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27 March 2020 / Larry R. Rothenberg

The Federal CARES Act as it Relates to Mortgage Servicing

Topics: Real Estate


On Friday afternoon, March 27th, H.R. 748, the CARES Act, was passed by the U.S. House of Representatives.  The Act provides emergency assistance and health care response for individuals, families, and businesses affected by the COVID-19 pandemic.  Title IV of the 880-page work pertains to mortgage servicing.
The law requires forbearance for borrowers experiencing financial hardship during the COVID-19 emergency; a moratorium on foreclosures and rent-default evictions, and imposes requirements regarding credit reporting.
 
Forbearance on Mortgage Loans 
 
1. Federally Backed Mortgages on 1-4 Family Dwellings
  • What loans will be covered?
    The law pertains only to “federally-backed” mortgage loans, which is defined as:
    (1) Loans insured by FHA or under section 255 of the National Housing Act,
    (2) Guaranteed under the Housing and Community Development Act of 1992 or by the VA;
    (3) Guaranteed or insured by the Department of Agriculture; or purchased or securitized by Freddie Mac or Fannie Mae.  The law does not affect other types of mortgages.
     
  • What must the borrower submit to be entitled to forbearance?   
    The borrower need only submit a request and affirm they are experiencing financial hardship during the COVID-19 emergency.  If the borrower does so, forbearance “shall” be granted.
     
  • How long must the forbearance period be?
    The borrower may request up to 180 days, and upon the borrower’s request, the period must be extended for up to 180 additional days.
     
  • What about late fees, penalties, and interest? 
    No fees, penalties, or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract, will be permitted to accrue on the borrower’s account.
 
2. Mortgages on Federally-Backed Multi-Family Dwellings
The servicer will only be required to grant forbearance if the loan was current as of February 1, 2020.  If the loan was current as of that date, the servicer must grant forbearance of up to 30 days.  If the borrower makes a request at least 15 days prior to the end of that period, the servicer must extend the forbearance up to two additional 30-day periods.

The Moratorium
  • The moratorium is scheduled to run through May 17, 2020.  
  • The moratorium only applies to federally-backed mortgage loans
  • The moratorium does not apply to foreclosures on vacant and abandoned properties
  • During the moratorium, new foreclosures may not be initiated
  • In pending foreclosures, no motion for judgment or action to cause a sale to be scheduled, may be filed, and no sales may be executed
  • Completing service of summons and other activities are not prohibited.
 
Credit Reporting
The law amends the Fair Credit Reporting Act pertaining to a forbearance granted on or after January 31, 2020.  The amendment would be effective for 120 days from the law’s passage, or 120 days from the day the national emergency is terminated.

For borrowers granted relief due to the COVID-19 pandemic, by being allowed to make a partial payment, to skip a payment, to modify the loan, other assistance, servicers are to report the obligation as current if it would otherwise be current.  If the loan was already delinquent, the delinquent status may be maintained, but if the borrower brings the loan current during the forbearance period, the loan is then to be reported as current, unless it has been charged off. 

This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way. 

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Larry R. Rothenberg

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