New York Senate Bill Amends Expanded Forbearance Relief Granted by Previous Bill

As noted in our alert on June 9, 2020, New York Senate Bill S8243C was delivered to the Governor on June 5, 2020.  The same day, New York Senate Bill S8428 was also delivered to Governor Andrew Cuomo. If signed, Senate Bill S8243C will add a new Section 9-x of the Banking Law of New York and Part C of Senate Bill S8428 will amend that new section. Senate Bill S8243C will be effective immediately and Senate Bill S8428 will be effective “on the same date and in the same manner” as S8243C. These bills are legislative expansions on the previously issued Executive Order 202.0 and emergency regulation 3 NYCRR Part 199 related to COVID-19 financial hardship and mortgage loan forbearance options. Our March 26, 2020 alert summarizes the emergency regulation.

NY Senate Bill S8428 amends new Section 9-x of the Banking Law, established by Senate Bill S8243C, in several key ways.

First, it amends the definition of a “qualified mortgagor,” by removing the requirement that the individual reside in New York with their “principal dwelling” in New York, and replacing it with the requirement that the individual’s “primary residence” must be in New York. Additionally, the demonstration of a financial hardship as a result of COVID-19 during the covered period is moved into the definition of a qualified mortgagor.

The Senate Bill S8243C carve out from coverage that appears to be designed to exclude CARES Act covered loans from coverage by the New York legislation was also amended slightly. The original carve out from the relief options included mortgage loans “made, insured or securitized” by any federal agency, the GSEs, or a federal home loan bank, or to “the rights and obligations of any lender, issuer, servicer or trustee of such obligations,” including servicers for GNMA. Senate Bill S8428 modifies the carve out in two respects by adding (1) “a corporate governmental agency of the state constituted as a political subdivision and public benefit corporation” to the list of entities, and (2) loans “purchased” by any of the listed entities.

Senate Bill S8428 amends the grant of forbearance section of 9-x of the Banking Law to require “all monthly payments due” be included in the initial 180 day forbearance period and subjects the ability of a qualified mortgagor to obtain an additional forbearance period to demonstrating a continuing financial hardship. Additionally, if the qualified mortgagor had already received a forbearance pursuant to Executive Order 202.9, the total forbearance period would include the period of the forbearance already received under the Executive Order. The Senate Bill also removes the requirement that the mortgagor be in arrears, on a trial period plan or have applied for loss mitigation.

Senate Bill S8243C provided for three options to be made available with regard to any mortgage forbearance granted by a regulated institution to a qualified mortgagor pursuant to the bill, Executive Order 202.9, “or any other law, rule or regulation” as a result of financial hardship. Senate Bill S8428 adds a fourth option, to negotiate a “loan modification or other option that meets the changed circumstances of the qualified mortgagor.” Additionally, Senate Bill S8428 replaces the reference to “any other law, rule or regulation” with a reference to “3 NYCRR Part 199,” which are emergency rules adopted to implement Executive Order 202.9.

Finally, Senate Bill S8243C subjected the obligation of a regulated institution to include in the options offered to a qualified mortgagor an option to defer the arrearages in the form of an interest free balloon loan to the option being consistent with the safety and soundness of the institution, Senate Bill S8428 removes the safety and soundness element with respect to the option and adds an overall safety and soundness provision. Under the safety and soundness provision, the obligation of a regulated institution to grant forbearance relief is subject to the regulated institution “having sufficient capital and liquidity to meet its obligations and to operate in a safe and sound matter.” Should a regulated institution determine that it cannot offer relief and otherwise operate in a safe and sound manner, it must notify the New York Department of Financial Services within five business days, including specific information surrounding that determination. At the same time, the regulated institution must notify the qualified mortgagor that the application for relief was denied and provide a statement and contact information for complaints to the New York Department of Financial Services.

Although the scope of potentially covered loans is narrowed by Senate Bill S8428, should both bills be signed by the governor, compliance by servicers will remain essential in both the short and long term.  Failure to comply, in the short term could subject New York regulated institutions to regulatory and exam scrutiny, and in the long term, pose risks to efficient and successful foreclosure actions.

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