From loss mitigation rules to a focus on "fair servicing," the interplay between mortgage servicing and fair lending laws such as the Fair Housing Act ("FHA") and Equal Credit Opportunity Act ("ECOA") has increased steadily over the last several years. Along with this trend, regulators have increased awareness of the need to expand services to limited English proficiency ("LEP") persons—i.e., individuals who have a limited ability to read, write, speak, or understand English. For example, in September of 2016, the U.S. Department of Housing and Urban Development ("HUD") published guidance on the anti-discrimination protections applicable to LEP persons under the Fair Housing Act.1 In November of 2017, the Consumer Financial Protection Bureau ("CFPB") published a report on improving LEP persons' access to the consumer financial marketplace, which covers a broad spectrum of financial services products and services.2 The CFPB has also provided guidance on serving LEP persons in compliance with the ECOA, including in the context of loss mitigation during mortgage servicing, in both supervisory highlights3 and the Supervision and Examination Manual.4
Even with this guidance available, decisions regarding the treatment of LEP borrowers and the provision of services in languages other than English ("non-English language services") are often complex, and regulatory as well as business expectations may seem like a "moving target" for mortgage servicers. While federal law does not specifically mandate the provision of non-English language services to LEP borrowers during mortgage servicing, there is constantly an evolving business case, and customer service reasons, for doing so. Servicers that elect to provide non-English language services, however, should be mindful of the obligations that arise in connection with the provision of such services.
Although LEP status is not itself a protected class under the FHA5 or ECOA6, it shares a close nexus with national origin, which is a protected class. Thus, disparities in the treatment of LEP and non-LEP borrowers can raise significant fair servicing concerns, particularly with respect to the most difficult and heavily-regulated component of mortgage servicing: loss mitigation. Because there is no aspect of mortgage servicing where the ability to clearly communicate with a borrower is more critical than loss mitigation, servicers should be prepared to provide non-English language services to LEP borrowers or otherwise provide accommodations to afford LEP borrowers the same opportunities and evaluation processes as non-LEP borrowers.
A mortgage servicer that fails to provide non-English language services or other accommodations to LEP borrowers could face a significant risk of liability under the ECOA and other fair lending statutes if such failure results in disparate treatment of, or has a disparate impact on, borrowers on the basis of national origin. One recent example of an ECOA enforcement action based on conduct that occurred in connection with the servicing of non-mortgage loans may be particularly instructive regarding how regulators may apply fair servicing to the treatment of LEP borrowers. In that case, a bank excluded customers with a "Spanish-preferred" indicator or a mailing address in Puerto Rico from debt relief and settlement offers that were available to other similarly delinquent borrowers.7 Regulators alleged this conduct was not "justified by a legitimate business need," and constituted discrimination on the basis of national origin in violation of the ECOA.8
Concerns regarding the treatment of LEP borrowers during loss mitigation can be expected to increase as more and more servicers grapple with an expanding number of LEP customers, and as loss mitigation guidelines become less uniform following the sunset of federal homeowner assistance programs.
What should servicers be thinking about?
As the LEP population grows and credit becomes more available, every servicer should consider how it can minimize risk related to servicing loans held by LEP borrowers, whether such loans are advertised and originated in English or in a foreign language. Understanding the issues and having a compliance plan may minimize the risk associated with serving LEP borrowers. How to best position your business to prevent discrimination or other claims related to the treatment of LEP borrowers depends on many factors, including among others, federal and state law relating to the language in which the loan was advertised, originated, and serviced.
- Know your customer base and make informed decisions regarding provision of LEP services.
Providing non-English language services can be expensive and burdensome, so servicers should first determine the level of need. Servicers should develop means of identifying LEP borrowers and monitor the need for non-English services. This may interact with the Federal Housing Finance Agency's announcement to redesign the Uniform Residential Loan Application to allow for borrowers to indicate a preference to communicate in a language other than English. - Adopt policies and procedures for servicing loans held by LEP borrowers.
Whether or not you provide a full array of non-English language services, you should be equipped to service LEP borrowers and ensure, for example, that they are provided the same loss mitigation options as similarly situated non-LEP borrowers. In its most recent Supervision and Examination Manual, the CFPB included additional instructions related to policies and procedures for servicing loans held by LEP borrowers. As that guidance suggests, servicers should have policies and procedures for identifying LEP borrowers, handling calls or other customer service requests in languages other than English, providing translation services, and addressing other aspects of mortgage servicing that may require special attention for LEP borrowers. - Ensure quality control for early intervention and single points of contact.
From the moment of delinquency and establishment of live contact with a borrower, to ushering a distressed borrower through the loss mitigation process, clear communication is critical. Any confusion or miscommunication can result in a frustrated borrower or disparate treatment in the loss mitigation process. It is critical that single points of contact (SPOCs) or other dedicated personnel are able to establish live contact and effectively communicate with LEP borrowers, whether through customer service representatives who speak the borrowers' language, interpreter services, or other accommodations. Servicers should ensure compliance and quality control at every step of the way. - Monitor loss mitigation applications submitted by LEP borrowers and ensure fair servicing.
The CFPB's report highlighted that LEP borrowers commonly have difficulty navigating the complex mortgage loss mitigation process. This could result in LEP borrowers dropping out of the loss mitigation process altogether, failing to understand the terms of a forbearance or loan modification program, or otherwise receiving different treatment from non-LEP borrowers. Any such trends can greatly elevate risk, so servicers should be mindful of the implications under fair servicing laws, monitor any such trends closely, and immediately correct any gaps. - Beware of state requirements.
Various states have laws that impose dual language requirements. For example, California has one of the most comprehensive translation acts that requires loan contracts and notices of default, repossession, and deficiency to be translated into certain foreign languages. While this may not necessarily become a prevalent issue in a performing market, should the market decline, an increase in complaints related to the lack of non-English language services is possible. In addition, both fair servicing laws and the federal prohibition against unfair, deceptive, and abusive acts or practices may apply.
This article was also published in the February 2018 issue of Mortgage Compliance Magazine.
[1] HUD, Office of General Counsel Guidance on Fair Housing Act Protections for Persons with Limited English Proficiency (Sept. 15, 2016).
[2] CFPB, Spotlight on Serving Limited English Proficient Consumers (Nov. 2017).
[3] CFPB, Supervisory Highlights Issue 13, at 20–25 (Oct. 2016).
[4] CFPB, Mortgage Servicing Procedures at 30 and ECOA Examination Procedures at 13, 21.
[5] 42 U.S.C. § 3605(a).
[6] 15 U.S.C. § 1691(a).
[7] Synchrony Bank, CFPB No. 2014-CFPB-0007 (June 19, 2014).
[8] Id.
[9] Cal. Civ. Code § 1632(a) (as amended by 2014 Cal SB 245); see also Reyes v. Superior Court, 173 Cal. Rptr. 267 (Cal. Ct. App. 1981).