Patchwork of Coronavirus (COVID-19) Mortgage and Rent Forbearance Efforts Creates Challenges for Mortgage Lenders and Servicers

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As consumers and businesses face ever-worsening financial conditions in the wake of the COVID-19 pandemic, federal agencies and some states and localities have stepped in to provide foreclosure and eviction relief. Not surprisingly, the approaches to providing this relief vary greatly, creating significant operational challenges for servicers operating in multiple jurisdictions. We discuss below these varying approaches and provide a chart of federal and state actions with links to relevant orders and guidance.

Federal Agency Action

HUD has suspended foreclosures for 60 days, and FHFA has directed Fannie Mae and Freddie Mac to do the same. Fannie Mae and Freddie Mac have directed servicers to evaluate borrowers for forbearance of up to 12 months due to hardship caused by coronavirus. Loans for principal residences, second homes, and investment properties are eligible for forbearance. Servicers also must affirmatively reach out to borrowers who receive a forbearance plan to determine whether they are eligible for a loan modification at the expiration of that plan. This provision likely is in response to the expectation that servicers may either extend the loan term or require a payment at the end of the forbearance period.

Multiple federal agencies (FRB, FDIC, OCC, CFPB, NCUA, and CSBS) issued an Interagency Statement encouraging financial institutions to work with borrowers on loan modifications for all loans for customers impacted by COVID-19. To assist in that process, the Statement explains that the agencies will not criticize institutions for prudent loan modifications and that those loan modifications will be treated favorably in the context of capital rules and accounting treatment. As is typical, the agencies styled their guidance as encouragements, in contrast with state and local orders that require mandatory actions and forbearances.

State Action

To say state efforts are all over the map is an understatement. Mortgage servicers should consult the order or guidance issued in states where mortgagees are located, and we have included links to the documents issued by states in the below chart.

Different Approaches on the Two Coasts. The difference in the approaches of two major states, New York and California, provides a good sense of the challenges created by the piecemeal approach.

In California, Governor Gavin Newsom has signed an Executive Order to allow local governments to impose limits on residential and commercial evictions and foreclosures due to a substantial decrease in household or business income caused by COVID-19. Local governments also have authority to suspend judicial foreclosures, unlawful detainers, and any other statutory claims that could be used to evict a commercial or residential tenant. In addition, the Executive Order asks financial institutions to implement an immediate moratorium on foreclosures and evictions due to COVID-19.

Yesterday, Governor Newsom announced that many national and state-chartered banks, credit unions, and servicers had agreed to offer consumers up to a 90-day mortgage payment forbearance to borrowers economically impacted by COVID-19 as well as no negative credit reporting for taking advantage of COVID-19-related relief, at least a 60-day moratorium on foreclosure sales and evictions, and waiver or refunds of mortgage-related late fees and other fees for up to 90 days.

In New York, Governor Andrew Cuomo also has signed an Executive Order regarding forbearance. First, the Executive Order provides that refusal of “any bank which is subject to [NY DFS] jurisdiction” to grant a 90-day forbearance “to any person or business who has a financial hardship as a result of the COVID-19 pandemic” is an unsafe or unsound practice under New York law. Second, the Executive Order provides that entities licensed by NY DFS must provide New York consumers with an opportunity for forbearance of mortgage payments if they are facing hardship due to COVID-19. The Executive Order directs NY DFS to issue emergency regulations regarding this consumer protection provision, which NY DFS issued on March 24, 2020.

The NY DFS issued guidance urging mortgage servicers to provide consumers with relief similar to the relief provided by the agreement reached by Governor Newsom, including: 90-day mortgage payment forbearance; no negative credit reporting of late payments for 90 days; and waiver of late payment and online payment fees for 90 days.

State versus Local versus; Judicial Authority. Most states have taken the approach that New York has taken in terms of state-level orders. We see this in New Jersey, Kansas, and Iowa, among others. In some states, though, as in California, we are seeing local-level orders. In California, for example, a number of cities, including Los Angeles and San Francisco, have issued orders addressing eviction and/or foreclosure for consumers and/or businesses pursuant to the authority granted by the Executive Order.

In addition, several state supreme courts have issued orders closing courthouses and continuing all civil proceedings, including unlawful detainer, eviction, and foreclosure actions. Pennsylvania, Kentucky, and Virginia state courts are examples of these kinds of state court orders.

Residential versus Commercial Mortgages. Most state executive orders apply solely to residential mortgages and rentals, including those in New Jersey, Indiana, and Illinois. A significant minority of state actions, however, also apply to commercial mortgages and rentals, including in Kansas, Iowa, and New Hampshire.

Covered Servicers. The New York and California Executive Orders illustrate the different ways states are defining the servicers covered. New York, in particular, is regulating only entities licensed by and/or under the jurisdiction of NY DFS. Most of the other states, however, have taken the approach of California in halting foreclosures and limiting actions with respect to borrowers and renters in the state.

