COVID-19: Federal CARES Act Stimulus Provides Relief for Federally Backed Residential and Multifamily Mortgage Loans | Practical Law

COVID-19: Federal CARES Act Stimulus Provides Relief for Federally Backed Residential and Multifamily Mortgage Loans | Practical Law

Congress passed the nearly $2 trillion stimulus package known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (PL 116-136). The CARES Act includes relief programs for residential and commercial multifamily mortgage borrowers with federally backed mortgages. Relief includes forbearance and foreclosure suspension.

COVID-19: Federal CARES Act Stimulus Provides Relief for Federally Backed Residential and Multifamily Mortgage Loans

by Practical Law Real Estate
Law stated as of 29 Jun 2020 • USA (National/Federal)
Congress passed the nearly $2 trillion stimulus package known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (PL 116-136). The CARES Act includes relief programs for residential and commercial multifamily mortgage borrowers with federally backed mortgages. Relief includes forbearance and foreclosure suspension.
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES ACT) (PL 116-136), which is the third major piece of legislation enacted in response to the COVID-19 pandemic in the US. Among other provisions, the CARES Act includes several provisions that provide relief to residential and commercial multifamily mortgage borrowers with federally backed mortgages.
The CARES Act provides:
  • Forbearance.
  • Foreclosure suspension.
  • Tenant protections.
For a continuously updated collection of resources addressing COVID-19, see Practical Law's Global Coronavirus Toolkit.

Background

The mortgage relief provided in the CARES Act applies to all federally backed mortgage loans and federally backed multifamily mortgage loans.
Federally backed mortgage loans are loans that are first priority or subordinate loans secured by one-to-four-family dwelling units (including condominium units or cooperative units) and either:
  • Insured by the Federal Housing Administration (FHA).
  • Insured under Section 255 of the National Housing Act (12 U.S.C. § 1715z-20).
  • Guaranteed under Section 184 or 184A of the Housing and Community Development Act of 1992 (12 U.S.C. §§ 1715z-13a, 1715z-13b).
  • Guaranteed or insured by the US Department of Veterans Affairs (VA).
  • Made, guaranteed or insured by the US Department of Agriculture.
  • Purchased or securitized by the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage Association (Fannie Mae).
(PL 116-136 § 4022(a)(2).)
Federally backed multifamily mortgage loans are loans that are:
  • Secured by a first or subordinate lien on residential property containing five or more dwelling units.
  • Purchase money or refinance proceeds.
  • Either:
    • made, in whole or in part, insured, guaranteed, supplemented, or assisted in any way (a) by any officer or agency of the Federal government; or (b) under or in connection with a housing or urban development program administered by HUD or a housing or related program administered by any other such officer or agency; or
    • purchased or securitized by Fannie Mae or Freddie Mac.
(PL 116-136 § 4023(f).)
For more information on federal, state, and private lending foreclosure and payment relief programs related to the COVID-19 pandemic, see Article, COVID-19: Residential Mortgage Foreclosure and Payment Relief Programs (Federal, State, and Select Private Lenders).

Forbearance for Single Family Loans

Borrowers with a federally backed mortgage loan who are facing a financial hardship due, directly or indirectly, to COVID-19 may request forbearance relief from the borrower's loan servicer. Relief is available even if the borrower is in default.
The borrower requests forbearance by submitting a request for relief to the loan servicer and affirming to the loan servicer that the borrower is experiencing a financial hardship due to COVID-19.
On receipt of a qualifying request, the servicer must:
  • Grant forbearance for up to 180 days.
  • Extend the forbearance for up to an additional 180 days.
  • Not charge any fees, penalties, or interest beyond the scheduled amounts due from the borrower.
(PL 113-136 § 4022(b)(1) to (3).)
The forbearance period (either initial or extended) may be shortened on the borrower's request.
The servicer cannot require any additional supporting documentation beyond the borrower's request and affirmation. (PL 116-136 § 4022(c)(1).)
Fannie Mae and Freddie Mac have clarified that payment is not due in full at the end of the forbearance period.

