UPDATE: Senate Bills S.8243-C and S.8428-C—delivered to Governor Cuomo on June 5, 2020—amend New York Banking Law by adding § 9-x which requires that New York regulated institutions grant a forbearance on residential mortgage payments to qualified mortgagors who, during the “covered period,” demonstrate financial hardship as a result of COVID-19 and are in arrears, in a trial period plan, or have applied for loss mitigation. The forbearance period will run for 180 days, with an option to extend the period for up to an additional 180 days, provided that the mortgagor demonstrates continued financial hardship.
 

 

The “covered period” runs from March 7, 2020 and continues for as long as the restrictions in Executive Orders 202.3 et. seq. continue to apply. Accordingly, the forbearance period may be backdated to March 7, 2020. It is of note that Senate Bill S.8243C neither affects nor applies to any mortgage loans made, insured, purchased or securitized by a United States agency or instrumentality, a government sponsored enterprise, a federal home loan bank, or a corporate state governmental agency constituted as a political subdivision or public benefit corporation.

Introduction

The New York State Department of Financial Services (known as DFS) on Tuesday (March 24) issued emergency regulations for New York residents with residential mortgage loans on property in New York who can demonstrate financial hardship as a result of Covid-19. In general, the regulation contemplates two different types of relief – mortgage payment relief on residential mortgage loans and relief from certain bank fees.

The regulations are effective immediately, but they are very narrow in their applicability. Nothing in the regulation prohibits lenders from offering forbearances and other accommodations to borrowers who do not qualify under the regulations, so long as they are prudent and in accord with safe and sound operations. Although not required, such additional accommodations are encouraged by state and federal regulators. This is a rapidly changing field of play, and this memo may be obsolete in a matter of days.

The regulation applies only to New York regulated banking organizations and New York regulated mortgage servicers. This memo focuses on banks and other lenders, rather than servicers, but most of the same requirements apply to servicers.

“Banking organizations” include, among others not relevant, banks, savings banks, savings and loans, and credit unions, but only when they are chartered under New York Law. The regulation does not apply to national banks, federal savings banks, and exempt non-bank mortgage lenders, such as insurance companies. Therefore, it does not apply to any bank with the word “National” in its name or the initials N.A. at the end of its name. This means that Citibank, Wells Fargo, Chase, and a host of other lenders are not covered.

Mortgage Payment Relief

Applications for payment relief on residential mortgage loans on property located in New York must be made widely available to any individual who (a) resides in New York, and (b) demonstrates financial hardship as a result of the Covid 19 pandemic. “Subject to the safety and soundness requirements” of the lender, the lender must grant forbearance for a period of 90 days to any such individual.

The rule does not apply to loans made, insured, or securitized by a federal instrumentality, a government-sponsored enterprise, or a Federal Home Loan Bank. This means that FHA loans, VA loans, and loans sold to Fannie Mae, Freddie Mac, and a variety of other Federal instrumentalities or government-sponsored enterprises will not be covered by the rule. Whether any specific loan is covered by this exception depends on the details of the specific loan, so you will usually have to ask your loan servicer unless you know you have a VA or FHA loan.

The term residential mortgage is not defined in the regulation. There are a number of definitions of similar terms elsewhere in DFS regulations. We believe it is reasonable to use those definitions as a guide. In general, we believe that the term should mean a loan to a consumer for personal, family, or household purposes secured by a mortgage on a 1 to 4 family dwelling. Here are some permutations with our best-informed guess as to whether the loan type is covered. Nothing prohibits a lender from granting a prudent forbearance on a loan that gets a NO, but your lender is not required to do so under the regulations:
 

 
The big category, of course, is purely commercial mortgage loans on commercial property. They are not covered. The regulation states, “this regulation does not apply to any commercial mortgage or any other loan not described herein.” Therefore, not only does it not apply to commercial mortgage loans, but it also does not apply to automobile loans, student loans, or other loans to consumers or businesses.

Gamesmanship, making it difficult for consumers to apply for residential mortgage forbearance, is prohibited. The regulation specifically requires the following:

1. The criteria for individuals to qualify for relief must be clear, easy to understand, and reasonably tailored to the institution’s needs to collect information to decide whether to provide relief.
2. Banks must promptly communicate with an applicant to request missing information and describe how the missing information can be provided. If a borrower makes an incomplete submission and the bank asks for more information, the borrower should provide it as soon as possible.
3. Banks have 10 business days after receiving all required information to process the application.
4. If you have an extreme emergency greater than everyone else’s emergency (UNLIKELY), the Banks must have expedited procedures for individuals who require expedited processing.
5. Decisions on applications must be communicated in writing and, if the application is granted, the notification must describe what the applicant must do in order to obtain the relief.
6. If the application is denied, the reason for the denial must be provided. The borrower may file a complaint with DFS if he or she believes that the application was wrongly denied.

Relief from Certain Fees and Charges
 
The other component of the relief provided by the regulation is the elimination of specified service charges and fees to individuals who can demonstrate financial hardship from the pandemic, again subject to the safety and soundness requirements of the bank. The three items that are required to be eliminated are fees for using an ATM that is owned or operated by the bank; overdraft fees; and credit card late payment fees. In contrast to the residential mortgage relief program, which requires forbearances but does not specify what “forbearance” means, or whether a partial forbearance is permitted, the regulation with respect to service charges and fees expressly provides for “eliminating” those charges. Furthermore, while the mortgage relief program is limited to individuals who reside in New York, there is no New York resident requirement for the elimination of ATM, overdraft, and late payment fees.

If you go to a bank (the “host” bank) that owns an ATM that is on the same network as your own bank and you attempt to use your ATM card from your bank to withdraw funds, the host bank may not charge an ATM fee. However, your bank, if not the host bank, may charge you a fee for using the host bank’s ATM. The only thing that is prohibited is that the host bank may not charge you any fee.

The regulation also requires the elimination of overdraft fees. However, it does not require that your bank allow overdrafts and it does not prohibit interest on overdrafts. The bank has the right, unless you have a special agreement with your bank to the contrary, to simply bounce the check that creates the overdraft. Whether your bank may charge you interest (which is different from a fee) on an overdraft depends on your agreement with your bank. However, if your agreement only permits your bank to charge an overdraft fee but not interest, then your bank must eliminate that fee but cannot, at the same time, switch to charging interest without your consent. Remember that the bank can normally refuse to pay an item that causes an overdraft, so be careful and don’t deliberately (or accidentally) overdraw your account on the assumption that it will cost you nothing.

Banks are also required to eliminate credit card late payment fees. This does not require that banks waive interest, only the late fee. Since most credit cards are issued by national banks for historical usury reasons, it is unlikely that this rule will apply to your credit card.

Banks are encouraged to provide other types of relief, consistent with safe and sound banking practices. The FDIC has also indicated that banks providing pandemic financial hardship relief will be looked upon favorably in their next Community Reinvestment Act examination because they have acted to meet community credit needs. The FDIC “encourages financial institutions to work with all borrowers, especially borrowers from industry sectors particularly vulnerable to the volatility in the current economic climate.”