Scope of Required Relief. Many states have limited relief to foreclosure and eviction. Others, like New York and California, go beyond foreclosure and eviction to include payment forbearance, no negative credit reporting, and relief from certain fees. Many of the orders specify that they do not impact a borrower’s or renter’s obligation to make payments.

Required Hardship Showing. States vary in the level of detail in which they identify the showing required to qualify for relief. The California Executive Order, for example, specifies a “substantial decrease in household or business income,” including decreases caused by layoffs or reduction in hours or consumer demand, or substantial out-of-pocket medical expenses. Other states, such as Michigan and Minnesota, have issued blanket prohibitions without any required showing.

Looking Ahead

As these few areas of distinction make clear, servicers will face significant state-by-state and even locality-by-locality differences in obligations to borrowers. The chart below identifies the federal guidance, state Executive Orders, and examples of state supreme court orders. Servicers should expect that additional state and local orders may be issued in the weeks and months ahead, and that existing orders may be revised.

Federal and State Guidance/Orders Regarding Mortgage and Rent Forbearance During the COVID-19 Pandemic[1]

Agency/State	Guidance/Orders
FHFA	The FHFA directed Fannie Mae and Freddie Mac to suspend foreclosures and evictions for at least 60 days due to the COVID-19 national emergency. The foreclosure and eviction suspension applies to homeowners with an Enterprise-backed single-family mortgage. FHFA also announced that Fannie Mae and Freddie Mac would provide payment forbearance to borrowers impacted by coronavirus. Forbearance allows for a mortgage payment to be suspended for up to 12 months due to hardship caused by the coronavirus.
Fannie Mae/Freddie Mac	On March 18, 2020, Fannie Mae issued Lender Letter LL-2020-02 and Freddie Mac issued Bulletin 2020-4. Forbearance Plan Eligibility. The guidance indicates servicers should evaluate the borrower’s eligibility for a forbearance plan in accordance with Fannie/Freddie guidelines and that COVID-19 forbearance plans are available for mortgages secured by a principal residence, a second home or an investment property. Servicers are not required to obtain documentation of the borrower’s hardship. Evaluating Borrower for Loan Mod After Forbearance Plan. The guidance directs servicers to reach out to borrowers who have received a forbearance plan in response to COVID-19 no later than 30 days prior to the expiration of the forbearance plan term and to evaluate loan modification options, including Extend Modifications for Disaster Relief. Credit Bureau Reporting. Servicers must suspend reporting the status of a mortgage loan to credit bureaus during an active forbearance plan, or a repayment plan or Trial Period Plan where the borrower is making the required payments as agreed, even though payments are past due, as long as the delinquency is related to a COVID-19 hardship. Suspension of Foreclosure Sales. Servicers must suspend all foreclosure sales for the next 60 days other than on vacant or abandoned properties. There is no limitation or suspension of foreclosure proceedings short of the foreclosure sale.
HUD/FHA	On March 18, 2020, HUD released Mortgagee Letter 2020-4, which placed a foreclosure and eviction moratorium on all FHA-insured Single Family mortgages for a period of 60 days. The moratorium applies both to the initiation of foreclosures and to the completion of foreclosures in process. Similarly, evictions of persons from properties secured by FHA-insured single-family mortgages are suspended for 60 days. Deadlines of the first legal action and reasonable diligence timelines for Home Equity Conversion Mortgages are extended by 60 days. There is no carve-out for vacant and abandoned properties, and HUD has confirmed informally that this is the case.
FRB, FDIC, OCC, CFPB, NCUA, and CSBS (the Agencies)	On March 22, 2020, the Agencies issued an Interagency Statement on COVID-19 loan modifications and reporting. The Agencies: Encourage financial institutions to work constructively with borrowers affected by COVID-19; State that they will not criticize institutions for prudent loan modifications and will not direct supervised institutions to automatically categorize COVID-19-related loan modifications as troubled debt restructurings (TDRs); State that they confirmed with staff of the Financial Accounting Standards Board (FASB) that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs; Explain that loan modification efforts described in the interagency statement for borrowers of one-to-four family residential mortgages will not be considered restructured or modified for the purpose of respective risk-based capital rules where loans are prudently underwritten and not past due or carried in nonaccrual status; State that they view prudent loan modification programs to financial institution customers affected by COVID-19 as positive actions that can effectively manage or mitigate adverse impacts on borrowers due to COVID-19, and lead to improved loan performance and reduced credit risk.
Alaska	Governor Mike Dunleavy released the Alaska COVID-19 Economic Stabilization Plan on March 20, 2020. In announcing the Plan, the Governor stated that “loan servicers are authorized to grant forbearance to homeowners suffering financial hardships due to this shutdown.”
