What you need to know about mortgage servicing in a coronavirus-New York


By Jonathon Meade, SVP of Operations, OwnersChoice Funding

The coronavirus impact has members worried about their ability to continue making their monthly mortgage payments and also about the negative downstream impacts of missing a payment. Both members currently experiencing financial hardships, and those worried about their future ability to make payments, are flooding mortgage company call centers with questions around available assistance options.

Mortgage servicers’ ability to manage these volumes are being hampered by members calling to request assistance when they do not currently have a need as are isolation measures being deployed by servicers to protect their employees from being infected with the virus.

There is a consistent theme developing and it is coming from all levels of government, including investors such as Fannie Mae and Freddie Mac. The message is that until things stabilize, the mortgage industry needs to reduce or eliminate any and all negative impacts to members that are experiencing financial hardship as a result of the virus.

Our credit union clients and the overall mortgage industry has really stepped up to provide temporary relief for our members in need, but our ability to provide long-term sustainable hardship assistance is only possible once income has stabilized for each member.

For financial institutions looking to develop or enhance their own hardship assistance programs, I would recommend considering components deployed by agencies at the federal level, such as the federal Housing Finance Agency, the regulator for both Fannie Mae and Freddie Mac.

There is safety in numbers and the regulators seem more comfortable when steps being taken to mitigate risk are standard and supported at the national level.

There are subtle differences between the guidance provided by New York State Department of Financial Services and the requirements from the FHFA, but the following are the general expectations around the proper handling of members in this time of need.

Late fees: DFS is urging for 90 days waiving of late payment fees within their guidance. This is probably best interpreted to mean the suppression of late fee assessment for 90 days. Both Fannie Mae and Freddie Mac are requiring their servicers to suppress late fees only for a member approved for a hardship assistance option.

Credit reporting: DFS is urging for 90 days not to report late payments to credit rating agencies. Similar to late fees, both Fannie Mae and Freddie Mac only require the suppression of credit reporting for the duration of the approved hardship assistance plan.

Online payment fees: DFS is urging servicers to waive the fee associated with online mortgage payments for 90 days. Gov. Andrew Cuomo’s newly issued Executive Order 202.9 is now prohibiting several transactional fees for licensed and regulated financial entities. The order did not call out the online payment fee referenced in the DFS guidance, but it’s clear that any ancillary fees charged to members is being discouraged. Neither Fannie Mae nor Freddie Mac speak to online payment fees within their COVID-19 requirements, but the mortgage industry has typically adopted no fees for online mortgage payments. Payment fees are typically limited to when call center staff are required to assist a member with a payment.

Forbearance: This is a hot topic right now that has led to some confusion due to a lack of understanding and differing word choices used in the media and political circles. Executive Order 202.9, released just days after the DFS published its guidance around COVID-19-hardship assistance, changed the offering of a forbearance from discretionary to a required action for any licensed or regulated entity in New York. The order “deems it an unsafe and unsound business practice for any state chartered bank to not grant a 90-day forbearance to any person or business who has a financial hardship as a result of the COVID-19 pandemic.”

The forbearance option has been a long available workout program for both Fannie Mae and Freddie Mac, but they updated it to be more flexible and with reduced requirements as a result of COVID-19.

There is much concern around members placed on a forbearance and what will be done with the arrearage that is created as a result of forbearing payments. The general accepted thought is that when things stabilize with the member, that if full reinstatement or a short-term repayment plan is not an option, then a modification would be the best option.

A member’s post-forbearance capacity is key to determining affordability, but the standard modification offered is the capitalization of the past-due interest and then re-amortization over the remaining original loan term. A term extension and permanent or temporary interest-rate reduction can also be considered if needed for payment affordability. There may be members that will not have the ability to maintain ownership, no matter what concessions are considered, in a post-coronavirus and post-forbearance world.

Additionally, DFS issued guidance to postpone foreclosures and evictions for 90 days. Fannie Mae and Freddie Mac are requiring the suspension of foreclosure sales for 60 days on properties that are occupied and not vacant or abandoned. The guidance from DFS and the requirements from both Fannie Mae and Freddie Mac are noteworthy, but at the end of the day, the New York State Office of Court Administration circulated a memo suspending all nonessential court functions until further notice. Both eviction and foreclosure proceedings are considered nonessential.

It’s ultimately up to each institution to determine the difference between what is being strongly recommended from what is being required. Credit unions may have to make difficult choices that balance the needs of their members with safety and soundness practices and the reputational harm that could be caused if the public perceives your organization is not acting in good faith during a time of great struggle.


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