Last week, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed by Congress and signed into law by President Trump. Several portions of the CARES Act will directly impact financial institutions that furnish consumer information to credit reporting agencies under the Fair Credit Reporting Act (FCRA) or service federally-backed mortgages.
(1) Section 4021: Credit Protection During COVID-19
The CARES Act amends the FCRA’s duties on furnishers during the COVID-19 crisis in a significant way. If a furnisher makes an “accommodation” with respect to one or more payments on a credit obligation or account of a consumer, and the consumer makes the payments or is not required to make one or more payments pursuant to the accommodation, then the furnisher must report such credit obligation or account as “current” during the period of the accommodation. Importantly, this means that furnishers should not report an affected account using “forbearance” coding during the accommodation period and, instead, should report that account as “current.”
If the account was delinquent prior to the accommodation, then the furnisher must report the account as the status reported prior to the accommodation until the account is brought current. This does not apply with respect to a credit obligation or account of a consumer that has been charged-off.
An “accommodation” is defined as an agreement to defer one or more payments, make a partial payment, forbear any delinquent amounts, modify a loan or contract, or any other assistance or relief granted to a consumer who is affected by COVID-19 during the “covered period.” And, according to Section 4021(F)(i)(II), the covered period is the period beginning on January 31, 2020, and ending on the latter of 120 days after the enactment date (which would be July 25, 2020) or 120 days after the COVID-19 national emergency is terminated.
(2) Section 4022: Foreclosure Moratorium and Consumer Right to Request Forbearance
Under this section of the CARES Act, a borrower with a federally-backed mortgage loan experiencing a financial hardship due to COVID-19 may request forbearance on the loan, regardless of delinquency status, by submitting a request to the borrower’s servicer and affirming that the borrower is experiencing a financial hardship during the COVID-19 pandemic. Upon receiving such request, the servicer shall grant the borrower a forbearance for up to 180 days. If the borrower asks for an extension at the end of this time period, the servicer shall provide the borrower an additional period of up to 180 days. During this 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) shall accrue on the borrower’s account.
This section places additional limitations on servicers of federally-backed mortgages: namely, that servicers may not move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for a 60-day period beginning March 18, 2020 (until May 17, 2020). However, there is a carve-out that exempts vacant or abandoned properties from these protections.
(3) Section 4023: Forbearance of Residential Mortgage Loan Payments for Multifamily Properties with Federally Backed Loans
This section of the CARES Act allows a multifamily borrower with a federally-backed multifamily mortgage loan who is experiencing a financial hardship due to COVID-19 to request a forbearance if the borrower was current on its payments as of February 1, 2020. Upon the borrower’s submission of an oral or written request for forbearance to its loan servicer, the servicer must provide the borrower with up to 30 days of forbearance. Additionally, the servicer must extend the forbearance up to two additional 30-day periods, provided that the borrower’s request for an extension is made during the covered period and at least 15 days prior to the end of the initial 30 day forbearance period. Essentially, a servicer may be required to provide a borrower with a 90-day forbearance period if requested by the borrower.
Borrowers receiving forbearance may not evict or charge late fees or other penalties to tenants for the duration of the forbearance period. However, it is worth noting that a multifamily borrower does have the option and right to discontinue the forbearance at any time.
The applicable mortgages include loans associated with real property designed for the occupancy of 5 or more families that are purchased, insured, guaranteed or assisted by Fannie Mae, Freddie Mac, or the HUD, among others. The authority provided under this section terminates at the earlier of December 31, 2020, or the date at which the COVID-19 national emergency is terminated.
(4) Section 4024: Temporary Moratorium on Eviction Filings
The CARES Act also codifies the temporary moratorium on eviction filings for a 120-day period beginning on the date of the enactment of the Act (March 27, 2020), regardless of whether the lessor is the subject of any forbearance granted under the Act. The Act provides, in pertinent part, that “the lessor of a covered dwelling may not “make, or cause to be made, any filing with the court of jurisdiction to initiate a legal action to recover possession of the covered dwelling from the tenant for nonpayment of rent or other fees or charges” and may not charge fees, penalties, or other charges to the tenant related to such nonpayment of rent.
“Covered dwelling” is defined broadly to include a dwelling that is on or in a “covered property” and occupied by a tenant (i) pursuant to a residential lease; or (2) without a lease or with a lease terminable under state law. “Covered property” is then defined to include, among others, properties that have a federally backed mortgage loan or federally backed multi-family mortgage loan.
Our team will continue to share the latest developments and provide insights on the spread of coronavirus and its impact across sectors, including the financial services sector.