California	Governor Newsom signed an Executive Order on March 16, 2020 to allow local governments to impose limits on residential or commercial evictions where: i) Basis for eviction is nonpayment of rent or a foreclosure due to a substantial decrease in household or business income (including substantial decrease in household income caused by layoffs or reduction in hours or substantial decrease in business income caused by a reduction in opening hours or consumer demand) or substantial out-of-pocket medical expenses; and ii) Decrease in household or business income or substantial out-of-pocket medical expenses caused by COVID-19 or government response to COVID-19 Local governments also can suspend judicial foreclosures, unlawful detainers, and any other statutory cause of action that could be used to evict a residential or commercial tenant. Protections remain in place through May 31, 2020 unless extended Financial institutions are “requested to implement an immediate moratorium on foreclosures and related evictions” due to COVID-19 Several cities in California have issued orders pursuant to this authority, although most of the orders only cover residential evictions. The San Francisco Order also covers commercial evictions for small and medium-sized businesses with less than $25 million in gross receipts. On March 25, 2020, Governor Newsom announced an agreement reached with national and state-chartered banks, credit unions, and servicers on the following additional mortgage relief for consumers: Mortgage payment forbearances of up to 90 days for borrowers economically impacted by COVID-19; No negative credit reporting for borrowers taking advantage of this relief; Moratorium on foreclosure sales and evictions for at least 60 days; Refunds of mortgage-related late fees and other fees for at least 90 days
Connecticut	Governor Ned Lamont issued a list of “frequently asked questions on the state of Connecticut’s actions related to COVID-19” on March 23, 2020. The document states that borrowers affected by coronavirus who are having difficulty paying their mortgage, should reach out directly to their mortgage servicers to talk about what help is available. Connecticut courts have extended the dates of all foreclosure sales scheduled to occur in April or May to June 6, 2020 and amended the judgment in any foreclosure action in which the court set a “law day” (the date when the resident must leave the house) in April or May so that the first law day is June 2, 2020. The courts also stayed all executions of evictions and ejectments through May 1, 2020.
Delaware	The Delaware Justice of the Peace Court has postponed all landlord and tenant proceedings until after May 1, 2020. This includes any eviction proceedings and all evictions scheduled from March 17, 2020 through April 16, 2020 are continued to a date not earlier than May 1, 2020.
Illinois	Governor J.B. Pritzker issued an Executive Order barring law enforcement from enforcing residential evictions as of March 21, 2020 for the remainder of the duration of the Gubernatorial Disaster Proclamation, which currently extends through April 7, 2020. The Order specifies that it does not impact any obligation to pay rent or make mortgage payments.
Indiana	On March 19, 2020, Governor Eric Holcomb issued an Executive Order providing that no residential eviction proceedings or foreclosure actions involving residential real estate can be initiated during the state of emergency. Indiana’s current state of emergency ends on April 5, 2020, but will be extended an additional 30 days.
Iowa	Iowa Governor Kim Reynolds issued a Proclamation on March 22, 2020 temporarily suspending commencement of foreclosure proceedings and the prosecution of ongoing foreclosure proceedings on residential, commercial, and agricultural real property located in the state of Iowa. The Proclamation specifies that it does not relieve any obligation to make mortgage payments. The new rules are part of a state of public health disaster emergency plan set to expire on April 16, 2020, unless extended.
Kansas	On March 17, 2020, Governor Laura Kelly issued Executive Order 20-06 ordering all financial institutions operating in Kansas to suspend the initiation of any mortgage foreclosure efforts or judicial proceedings and any commercial or residential eviction efforts or judicial proceedings until May 1, 2020 or until the State of Disaster Emergency expires, whichever is earlier.
Kentucky	The Kentucky Supreme Court has cancelled all eviction proceedings until April 10, 2020.
Maryland	On March 16, 2020, Governor Larry Hogan issued an Executive Order barring Maryland courts from ordering the eviction of any tenant from residential real property if the tenant can show that the failure to pay rent is due to loss of income is due to COVID-19, including due to job loss, reduction of hours, or need to miss work to care for a school-aged child. The Executive Order is in place until the state of emergency is over.
Michigan	Governor Gretchen Whitmer issued Executive Order 2020-19 on March 20, 2020 temporarily halting evictions from residential premises absent substantial risk to safety or property through April 17, 2020. The Executive Order states expressly that nothing in it abrogates the obligation to pay under a lease. The Executive Order bars sheriffs from serving eviction notices. The Executive Order allows tenants and mobile home owners to remain in their homes and allows courts to delay eviction-related proceedings. The Executive Order also suspends any statutory limits on court authority to adjourn proceedings, toll limitations periods, or extend deadlines until 30 days after the restrictions on eviction expire.
Nevada	The Nevada Department of Business and Industry Real Estate Division Ombudsman for Owners in Common-Interest Communities and Condominium Hotels has requested that common interest communities and condominium hotel association boards implement a moratorium for liens and non-judicial foreclosures during the public emergency.
