The CARES Act Requires Residential Mortgage Forbearance Relief
The CARES Act permits borrowers with federally backed residential mortgage loans to request a forbearance from making payments for up to 180 days, with the ability to request an extension for an additional 180-day period. The U.S. House of Representatives is expected to vote on the legislation on March 27, 2020. The provisions in the legislation adopted by the Senate are addressed below.
Federally Backed Mortgage Loan. The forbearance relief is available to borrowers with federally backed mortgage loans. A “federally backed mortgage loan” is defined to include any loan secured by a first or subordinate lien on residential real property, including individual units of condominiums and cooperatives, designed principally for the occupancy of one- to four-families that is:
- Insured by the Federal Housing Administration (FHA) under title II of the National Housing Act, which is the main title under which FHA insures residential mortgage loans;
- Insured under National Housing Act section 255, which addresses home equity conversion (i.e., reverse) mortgage loans insured by FHA;
- Guaranteed under Housing and Community Development Act of 1992 sections 184 or 184A, which address loans related to Native American families and housing authorities and loans related to Native Hawaiian families and authorities;
- Guaranteed or insured by the U.S. Department of Veterans Affairs (VA);
- Guaranteed or insured by the U.S. Department of Agriculture (USDA);
- Made by the USDA; or
- Purchased or securitized by Fannie Mae or Freddie Mac.
Forbearance. During the covered period, a borrower with a federally-backed mortgage loan who is experiencing a financial hardship due, directly or indirectly, to the COVID-19 national emergency may, regardless of delinquency status, request a forbearance. To request a forbearance, a borrower must submit a request to the servicer and affirm that the borrower is experiencing a financial hardship due to the COVID-19 national emergency. The forbearance period is up to 180 days, and during the covered period the borrower can request an extension for an additional period of 180 days. At the borrower’s request, either the initial or extended forbearance period may be shortened. During the forbearance period, 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, may accrue on the borrower’s account.
Section 4022 of the CARES Act, which sets forth the forbearance provisions, does not define “covered period.” In a prior version of the legislation, the section defined “covered period” as the date that the CARES Act becomes law until the sooner of December 31, 2020 or the termination date of the COVID-19 national emergency. (That definition of “covered period” is set forth in section 4023, which addresses forbearances in connection with federally-backed loans on multifamily properties.)
Section 4022 also does not define a “financial hardship.” A prior version of section 4022 defined a “financial hardship” as an inability to meet basic living expenses for goods and services necessary for the borrower and his or her spouse and dependents. (The term also is not defined in section 4023 of the final version of the law.)
Other Servicer Requirements. Other than a borrower’s request for a forbearance and attestation to a financial hardship caused by COVID-19, a servicer may not require additional documentation to grant a forbearance. And, as noted above, during the forbearance period, 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, may accrue on the borrower’s account.
A prior version of the legislation required the servicer to pay or advance funds to make disbursements in a timely manner from any escrow account, and to maintain regular communication with the borrower, during the forbearance period. These express requirements are not included in the final version of section 4022. However, Regulation X under the Real Estate Settlement Procedures Act (RESPA) contains escrow account and borrower communication requirements for servicers.
Foreclosure and Eviction Moratorium. The CARES Act also provides that, except with respect to a vacant or abandoned property, a servicer of a federally backed mortgage loan may not initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for not less than the 60-day period beginning on March 18, 2020. Previously, Fannie Mae and Freddie Mac and, with regard to FHA loans, the U.S. Department of Housing and Urban Development, announced foreclosure and eviction moratoriums of at least the same 60-day period. Additionally, the VA previously issued guidance strongly encouraging mortgage servicers to observe a foreclosure and eviction moratorium for the same 60-day period.
Notification of Right to Request a Forbearance. A prior version of the legislation required that servicers notify borrowers of their right to request forbearance during the covered period. The notification requirement is not included in the final version of section 4022.Evaluation for Post Forbearance Relief. A prior version of the legislation required servicers, before the end of the forbearance period, to evaluate the ability of the borrower to return to making regular mortgage payments and then take specified loss mitigation steps. These requirements are not included in the final version of section 4022. However, Regulation X under RESPA contains specific loss mitigation obligations for servicers.
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