The Effects of COVID-19 on Residential Mortgage Loans

Among a myriad of disruptions to the economy caused by the COVID-19 pandemic, mortgage lenders and servicers are working to adapt to new moratoriums and regulations affecting residential mortgage loans.

First, pursuant to a March 18, 2020 order by the Federal Housing Finance Agency and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) signed into law by President Trump, servicers of federally-backed mortgage loans are prohibited from initiating any judicial or non-judicial foreclosure process, moving for the entry of a foreclosure judgment or an order directing the occurrence of a foreclosure sale, or executing a foreclosure-related eviction or foreclosure sale. This moratorium pertains to approximately 28 million federally-backed mortgages, which are those residential mortgages that are purchased or securitized by Fannie Mae or Freddie Mac, guaranteed or insured by the Federal Housing Authority or Veterans Administration, or made by the Department of Agriculture. Currently, the moratorium is set to expire on May 17, 2020.

The CARES Act also allows homeowners to seek a forbearance of federally-backed mortgage loans for up to 180 days. To obtain such a forbearance, borrowers must, regardless of delinquency status, submit a request to the loan servicer, which may be oral, written, or otherwise. The borrower must attest that he or she is experiencing a financial hardship caused by the COVID-19 pandemic but is not required to provide any additional documentation of the hardship. Upon receiving the borrower’s request and attestation, the servicer must provide a forbearance of up to 180 days, which may only be shortened upon the borrower’s request. An extension of the forbearance for an additional 180 days must also be granted if requested by the borrower. While the CARES Act states that such forbearances must be given during the “covered period,” it does not define the term “covered period.” Presumably, the term “covered period” refers to the time until the federally-declared national emergency is terminated.

In addition to moratoriums and relief provided at the federal level, some states are also implementing laws impacting residential mortgages. In New York, an executive order issued by Governor Cuomo requires any bank subject to the Department of Financial Services (“DFS”) to provide 90-day forbearances to individuals and businesses with a financial hardship caused by COVID-19. This executive order is set to expire on April 20, 2020. DFS regulations implementing the executive order require institutions to make forbearance applications for any property due on a residential mortgage “widely available” to residents of New York who demonstrate financial hardship as a result of the pandemic. In addition to New York, various foreclosure and/or eviction controls or moratoriums are in place in Alabama, Alaska, California, Colorado, Delaware, District of Columbia, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Oregon, South Carolina and Washington.

Even some local governments have taken similar actions to place a moratorium or restrictions on foreclosures and/or evictions. Such cities include Atlanta, Austin, Cleveland, Detroit, Miami, Philadelphia, San Antonio, Santa Fe, and Seattle.

In light of the constantly changing landscape surrounding the COVID-19 pandemic, servicers should continue to closely monitor the latest laws and regulations imposing mandatory forbearance and temporary foreclosure stays.

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