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COVID-19: Mortgage Forbearance (Residential Property)

COVID-19: Mortgage Forbearance (Residential Property)

The “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act” was signed into law by President Trump on March 27, 2020. Among the various provisions that provide US individuals with financial relief, one of the most important provisions discusses mandatory forbearance options made available to borrowers of a "Federally backed mortgage loan" (which is described in §4022 of the Act). These provisions apply specifically to a mortgage securing a property of not more than four (4) units. A separate Section of the Act applies to mortgages securing a property of five (5) units or more and is discussed in this blog post

Federally Backed Mortgage Loan

For purposes of the Act, a "Federally backed mortgage loan" includes "any loan which is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from 1 to 4 [units] that is—

(A) insured by the Federal Housing Administration under title II of the National Housing Act;

(B) insured under section 255 of the National Housing Act;

(C) guaranteed under section 184 or 184A of the Housing and Community Development Act of 1992 (12 U.S.C. 1715z–13a, 1715z–13b);

(D) guaranteed or insured by the Department of Veterans Affairs;

(E) guaranteed or insured by the Department of Agriculture;

(F) made by the Department of Agriculture; or

(G) purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association."

Most mortgages today fall within one of these categories. If you are unsure whether or not your mortgage is a "Federally backed mortgage loan", you should contact your mortgage servicer to find out. 

Qualifying for the Forbearance

During the covered period (which is a term that has not been defined by this Section of the Act), a borrower with a Federally backed mortgage loan experiencing a financial hardship (another term which has not been defined by this Section of the Act) due, directly or indirectly, to the COVID–19 emergency may request forbearance on the Federally backed mortgage loan, regardless of delinquency status, by—

(A) submitting a request to the borrower’s servicer; and

(B) affirming that the borrower is experiencing a financial hardship during the COVID–19 emergency.

Note that the terms "covered period" and "financial hardship", which were defined in earlier drafts of the Act, have not been defined in the final version of the Act that was executed by President Trump. In the earlier versions of the Act, the "covered period" was the period after which the Act becomes law and the sooner of December 31, 2020 or the termination date of the COVID-19 national emergency. In the earlier versions of the Act, "financial hardship" was defined as an inability to meet basic living expenses for goods and services necessary for the borrower and his or her spouse and dependents. 

Requirements for Mortgage Servicers

Upon receiving a request for forbearance from a borrower, the mortgage servicer shall with no additional documentation required other than the borrower’s attestation to a financial hardship caused by the COVID–19 emergency and with no fees, penalties, or interest charged to the borrower in connection with the forbearance, provide the forbearance for up to 180 days, which may be extended for an additional period of up to 180 days at the request of the borrower, provided that, the borrower’s request for an extension is made during the covered period, and, at the borrower’s request, either the initial or extended period of forbearance may be shortened.

Note that, since the "covered period" was not defined in the final version of the Act, it is not clear as to when the second request will need to be made in order to qualify for an additional 180-day forbearance. 

Summary

Borrowers of a "Federal backed mortgage loan" on a property that has between one (1) and four (4) units, regardless of whether the property is primary, secondary or investment property, will be eligible to request a 180-day forbearance if they are experiencing a financial hardship as a result of COVID-19. The mortgage services will be obligated to process the forbearance without requesting any additional documentation in support of the claim. Lastly, borrowers will likely be able to request an additional 180-day forbearance, assuming the second request is made during the covered period (a term which was not defined by the Act). Those that have been financially impacted by COVID-19 should contact their mortgage servicers directly and request additional information on financial options currently available to them.

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