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. 

For more comprehensive information and insights, watch Larry's COVID-19 Loan Forbearance webinar.

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. 

Related News

Insights / 7 December 2021

Collateral Recovery Process: Recover While Staying Compliant

Weltmans collateral recovery team recently attended the Cherokee Media Groups Used Car Week to present The 3 Rs: Recovery, Replevins, & Reputation. This discussion was presented by shareholder Amy Clum Holbrook and attorney Stefanie Collier and moderated by national director of collections Dave Tommer.
Read More
Insights / 22 November 2021

A Step-By-Step Guide of the CFPB's New Rule: Regulation F Simplified

Many have been preparing for the effective date of Regulation F, which is November 30th. This new Rule will undoubtedly change the world of debt collection. With careful preparation and resources from the Consumer Financial Protection Bureau (CFPB), navigating this new landscape is manageable.
Read More
Insights / 18 November 2021

How Physical Well-Being Improves Mental: Health From a Phenomenological Perspective

Mental health. It's a phrase that is often casually used, with various meanings attached to it, and sometimes stigmatized. Some look at it with a broad spectrum, while others think of it as taboo. Some take mental health to be the textbook cases or finite terminology, and others view it as overall well-being.
Read More

Join Our Email List

Get the latest articles and news delivered to your email inbox! 

Contact The Author

Larry R. Rothenberg


Join Our Email List