Federal and State Programs for Borrowers, Including CARES Act
California is experiencing a massive uptick in unemployment claims because of the ongoing COVID-19 crisis, with more than 1 million new applications for unemployment benefits submitted within the roughly 2-week period between March 13 and March 25. Due to job loss or temporarily reduced income, many homeowners are expected to face challenges paying their mortgages in the coming months. For landlords in particular, the current moratorium on evictions and potential rent strikes could result in delayed rent payments from tenants, which in turn will inevitably cause some landlords to miss mortgage payments.
To preempt a potential wave of COVID-19-related foreclosures, Gov. Gavin Newsom announced a proposal on March 25 to help provide financial relief to California homeowners and consumers. The proposal establishes a 90-day grace period to make mortgage payments for those who are impacted by the coronavirus crisis. The proposal also provides protections for borrowers in the form of a 60-day moratorium on initiating foreclosure sales and evictions effective that same day. So far, CitiGroup, JP Morgan Chase, U.S. Bank, Wells Fargo and nearly 200 other financial institutions have agreed to support the program. These lenders will be implementing a streamlined process for borrowers to request a temporary forbearance of mortgage payments, subject to the borrower providing documentation of a COVID-19-related financial hardship. In short, the program will provide a means for borrowers to defer mortgage payments for 90 days, with the deferred payments either being shifted to the end of an extended term or incorporated into modified payments throughout the current payment schedule.
Critically, the program will not negatively impact credit scores for borrowers taking advantage of the program because participating lenders will not report the deferred or late payments to credit reporting agencies. Participating lenders have additionally agreed to waive mortgage-related late fees during the 90-day period, among various other fees that might be incurred due to the coronavirus crisis. The program does not specifically provide for relief beyond the 90-day period, so borrowers should carefully consider the most strategic timing for utilizing this resource based on their unique circumstances. That being said, participating lenders have committed to working with borrowers to provide additional relief after the 90-day grace period, as feasible, upon a showing of continued COVID-19-related financial hardship. Therefore, it is important that borrowers maintain an open line of communication with their lenders to determine what relief is available long-term. More information regarding the mortgage relief program, as well as other COVID-19 resources, can be found on the State’s COVID-19 Financial Help page.
We note that state programs are likely to expand in the coming weeks as the federal government also implements new measures to stabilize the housing market and economy. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed on March 27, provides additional relief for homeowners with government-guaranteed mortgages and might serve as an indicator of future protections at a state level if the current relief measures are ultimately insufficient to protect homeowners. Under the CARES Act, homeowners with mortgages backed by the Federal Housing Authority, United States Department of Agriculture, Department of Veterans Affairs, Department of Housing and Urban Development, Fannie Mae or Freddie Mac are eligible for loan forbearance for up to 1 year without fees, penalties or additional interest. The CARES Act also includes restrictions on reporting certain mortgage delinquencies to credit bureaus and limitations on initiating foreclosures and certain evictions (e.g., where the landlord has been granted a forbearance pursuant to the CARES Act). State policies could potentially track these federal protections moving forward given that states will receive significant funding through the CARES Act, some of which could be allocated to extended forbearance programs or mortgage forgiveness. Borrowers should therefore closely monitor federal guidelines and legislation to determine potential impacts on California-specific programs.
Borrowers are encouraged to speak with their lenders as soon as possible to determine their lender’s specific relief programs and avoid delays that will likely result from the anticipated high volume of relief requests.
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