On March 18, 2020, by Mortgagee Letter 2020-04, the U.S. Department of Housing and Urban Development (“HUD”) directed all servicers of FHA single-family and Home Equity Conversion mortgages to halt all new foreclosure actions, suspend all foreclosure actions currently in process and cease all evictions involving FHA-insured single family homes for a period of 60 days. Additionally, the Federal Housing Finance Agency (“FHFA”) also directed Fannie Mae and Freddie Mac to suspend current foreclosures and evictions with respect to Fannie/Freddie-backed single-family mortgages for 60 days and to refrain from initiating any new foreclosure or eviction actions for said time period. Borrowers under Fannie/Freddie-backed mortgages may also suspend their mortgage payments for a year if they qualify for a forbearance plan released by FHFA.
The moratorium is intended to accomplish two main goals: (1) increase public health by keeping people in their homes while the coronavirus pandemic is at its peak, and (2) reduce economic pressure on single-family homeowners.
This action primarily impacts the credit default remedies of consumer credit institutions and banks who hold traditional mortgages secured by single-family homes. Under the action, borrowers in default under these mortgages and who were in pre-foreclosure or eviction proceedings now have a 60-day “grace period” during which the proceedings against them are paused. As a result, banks and servicers cannot bring new foreclosure or eviction actions but are also forced to stop pursuing existing actions for said 60-day period.
Fannie Mae and Freddie Mac released guidelines for banks and servicers affected by this action, directing banks and servicers to, upon request from their borrower, suspend late fees and credit bureau reporting of past due payments from borrowers under a forbearance plan. Servicers and banks are also directed to work with borrowers to maintain or reduce monthly payment amounts after the forbearance plan has concluded. Likewise, some national banks are taking steps to make their lending products and services more affordable and accessible to their customers affected by COVID-19.
In addition to the actions taken at the federal level by HUD and the FHFA, certain states are also stepping in to provide relief to mortgage borrowers who are adversely affected by COVID-19. Borrowers in New York who have lost their job due to the outbreak of COVID-19 are eligible to delay their mortgage payments for up to 90 days without lowering their credit scores, and foreclosures and evictions in states such as Kansas and California have been stayed through May 1, 2020 and May 31, 2020, respectively. Other states, such as Maryland and New Hampshire, have taken the moratorium a step further by staying foreclosure and eviction cases indefinitely or have effectively done so, like North Carolina, by closing courthouses (and holding all cases) for the time being.
Where does that leave financial institutions who are affected by these policies? Communication is the key. Borrowers, banks and mortgage servicers will all likely be better off with frequent communication regarding the borrower’s ability to repay and cognizance of the myriad state and federal policies affecting the borrower’s obligations during this ongoing crisis. Financial institutions who are proactive about communicating with their borrowers and offering alternatives to eviction and foreclosure for distressed borrowers such as forbearance, loan modifications or payment assistance during this crisis are more likely to be repaid in the long-run and will be impacted less by the state and federal actions discussed above.
It is important to note that, absent loan forgiveness, none of the borrowers are being released from their obligation to repay their loans, so any payments that are being deferred under state or federal programs will ultimately still have to be repaid. Since the national COVID-19 emergency is evolving rapidly, policies at the state and federal level are in constant flux and we will be keeping an eye on those changes. For more information or analysis regarding a particular state or federal policy, please contact your Thompson Coburn attorney.
Jennifer Price and Spenser Owens are attorneys in Thompson Coburn's Real Estate practice group.
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