The COVID-19 crisis has resulted in a state and federal response to provide immediate assistance to those individuals that have experienced financial hardship from the global pandemic.

In New York State, Governor Cuomo issued an Executive Order (EO No. 202.9) on March 21, 2020 that modified the Banking Law to require financial institutions to grant a forbearance to any person or business who has “a financial hardship as a result of the COVID-19 pandemic for a period of ninety days.”  The New York State Superintendent of Financial Services was directed to promulgate emergency regulations to implement the Executive Order.  EO No. 202.9 is effective through April 20, 2020.

New York State Regulations for Banking, Mortgage Servicers

In accordance with the EO No. 202.9, the regulations were issued, on March 24, 2020 that requires New York state regulated banking organizations and New York state regulated mortgage servicers subject to the authority of DFS (“New York Banks”) to make forbearance applications available to any individual New York resident that demonstrates financial hardship as a result of COVID-19.  The regulation applies only to residential mortgages on property located in New York state.  The forbearance period to be granted is up to 90-days.  The forbearance application period expires on April 20, 2020 unless otherwise extended.

Notably, the regulation does not apply to any mortgage loan “made, insured, or securitized by any agency or instrumentality of the United States, any Government Sponsored Enterprise, or a Federal Home Loan Bank, or any lender, issuer, servicer or trustee of such obligations, including servicers for the Government National Mortgage Association.”

In addition to freely granting forbearances, New York Banks are required to eliminate: (i) ATM fees for ATMs owned or operated by the New York Banks; (ii) overdraft fees; and (iii) credit card late payment fees, for any individual that demonstrates financial hardship from COVID-19.  New York Banks are encouraged to offer additional financial relief beyond these specific items.

New York Banks are required to communicate the availability of this financial assistance to their customers, on or before April 7, 2020, by publishing information on websites, email, mass mail or otherwise broadly publicize how to apply for COVID-19 relief.

The regulations also require regulated banking organizations to set out how to receive the COVID-19 relief which is to be clear and easily understandable.  Any individual that submits an application to a New York Bank that does not contain necessary information to evaluate the application shall be promptly contacted and provided an opportunity to resubmit the application with the missing information.

Any application for COVID-19 relief must be processed by the regulated institution within 10 business days that all information is received.  Policies for processing expedited requests must be established if the customer demonstrates exigent circumstances.  The decision on the application must be provided in writing and shall include any further instructions on how to secure the relief or the reasons for any denial.  Denials shall include a statement that the applicant may file a complaint with the New York State Department of Financial Services at 1-800-342-3736 or if the applicant believes the application was wrongly denied.

In evaluating all of the requests, the regulated institution must ensure that the actions taken are not unsafe or unsound business practices.  In reviewing any challenges to policies or procedures, the Department of Financial Services will consider whether the policies were adequate, whether the review was thorough, and whether the payment history, creditworthiness and financial resources of the borrower would prohibit the grant of a forbearance.

The Department’s examiners are directed to not criticize the reasonable and prudent efforts any New York Bank employs to grant a forbearance that is consistent with safe and sound policies.

Regulated institutions are required to maintain copies of all files relating to the implementation of the Regulation for 7 years.

Federal CARES Act Provides Forbearance to Borrowers

While these NYS Regulations do not apply to any mortgage loan “made, insured, or securitized by any agency or instrumentality of the United States, any Government Sponsored Enterprise, or a Federal Home Loan Bank, or any lender, issuer, servicer or trustee of such obligations, including servicers for the Government National Mortgage Association”, the Federal CARES Act that was enacted on March 25, 2020 governs Federally backed mortgage loans.

Section 4022 of the CARES Act (“Foreclosure Moratorium and Consumer Right to Request Forbearance”) requires servicers to provide a forbearance to a borrower for up to 180 days, which may be extended for an additional period, up to 180 days.  The forbearance shall be granted based on no additional documentation other than a borrower’s attestation to a financial hardship caused by the COVID-19 emergency.  Additionally, no fees, penalties or default interest shall be charged in connection with the forbearance.  (Note: The contract rate of interest shall continue to accrue.)

The CARES Act also provides that “[e]xcept with respect to a vacant or abandoned property, a servicer of a Federally backed mortgage loan may not initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for not less than the 60-day period beginning on March 18, 2020.”

Harris Beach’s financial restructuring, bankruptcy and creditors’ rights team welcomes the opportunity to discuss the workout alternatives that are available to assist and support you and your customers during this time.

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as New Haven, Connecticut and Newark, New Jersey.