. It might also
simplify the refinancing process for consumers who anticipate mortgage
interest rates are likely to decrease over the life of the loan. On the
other hand, the Bureau notes that there may be impediments or risks
associated with the auto-refi mortgage if consumers lack comfort with
the concept or creditors find it difficult to price, competitively
market, and sell these products on the secondary market. In addition,
depending on how the product is structured, an auto-refi mortgage that
repeatedly refinances might result in extended indebtedness for some
borrowers.
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\23\ See, e.g., Kanav Bhagat, Extending the Benefits of Mortgage
Refinancing: The Case for the Auto-Refi Mortgage (Oct. 6, 2021),
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3927174.
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An alternative product that might provide benefits similar to an
auto-refi is a ``one-way adjustable rate'' mortgage (or one-way ARM). A
one-way ARM loan, which involves only a rate change, not a refinancing,
could have an adjustable interest rate that automatically decreases
with market rates but never increases. A variation of this product
could have an interest rate that automatically fluctuates with the
market but never rises above its original rate. Like the auto-refi
mortgage, a one-way ARM might allow more consumers to obtain the
benefits of lower interest rates without undergoing the full,
traditional refinancing process. Similarly, however, this product might
be difficult for consumers to understand or challenging for creditors
to competitively market, price, and sell on the secondary market.
B. Forbearances and Other Loss Mitigation
In the early months of the COVID-19 pandemic, economic activity
contracted, and millions of workers lost their jobs. In response,
Congress passed, and the President signed into law, the Coronavirus
Aid, Relief, and Economic Security Act (CARES Act).\24\ One key
provision of the CARES Act required servicers of federally backed
mortgages to grant a borrower's request for up to 180 days of
forbearance if the consumer attested to a COVID-19-related financial
hardship, with the option to extend the forbearance period for an
additional 180 days at the request of the borrower. Guidance from
Fannie Mae and Freddie Mac, the FHA, the VA, and the USDA extended the
length of their COVID-19 forbearance programs an additional six months
for a maximum forbearance
[[Page 58491]]
period of 18 months.\25\ Privately owned mortgages were not covered by
the CARES Act, but many servicers and investors offered similar
forbearance programs for those borrowers.
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\24\ Public Law 116-136, 134 Stat. 281 (2020).
\25\ See, e.g., Fed. Hous. Fin. Agency, FHFA Extends COVID-19
Forbearance Period and Foreclosure and REO Eviction Moratoriums
(Feb. 25, 2021), https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Extends-COVID-19-Forbearance-Period-and-Foreclosure-and-REO-Eviction-Moratoriums.aspx; Press Release, The White House, Fact
Sheet: Biden Administration Announces Extension of COVID-19
Forbearance and Foreclosure Protections for Homeowners (Feb. 16,
2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/16/fact-sheet-biden-administration-announces-extension-of-covid-19-forbearance-and-foreclosure-protections-for-homeowners/.
Insurers and guarantors of mortgages typically provide detailed
servicing guidelines, including guidelines related to loss
mitigation, that servicers must follow.
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These forbearance programs are an example of streamlined short-term
loss mitigation solutions that have helped maintain the stability of
the mortgage market during the pandemic, providing benefits to
consumers, as well as investors. Over the course of the pandemic, 8.2
million borrowers have entered a forbearance program, and as of July
2022, 93 percent have exited.\26\ Most forbearance exits have been
successful--52 percent of consumers who took forbearance have resumed
making regular mortgage payments and 32 percent have paid off their
mortgage in full. As of July 2022, just 4 percent are delinquent on
their mortgage and 1 percent are in active foreclosure.\27\ Of the
post-forbearance consumers who are in active foreclosure, about 65
percent were behind on their mortgage payments going into the
pandemic.\28\ As of July 2022, mortgage delinquency and foreclosure
levels were below pre-pandemic levels.\29\
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\26\ Black Knight Mortg. Monitor, July 2022 Report at 24 (July
2022), https://www.blackknightinc.com/wp-content/uploads/2022/09/BKI_MM_July2022_Report.pdf (Black Knight July 2022 Report).
\27\ Id.
\28\ Black Knight Mortg. Monitor, April 2022 Report at 7 (Apr.
