NY’s 90-day Mortgage Waiver Has Big Limitations

Amid the coronavirus crisis, Governor Andrew Cuomo signed an executive order to compel state-regulated financial institutions to waive mortgage payments for 90 days but the executive order does not apply to all mortgage loans. 

The two-part order, known as Executive Order 202.9 and issued on March 21, gave the state Department of Financial Services (DFS) power to require state-regulated financial entities to provide forbearance of payments towards a mortgage for any person or entity facing financial difficulties due to the COVID-19 pandemic. The mortgage relief is directed toward homeowners and does not apply to commercial loans secured by a property. The second part gave DFS the authority to restrict or modify automated teller machines (ATMs), overdraft fees and credit card late fees in light of the crisis.

On March 24, DFS released some guidance on the order and a press release that read, “the emergency regulation is not applicable to and does not affect any mortgage loans made, insured, or securitized by any agency or instrumentality of the United States, any Government Sponsored Enterprise, or a Federal Home Loan Bank, or the rights and obligations of any lender, issuer, servicer or trustee of such obligations, including servicers for the Government National Mortgage Association.”

According to DFS, many financial institutions are state-chartered and the agency has some regulatory authority over financial institutions that are not state-chartered or licensed. Institutions beyond the purview of DFS regulations are overseen by the federal government.

A little over a week ago, the White House announced foreclosures would be suspended for mortgages backed by Fannie Mae and/or Freddie Mac or Federal Housing Administration (FHA) mortgages on single-family homes. On March 18,  federal regulators announced those government-sponsored financial institutions would allow deferral of mortgage payments for up to a one year for those households that can demonstrate hardship due to the coronavirus epidemic.

As the crisis evolves, however, it’s not clear that federal players will be as aggressive in restraining the creation of delinquent mortgages as New York’s economic situation warrants.

State banks, federal banks and servicers

Nonprofit groups such as Legal Services NYC are concerned there will not be enough support for the inevitable impact on homeowners who have mortgages and face financial strain during the COVID-19 pandemic

According to Legal Services NYC director of foreclosure prevention Jacob Inwald, there are several factors affecting which agencies regulate a particular mortgage. The vast majority of mortgages created by banks are sold into Wall Street investment vehicles, known as mortgage securitization trusts, or to other players in a secondary market for mortgage loans, such as the federal government-sponsored entities such as Fannie Mae and Freddie Mac. Those loans cover a large portion of the mortgage market. These investor entities, who own the loans, are not in the business of administering the loans known as mortgage servicing. Rather, mortgage servicers contract with investor entities to handle the billing, collection of payments and transmission of payments back to the investors. 

According to the DFS 2018 annual report, the state agency supervises and regulates the activities of an estimated 1,500 banking institutions, including 122 state-chartered banks, 80 foreign branches, 10 foreign agencies, 15 credit unions, 13 credit rating agencies, nearly 400 licensed financial services companies and over 9,600 mortgage loan originators and servicers. 

According to Inwald, many of those mortgage servicers are affiliates of national banks, and beyond the reach of New York state regulators, but others are non-bank servicers required to be registered with the state Department of Financial Services and subject to their oversight. Those mortgage servicers may be bound by pooling and service agreements, whereby large quantities of mortgages were bundled together to be sold as investments on Wall Street, which sometimes include restrictions on the servicers’ ability to modify loans for distressed borrowers. 

Banks, servicers decide what ‘hardship’ is

The skepticism about the impact of Cuomo’s order is based not just on the limits of the state’s regulatory power, but also the latitude DFS’s regulations give to banks.

DFS’s regulations say relief is required for any borrower demonstrating a “financial hardship” but leaves it to banks to decide what that means, specifying only that, “The criteria developed by regulated institutions for individuals to qualify for COVID19 relief shall be clear, easy to understand, and reasonably tailored to the requirements of the regulated institution to assess whether it will provide, consistent with the goals of Executive Order 202.9 and this regulation, applicable state and federal law, and the principles of safe and sound business practices, COVID-19 relief.”

Inwald says servicers often assert restrictions supposedly hindering their ability to afford relief to homeowners, but when pressed are unable to document the restrictions asserted as grounds for denying relief to distressed homeowners. For example, during the years following the 2008-2009 financial crisis, homeowners who were seeking loan modifications under the federal Home Affordable Modification Program (HAMP) sometimes found that mortgage servicers did not comply with specific regulations addressing the grant of modifications under that program. 

“It fell on our advocates to vindicate homeowners’ rights to HAMP modifications in court, and of course only a small percentage of distressed homeowners wrongfully denied HAMP relief would be fortunate enough to have advocates able to go after the servicers for HAMP violations in court,” Inwald says. 

The worry is the consumers will have just as much trouble getting servicers to acknowledge the COVID emergency.

The threat of scams

Another concern is making consumers aware of scammers preying on homeowners seeking to avert foreclosure. Inwald said they could reach out to non-profit housing counselors and legal services providers funded by the State Attorney General’s Homeowner Protection Program (HOPP) for advice because navigating the process without a trained advocate can be dangerous. 

Currently, HOPP funding is at stake. The program requires $20 million to keep the statewide network serving every county in the state and it has not been addressed in the governor’s proposed executive budget. Advocates say the program is needed now more than ever. “The demand for HOPP’s services is expected to multiply as New York begins to experience the full extent of the fall-out from COVID-19,” Inwals says, “so the consequences of removing this part of the safety net and losing the state’s investment in this network of experts spanning the state, could be devastating.” 

DFS does have a hotline for consumers to file a complaint about a scam involving a financial product or service (use the Department’s consumer complaint form or contact our Consumer Hotline at (800) 342-3736).