Coronavirus has had a swift and significant impact on the economy. According to the U.S. Department of Labor, unemployment claims for the week ending March 21, 2020, reached a record level of 3.3 million, far outpacing the previous high mark of 695,000 claims filed for the week ending October 2, 1982.
A direct result of the number of unemployment claims is a need to provide relief to borrowers during this unprecedented crisis. States are exploring different ways to help renters and homeowners, as are Fannie Mae, Freddie Mac and individual banks and credit unions.
Governor Phil Murphy of New Jersey announced a 90-day grace period on mortgage payments, which offers a glimpse into one of the proposed stop-gap measures put in place during this pandemic. This was done in coordination with more than 40 financial institutions and is modeled after a similar initiative undertaken in California. Pennsylvania Attorney General Josh Shapiro also recently announced the launch of the commonwealth’s own relief initiative for consumers, PA CARE Package.
Pennsylvania (PA CARE Package)
- Minimum 90-day grace period for mortgage payments
- Minimum 90-day grace period for other consumer loans such as automobile loans
- Minimum 90-day relief from fees and charges, to include overdraft fees in addition to late fees
- Minimum 60-day moratorium on foreclosures, evictions, and automobile repossessions
- No negative credit impacts resulting from relief
New Jersey
- Minimum 90-day grace period for mortgage payments
- No negative credit impacts resulting from relief
- Minimum 60-day moratorium on initiating foreclosures or evictions
- Minimum 90-day waiver of mortgage related late fees as well as other fees such as those for early certificate of deposit withdrawals
Small businesses throughout the U.S. can tap into new loan options introduced as part of the CARES Act.
Action Items for Financial Institutions
Banks and credit unions must assess the impact of the unprecedented economic crisis on their borrowers. There has already been an easing of accounting rules related to loan modifications for coronavirus. Institutions should continue to explore ways to support borrowers during these challenging times.
To prepare for continued relief measures at the federal and state level, banks and credit unions should establish clear policies and procedures in anticipation of loan payment relief as well as to comply with applicable regulatory requirements as they are imposed. In order to prepare as quickly as possible, management should ask:
- What documentation will we require to evidence the hardship?
- What will be our standard terms of forbearance?
- How will we track forbearance relief request due to COVID-19?
- Do we have a process in place to ensure that derogatory marks will not be reported to the credit bureaus?
- Does our state have a mortgage payment relief plan and are we in compliance with the outline of any such plan?
- Do we have any mortgages that we sold but retained servicing rights to? If so, have we contacted the purchaser of the mortgages to discuss relief options?
- If your institution has a website, do you have a page dedicated to information for your customers to be able to access information related to the impact of COVID-19 on your institution and/or possible relief that borrowers may receive?
Institutions that have sold their loans but retain servicing rights are at the mercy of the loan purchaser with regards to possible mortgage relief options available for their members.
On April 1, the Pennsylvania Supreme Court extended the statewide halt on evictions and foreclosures due to non-payment until April 30. Read more here.
RKL’s Financial Services Industry Group is available to help banks and credit unions prepare for new relief measures that may unfold as the crisis continues. Contact your RKL advisor or reach out using the form below.