Forbearance for Multifamily Loans

Borrowers with a federally backed multifamily mortgage loan who are facing a financial hardship due, directly or indirectly, to COVID-19 may request forbearance relief from the borrower's loan servicer. The borrower must be current on the borrower's payments as of February 1, 2020.
The borrower requests forbearance by submitting a request for relief to the loan servicer and affirming to the loan servicer that the borrower is experiencing a financial hardship due to COVID-19.
On receipt of a qualifying request, the servicer must:
  • Grant forbearance for up to 30 days.
  • Extend the forbearance for up to five additional periods of 30 days each (180 days total) on request from the borrower provided the borrower requests the extension at least 15 days before the end of the then applicable forbearance period.
  • Once the forbearance period ends, the borrower may qualify for up to 24 months to repay the missed payments.
(PL 116-136 § 4023(b-c) and FHFA News Release 6-29-20.)
The forbearance period (either initial or extended) may be discontinued on the borrower's request at any time.

Foreclosure Suspension for Residential Loans

For a period of at least 60 days beginning on March 18, 2020 and ending on May 17, 2020, servicers of federally backed residential mortgage loans are prohibited from:
  • Commencing new foreclosures (judicial or non-judicial).
  • Pursing pending foreclosures (judicial and non-judicial).
(PL 116-136 § 4022(c)(2).)
The foreclosure suspension does not apply to vacant or abandoned property.

Tenant Protections

The CARES Act imposes eviction moratoriums on landlords who either:
  • Receive forbearance under a federally backed multifamily mortgage loan.
  • Are borrowers under federally backed mortgage loans or multifamily mortgage loans.
  • Participate in certain covered housing programs.
For more information on state and local eviction moratoriums, see Article, COVID-19: Commercial and Residential Tenant Eviction Moratoriums: Select State and Local Laws Chart.

During Multifamily Mortgage Forbearance Period

Under the CARES Act, a multifamily mortgage borrower who receives a forbearance may not:
  • Pursue an eviction pending when the borrower is granted forbearance or commence an eviction proceeding during the forbearance period solely for the tenant's nonpayment of rent or other charges.
  • Require a tenant to vacate a dwelling unit before the date that is 30 days after the date the borrower provides the tenant with a notice to vacate.
  • Issue a notice to vacate until after the forbearance period ends.
  • Charge any late fees, penalties, or other charges to a tenant for late payment of rent.
  • Require a tenant to repay any missed rental payments in a lump sum (the landlord must provide a flexible repayment plan).
(PL 116-136 § 4023(d), (e) and FHFA News Release 6-29-20.)

Covered Property

Other tenant protections in the CARES Act apply to tenants in "covered property." Covered property is defined as property that either:
  • Participates in covered housing programs (as defined in Section 41411(a) of the Violence Against Women Act of 1994 (34 U.S.C. § 12491(a)) or the rural housing voucher program under Section 542 of the Housing Act of 1949 (42 U.S.C. § 1490r)).
  • Is security for a federally backed mortgage loan or federally backed multifamily mortgage loan.
(PL 116-136 § 4024(a)(2).)
For the 120-day period commencing on March 27, 2020 and ending on July 25, 2020, all landlords of covered property are prohibited from:
  • Commencing an eviction action for nonpayment of rent or other fees or charges.
  • Charging the tenant with fees, penalties, or other charges for nonpayment of rent.
  • Issuing a notice to vacate until after the 120-day moratorium period ends.
(PL 116-136 § 4024(b).)
After the moratorium ends, the CARES Act prohibits a landlord from requiring a tenant in covered property from vacating the leased premises until 30 days after the date the landlord gave the tenant a notice to vacate (PL 116-136 § 4024(c)).

Practical Implications

Counsel for borrowers facing financial difficulties should apply for forbearance as soon as possible. Counsel should assist the borrowers in certifying the financial hardship. Documentation is not required so this should be a much simpler process than during the housing crisis of the early 2000s. Continue working with the borrower to determine if the borrower may need an extension or if they may desire to end the forbearance earlier. Confirm with the borrower that the forbearance is not forgiveness of the debt.