2022), https://www.blackknightinc.com/wp-content/uploads/2022/06/BKI_MM_Apr2022_Report.pdf.
\29\ Black Knight July 2022 Report at 4.
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Given the apparent overall success of forbearance programs and
other streamlined loss mitigation solutions in connection with the
COVID-19 pandemic, the Bureau is requesting comment on the actions it
or others can take or should consider taking to spur automatic and
streamlined short and long-term loss mitigation offers for borrowers
with mortgages impacted by temporary financial hardship more generally
(i.e., not just as a result of the financial impacts of the pandemic).
The Bureau is particularly interested in receiving information about
what features of these COVID-era short and long-term loss mitigation
programs should be made more generally available to borrowers, and in
particular, if there are ways to automate and streamline the offering
of short and long-term loss mitigation solutions. The Bureau is
interested in ensuring that homeowners who are economically affected by
events such as natural disasters are able to receive timely payment
relief that could help them avoid foreclosure.
II. Request for Comment
This request seeks information from the public on: (1) ways to
facilitate refinances for consumers that would benefit from refinances,
especially consumers with smaller loan balances; and (2) ways to reduce
risks for consumers that experience disruptions that could interfere
with their ability to remain current on their mortgage payments. The
CFPB welcomes comments from consumers, creditors, and other
stakeholders, including the submission of descriptive information about
experiences of people participating in the mortgage market, as well as
research and other evidence. Commenters need not answer all or any of
the specific questions posed. These questions are not meant to be
exhaustive; the Bureau welcomes additional relevant comments on these
important topics. For answers to specific questions, please note the
number associated with any question to which you are responding at the
top of each response.
Barriers to Refinancing
1. What barriers may prevent consumers from accessing falling
interest rates through refinancing and what solutions could lower those
barriers, particularly for consumers with smaller loan balances? Are
there particular issues in obtaining refinances or would any particular
approaches be more effective for certain types of homeowners, such as
servicemembers, older adults, and first-time homeowners?
2. To what extent do large fixed costs of refinancing and limited
profitability for smaller loan balances limit beneficial refinances?
What potential policies could lower costs for beneficial refinances?
3. How much do common risk-based underwriting factors like credit
scores and loan-to-value ratios account for the differences in
refinancing rates across the population?
4. To what extent do the types of creditors offering refinance
products in particular geographic areas affect refinancing rates in
some areas and for some consumers?
5. To what extent are refinancing rates affected by potential
barriers that may be more difficult to quantify, including borrowers'
shopping behavior, trust of financial institutions, or the complexity
and documentation involved in the refinancing process?
6. To what extent do consumers in rural areas face limited
opportunities for refinances and what are the factors, including
smaller loan balances, that may limit refinance opportunities for those
consumers?
Targeted and Streamlined Refinances
1. How can the Bureau support industry efforts to facilitate
beneficial refinances through targeted and streamlined refinance
programs?
2. What are the current barriers to widespread use or promotion of
existing refinance programs and, relatedly, what features of refinance
programs are important to promoting widespread use?
3. What protections should be included in refinance programs to
ensure consumer benefit, such as requirements for a lower interest rate
and monthly payments, loan term limits, limits on serial refinancing,
and requirements to refinance the consumer into a more stable mortgage
product?
4. Should the Bureau's rules, including the ATR-QM rule, be amended
to encourage beneficial refinances while preserving important
protections for consumers? If so, how? What are the risks and benefits
of doing so?
5. What are the risks and benefits of removing or modifying the
current ATR-QM requirement that a creditor must consider and verify a
consumer's income or assets relied on in making the loan in the context
of a refinance program?
Potential New Products To Facilitate Refinances
1. What products or programs have lenders introduced to attempt to
facilitate refinances for borrowers who would benefit from refinancing?
What are the advantages and disadvantages of these products and
programs?
2. What are the potential benefits and drawbacks of auto-refi
mortgages and one-way ARMs?
3. Could creditors feasibly market and price auto-refi mortgages
and one-way ARMs?
4. How could creditors most effectively structure auto-refi
mortgages?
5. How could creditors most effectively structure one-way ARMs?
6. How could these products be designed to minimize risks to
consumers?
