Overview

President Trump today signed into law H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2 trillion relief measure. Title IV, the economic stabilization portion of the CARES Act, contains three sections which dramatically affect businesses in the consumer financial services space. These sections include a foreclosure moratorium on federally-related loans, right to request and receive forbearance on federally-related mortgage loans, protections from evictions, and credit reporting protections for consumers who perform loan forbearance agreements with creditors.

Sec. 4022. Foreclosure Moratorium and Consumer Right To Request Forbearance

Foreclosure Moratorium:

Servicers of federally-backed mortgage loans may not initiate any judicial or non-judicial foreclosure process, move for foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale between March 18, 2020 and May 17, 2020. This appears to be a blanket prohibition not specifically tied to hardship resulting from the coronavirus (“COVID-19”). The only exceptions to this prohibition are with respect to vacant or abandoned properties.

Forbearances:

Borrowers with a “Federally backed mortgage loan” experiencing financial hardship due to COVID-19 may request forbearance, regardless of delinquency status. To request a forbearance, the borrower must submit a request to his or her loan servicer and affirm that he or she is experiencing financial hardship during the COVID-19 emergency. No documentation other than the borrower’s attestation of financial hardship due to COVID-19 is required.

The borrower is entitled to a forbearance for up to 180 days, and this period shall be extended an additional period of 180 days at the request of the borrower. The borrower’s initial or extended forbearance period may be shortened at the borrower’s request. During the potential 360-day forbearance period, no fees, penalties, or interest beyond the amounts scheduled or calculated as if the borrower made timely contractual payments shall accrue on the borrower’s account.

Reciprocally, servicers may not collect any such fees, penalties, or interest during this forbearance period. The only caveats allowing servicers to collect fees, penalties, or interest are that any forbearance request must be made by the borrower and within the covered period.

Sec. 4024. Temporary Moratorium on Eviction Filings

This section applies to lessors of properties with a federally-backed mortgage or multifamily mortgage, properties participating in a covered housing program of the Violence Against Women Act, and properties participating in the rural housing voucher program. Notably, this section contains no requirement that a tenant’s nonpayment is due to COVID-19 hardship.

Lessors with these properties may not provide eviction notices or initiate legal actions to recover possession from tenants for nonpayment of rent, fees, or changes for 120 days after enactment of the CARES Act. Additionally, lessors must provide eviction notices at least 30 days in advance of the eviction date.

Sec. 4021. Credit Reporting During COVID-19

The CARES Act amends the Fair Credit Reporting Act by requiring businesses that are furnishing consumer credit information to consumer reporting agencies to give special treatment to accounts that are subject to deferrals or forbearance agreements triggered by the COVID-19 pandemic. At a very high level, a consumer who performs pursuant to a deferral, partial payment, or forbearance agreement – including missing one or more payments as agreed –  is entitled to have the account reported as “current.”

The details matter. The period covered by the special reporting requirement starts January 31, 2020 and ends 120 days from the later of the enactment of the CARES Act or the end of the national state of emergency. This means that any creditor or servicer who has entered into pandemic-related deferrals and forbearance agreements since January 31, 2020, appears to have an obligation to go back and change existing reporting in accordance with the requirement.

The furnisher is not required to report as “current” those accounts that were delinquent before the deferral or forbearance agreement; however, if the consumer cures a pre-existing delinquency during the deferral or forbearance period, then the creditor is required to report the account as “current.”

These updated reporting requirements do not apply to charged off accounts.

The requirement that an account be reported as “current” raises implementation questions.  Presumably, this requires a creditor to report a current account status and not to show a delinquency in the payment history for the months during which there is a deferral or forbearance agreement. However, the statutory language standing alone does not address whether the creditor should use several specialized codes available under the industry-standard Metro 2 format to show the existence of and nature of deferred payments. Nor does the statutory language address whether, during the time period of reporting an account as current, a date of first delinquency should not be reported. Furnishers will need to consult with the CRAs, the Consumer Data Industry Association, and their compliance counsels to decide on a strategy for reporting accounts.

Conclusion

This legislation joins individual states’ responses to the COVID-19 emergency’s effects on the mortgage industry. Those responses include:

  • California halted all evictions through May 31, 2020, but the order does not relieve a tenant from paying rent or prevent a landlord from recovering rent that this due.
  • Delaware has postponed all landlord and tenant proceedings until after May 1, 2020.
  • Indiana prohibited residential eviction proceedings or foreclosure actions during the state of emergency.
  • Kansas halted mortgage foreclosure efforts and eviction proceedings through May 1, 2020.
  • Kentucky has canceled all eviction proceedings until April 10, 2020.
  • Maryland has banned eviction during the state of emergency.
  • New York on March 19, 2020 suspended mortgage payments for 90 days of borrowers financially affected by COVID-19.
  • North Carolina stopped eviction and foreclosure hearings through April 15, 2020.