The March 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contains a number of provisions that help borrowers with federally backed mortgage loans. Among these are forbearance protections for borrowers with single-family loans and multifamily loans. However, only one of the forbearance provisions has a clearly defined period when the rights are available. As detailed below, the various federal agencies are taking a piecemeal approach to forbearances, resulting in differing deadlines for different types of federally backed mortgages and lots of confusion for the servicers who have to implement the forbearance programs.
Multifamily Forbearances: Section 4023 of the CARES Act allows borrowers with federally backed multifamily mortgage loans to seek forbearance because of a COVID-19 related financial hardship for 30 days, with the right to extend the forbearance period for two additional periods of 30 days each. Section 4023's "covered period" is expressly defined and is the period beginning on March 27, 2020, and ending on the sooner of December 31, 2020, or the termination of the national emergency concerning the COVID-19 outbreak declared by the president under the National Emergencies Act (which has not yet occurred). Despite the apparent December 31, 2020 deadline, FHFA announced on December 23, 2020, that Fannie Mae and Freddie Mac will "continue to offer COVID-19 forbearance to qualifying multifamily property owners through March 31, 2021."
Single Family Forbearances: Section 4022 of the CARES Act allows borrowers with federally backed single family mortgage loans to seek forbearance for up to 180 days, and such forbearance "shall be extended for an additional period of up to 180 days at the request of the borrower."
Although Section 4022 says that borrowers can request forbearances during the "covered period," that term is not defined. In a prior draft 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 (i.e., the same definition of "covered period" set forth in section 4023 for multifamily loans).
Most in the industry expected this gap in the CARES Act to be cleared up through amendment or express guidance from the various institutions overseeing federally backed mortgage loans. However, nine months after the legislation was enacted, the deadline to request forbearances remains unclear and is certainly not uniformly imposed. As detailed below, different federal agencies have set different guidance (or given none at all), even though all of them fall under the broad umbrella of "federally-backed" mortgage loans:
- Fannie Mae & Freddie Mac: The GSEs have not issued any express guidance on when the window of time to request an initial forbearance ends. Fannie Mae's Lender Letter LL-2020-02, which has been updated many times since March 18, 2020, states only that the forbearance procedures are "effective immediately and are effective until Fannie Mae provides further notice, unless otherwise stated." Freddie Mac's similar Bulletin 2020-4 says that the "forbearance plan.guidance announced in this Bulletin is effective immediately. Freddie Mac will continue to monitor the situation and may revise or revoke this temporary guidance at any time, as appropriate." Therefore, it is currently unknown how long borrowers will have a right to request forbearances for GSE-backed mortgage loans.
- The Department of Veterans Affairs' (VA): The VA's April 8, 2020 Circular 26-20-12 provides that eligible borrowers may request forbearances for 180 days, plus an additional 180 days. That circular is rescinded as of April 1, 2021, leading many in the industry to conclude that the VA's window for forbearance requests is open until April 1, 2021. However, the CFPB's website advises consumers that the VA's deadline is February 28, 2021.
- The Federal Housing Administration (FHA): On December 21, 2020, FHA announced that it was extending the deadline for single family borrowers with FHA-insured mortgages to request an initial COVID-19 forbearance from their mortgage servicer until February 28, 2021. This unambiguous deadline is unique among the federal agencies at this time.
- The U.S. Department of Agriculture (USDA) Rural Development: The USDA recently issued a press release extending its foreclosure and eviction moratorium through February 28, 2021. That same announcement states that "Lenders of USDA guaranteed home loans should continue to provide borrowers impacted by the pandemic with relief in accordance with the CARES Act by offering forbearance of the loan payment for up to 180 days. The initial forbearance period may then be extended up to an additional 180 days at the borrower's request," but no deadline for making a forbearance request was given. However, the CFPB's website advises consumers that the USDA's deadline is February 28, 2021.
The question of the "covered period" for forbearances applies to not only initial forbearances but to extensions of forbearance. The CARES Act provides that an extension of the initial 180-day forbearance may be provided at the request of the borrower "provided that, the borrower's request for an extension is made during the covered period." Therefore, servicers and borrowers must also be mindful of when a consumer's right to request an extension of their forbearance expires. Using FHA's express deadline as an example, it is clear that a borrower must request their initial forbearance by February 28, 2021. However, no deadline for requesting an extension was provided. If a borrower received an initial forbearance on January 1 for 180 days will they still have the right to extend that forbearance for another 180 days when June 30, 2021, comes around? Or must they request the 180-day extension by February 28 or the then-existing initial forbearance deadline?
Unfortunately, we see risk with any termination of forbearance rights (be it initial or extension) unless and until the CARES Act itself has been amended. The drafting error in Section 4022 means there is arguably no actual end date to the "covered period" for single-family forbearances, and agency guidance does not legally trump the terms of the CARES Act itself. While such uncertainty looms in 2021, servicers can take some comfort in the fact that several courts have found that there is no private cause of action under the CARES Act, at least in the Paycheck Protection Program context.
Foreclosure and Eviction Moratoriums Are Clear But Still Differ Among Agencies
On December 2, 2020, the FHFA issued a press release announcing that both Fannie Mae and Freddie Mac will extend the moratoriums on single-family foreclosures and real estate owned (REO) evictions until at least January 31, 2021. As with the existing moratorium, the foreclosure moratorium applies to enterprise-backed, single-family mortgages only, and the REO eviction moratorium applies to properties that have been acquired by an enterprise through foreclosure or deed-in-lieu of foreclosure transactions. The current moratoriums were set to expire on December 31, 2020.
This is the FHFA's fourth extension of its foreclosure and eviction moratoriums. Unlike the other extensions, however, this extension is only for one additional month beyond the existing moratorium, leaving some to wonder whether the FHFA intends to roll out any future moratorium extensions on basically a month-to-month basis. Of note, it could be very challenging for mortgage servicers to operationalize moratorium extensions on a month-to-month basis, as these moratoriums impact a lot of different mortgage servicing processes and a lot of preparation is necessary to appropriately handle the moratorium expiration. By way of example, some mortgage servicers may want to provide impacted borrowers with notification of the moratorium expiration. However, without significant lead time and knowledge about any impending moratorium expiration, servicers may struggle to timely craft and send the notification to their borrowers.
Finally, we note that FHA, VA, and the USDA have a different deadline of February 28, 2021, for their foreclosure and eviction moratoriums.
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