New Hampshire	On March 17, 2020, New Hampshire Governor Chris Sununu issued Emergency Order #4 Pursuant to Executive Order 2020-04 Prohibiting initiation of eviction proceedings, issuing eviction orders, and enforcing eviction orders. Prohibiting all judicial and non-judicial foreclosure actions and suspending any law, rule, or other regulation that would allow for initiation of foreclosure proceedings. The Order applies to residential and commercial properties. The Order specifies that it does not relieve any obligation to pay rent or make mortgage payments.
New Jersey	On March 19, 2020, Governor Phil Murphy signed into law A-3859, which provides authority to the Governor to issue an executive order declaring a moratorium on removing individuals from their homes pursuant to an eviction or foreclosure proceeding. The authority applies whenever the Governor has declared a Public Health Emergency or State of Emergency and continues until two months after the end of the Emergency. The law halts lessee, tenant and homeowner evictions from and foreclosures on residential property. Eviction and foreclosure proceedings may be initiated or continued during this time, but they may not be enforced. Following this law, the Governor signed Executive Order No. 106, which halts residential property evictions and foreclosures for no longer than two months following the end of the public health emergency. “Residential property” includes any property rented or owned for residential purposes, including tenements leased for residential purposes.
New Mexico	On March 24, 2020 the New Mexico Supreme Court issued an Order halting residential evictions for inability to pay rent during the public emergency.
New York	Governor Cuomo signed Executive Order No. 202.9 on March 21^,2020 providing the following: Refusal of “any bank that is subject to the jurisdiction of the [NY DFS]” to grant a 90-day forbearance to “any person or business that has a financial hardship as a result of the COVID-19 pandemic” is deemed an unsafe and unsound business practice Licensed and regulated entities must provide any NY consumer “an opportunity for a forbearance of payments for a mortgage for any person or entity facing a financial hardship due to the COVID-19 pandemic.” The Governor directs NY DFS to issue emergency regulations to require forbearance applications be made widely available for consumers and that the applications shall be granted in all reasonable and prudent circumstances for the period of the emergency. The Order provides that these provisions are in effect until April 20, 2020. On March 24, 2020, the NY DFS issued the Emergency Regulations required by the Executive Order. On March 19, 2020, NY DFS issued Guidance to New York State Regulated and Exempt Mortgage Servicers urging that they provide the following relief to consumers who demonstrate they are not able to make timely payments: Mortgage payment forbearance for up to 90 days No negative reporting to credit bureaus for 90 days An additional 90-day grace period to complete trial loan modifications and late payments during COVID-19 do not affect ability to get permanent loan modification Waiver of late payment fees and online payment fees for 90 days Postponement of foreclosures or evictions for 90 days NY DFS further urges these mortgage servicers to proactively reach out to mortgagers to explain the offered assistance
North Carolina	On March 13, 2020, North Carolina Chief Justice Cheri Beasley issued an Order postponing most cases pending in state court for at least 30 days. There is no exception for eviction or foreclosure cases.
Oregon	On March 22, 2020, Governor Kate Brown issued Executive Order 20-11, placing a temporary moratorium on law enforcement actions relating to residential evictions for nonpayment of rent. The order is effective for 90 days.
Pennsylvania	The Pennsylvania Supreme Court’s Order directs that, during the period of judicial emergency (for now at least until April 3, 2020), no eviction, ejectment or other displacement from a residence based on failure to make payment can be made.
Texas	On March 19, 2020, the Texas Supreme Court issued a Fourth Emergency Order Regarding the COVID-19 State of Disaster stopping eviction proceedings for the next 30 days, until April 19, 2020. New filings will be accepted, but deadlines are tolled and execution of the writ of possession cannot occur until after April 26, 2020. There are exceptions for criminal activity or if the tenants “pose an imminent physical threat.”
Virginia	The Supreme Court of Virginia issued an Order suspending all non-essential and non-emergency proceedings through April 6, 2020. There is no exception for eviction or foreclosure proceedings.
Washington	On March 18 2020, Governor Jay Inslee issued a Proclamation prohibiting residential landlords from: Serving a notice of unlawful detainer or writ of restitution for default payment of rent for the next 30 days (until April 17, 2020); Issuing a 20-day notice for unlawful detainer absent an affidavit attesting the action is necessary for health and safety of tenants or others for the next 30 days (until April 17,2020). Additionally, law enforcement may not enforce eviction orders based solely on nonpayment of rent for the next 30 days (until April 17, 2020).

[1] The situation is fluid, but we have included the federal guidance and state orders we have identified. We have included examples of orders issued by state courts and have not included orders issued by localities.

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