Covid 19 – Mortgage Forbearance

On March 22, the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and State Banking Regulators (together, the Agencies) issued an Interagency Statement on Loan Modifications and Reporting by Financial Institutions Working with Customers Affected by the Coronavirus (otherwise known as COVID-19) encouraging financial institutions to work prudently with borrowers who are or may be unable to meet their payment obligations because of the effect of COVID-19 (see Interagency Statement: https://www.fdic.gov/news/news/press/2020/pr20038a.pdf ).

Significantly, the Interagency Statement, assures financial institutions that short-term (e.g., 6 month) loan modifications (including payment deferrals, fee waivers, extensions of repayment terms, etc.) made on a good faith basis consistent with “safe and sound” practices will not be criticized by the Agencies, and clarified that such loan modifications extended to borrowers who were current prior to any relief will not be considered Troubled Debt Restructurings (TDRs), consistent with Financial Accounting Standards Board (FASB) ASC 310-40. TDRs translate into increased loan loss allowance coverage and, depending on severity and regulatory capital requirements for a particular financial institution, reduced loan activity, something all parties, lenders, originators and borrowers alike, were clearly seeking to avoid. Further, the Agencies indicated that their examiners would not automatically adversely risk rate credits that are affected by COVID-19, even those that are considered TDRs. The FRB, FDIC, and OCC also noted that prudently underwritten one-to-four family residential mortgages that are not past due or carried in a nonaccrual status will likewise not be considered restructured or modified under risk-based capital rules.

The Interagency Statement also provides guidance that loans not otherwise past due that are deferred due to COVID-19 are not reportable as past due and provides instruction on non-accrual status, charge-offs, and eligibility of modified loans as collateral at the FRB’s discount window (thereby encouraging financial institutions to use the discount window to continue lending).

In addition, on March 23, the Federal Housing Finance Agency (FHFA), in an attempt to extend relief to renters in addition to residential property owners, announced that Fannie Mae and Freddie Mac (the Enterprises) will offer mortgage forbearances to multifamily property owners with performing mortgages negatively affected by the coronavirus on the condition that for the duration of the forbearance they suspend all evictions for renters unable to pay rent due to the impact of the coronavirus (see FHFA announcement: https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Moves-to-Provide-Eviction-Suspension-Relief-for-Renters-in-Multifamily-Properties.aspx ). This follows the announcement last week by the FHFA that the Enterprises had been directed to suspend mortgage foreclosures and evictions on homeowners with a single family mortgage for at least 60 days due to the coronavirus national emergency (see FHFA announcement: https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Suspends-Foreclosures-and-Evictions-for-Enterprise-Backed-Mortgages.aspx ).

As local, state and national governments and regulators issue orders and guidance concerning COVID-19 on daily basis, DarrowEverett’s attorneys are closely monitoring events to make sure we have the most up-to-date, current information available to advise our clients. We are here and ready to help you succeed through these challenging times.