[[Page 58492]]
7. Under what market conditions should an auto-refi mortgage
automatically refinance? \30\
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\30\ For example, one researcher's proposed auto-refi mortgage
product would automatically refinance when a 0.50 percent interest
rate reduction and 7.5 percent payment reduction can be achieved.
See Bhagat, supra, at 14.
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8. Under what market conditions should the rate of a one-way ARM
change?
9. Should these conditions be regulated or left to market forces?
10. Do any market factors or practical difficulties, including
secondary market liquidity and mortgage-backed securities (MBS)
investor interest, preclude the development of auto-refi mortgages or
one-way ARMs? How would these or similar products impact the MBS
market?
11. Should the Bureau amend the ATR-QM rule or other regulations to
permit or encourage creditors to offer auto-refi mortgages or one-way
ARMs? If so, how?
12. Are there any other new products that creditors could feasibly
develop that would allow more borrowers to receive the benefits of
reduced mortgage interest rates?
13. Would these products be prohibited or discouraged by existing
regulations promulgated by the Bureau?
14. Should the Bureau (or other Federal regulators) amend
regulations to permit or encourage the development of these products?
15. Are there other legal impediments or policies that may deter
the introduction of auto-refi mortgages, one-way ARMs, or other new
products that could facilitate beneficial refinances?
Forbearances and Other Loss Mitigation
1. What are the benefits and drawbacks of automating and
streamlining short and long-term loss mitigation offers?
2. If such automation and streamlining of loss mitigation offers is
incorporated within new mortgage products:
a. How should such products be structured?
b. How and where should such features be established (e.g., the
note, contracts between investors and servicers, or regulations created
or amended by the Bureau or other Federal regulators)?
3. Under what circumstances should short or long term loss
mitigation solutions be offered automatically? For example, should
forbearance be offered automatically upon the declaration of a national
emergency or presidentially declared disaster, when unemployment rates
in the consumer's locality reach a certain level, when a borrower loses
their job, when a co-borrower on the loan dies, or under other
circumstances? What factors should be considered regarding these
circumstances? Should any documentation from the consumer be required
in any of these circumstances?
4. For short-term loss mitigation solutions, such as forbearance,
to what extent is there tension between the goal of offering meaningful
immediate payment relief and the goal of ensuring that the balance owed
does not grow so large as to make long-term loss mitigation solutions
difficult to achieve? Should there be a maximum length of a short-term
loss mitigation solution and, if so, what is the appropriate maximum
length?
5. What impact would the Bureau's mortgage servicing regulations,
such as those relating to communications with delinquent borrowers, the
Bureau's regulatory definition of delinquency, and the loss mitigation
process in general, have on automating and streamlining short and long-
term loss mitigation offers?
6. What changes, if any, should be considered relating to the
impact that forbearances and other short-term loss mitigation solutions
would have on a consumer's credit reporting?
7. Should standards be set to ensure affordability of long-term
loss mitigation solutions? If so, what features of a long-term loss
mitigation solution would best help ensure long-term affordability? For
example, would term extension, limits on monthly payment increases, or
principal forgiveness assist with the goal of long-term affordability?
8. When considering the potential automation and streamlining of
short and long-term loss mitigation offers, would there be advantages
or drawbacks if more creditors retained servicing of the mortgage loans
they originate? Do payment relief advantages exist when an original
creditor retains servicing of a mortgage loan? If so, should the Bureau
consider ways to encourage originators to retain the servicing of
mortgage loans?
9. When considering the potential automation and streamlining of
short and long-term loss mitigation offers, are there particular issues
or would any particular approaches be more effective for certain types
of homeowners, such as servicemembers, older adults, and first-time
homeowners?
10. Other than the mortgage products already mentioned in this RFI,
are there other mortgage products or features of mortgage products that
could help borrowers weather various financial shocks? What are the
advantages or drawbacks of these mortgage products or features of
mortgage products?
11. Are there other options not mentioned in this RFI that could
help achieve the goal of reducing risk for homeowners who are facing
financial hardship? If so, what are those options?
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-20898 Filed 9-26-22; 8:45 am]
BILLING CODE 4810-AM-P