Loyola University Chicago School of Law, Weekend JD 2023
Americans looking for relief and regulatory protections in the face of an eviction and foreclosure crisis have been met with a patchwork system of confusing, temporary, and difficult to navigate government programs. The eviction ban established by the CARES Act has expired, and now renters are relying on the CDC and individual states to protect them. Mortgage relief for landlords and homeowners are stipulated by whether their mortgage is government-backed or not. Meanwhile, mortgage lending and servicing companies are navigating the rules and regulations of multiple laws and regulatory bodies.
The CARES Act
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020 by President Trump in response to the economic crisis caused by the COVID-19 pandemic. The $2 trillion relief package was the largest stimulus package in American history, and contained provisions such as issued stimulus checks, provided for expanded unemployment benefits, protections for renters, and mortgage relief. The financial relief provided by the CARES Act has run dry, however, and navigating the remaining regulations and guidelines has proven complicated for industry and consumers alike.
The CARES Act imposed a temporary moratorium on evictions on certain properties for four months, from March 27, 2020 to July 24, 2020. Specifically, landlords relying on a federally backed mortgage, which includes federally backed multifamily mortgage loans, could not initiate an eviction for non-payment in court nor could they charge fees, penalties, and other charges to the tenant for the period covered.
This moratorium expired, however, which left the 1 in 5 renters behind on their rent – over 13 million rental households – exposed to potential eviction proceedings at the end of July. States had issued their own eviction moratoriums, which in many cases filled the gaps left by the CARES Act, however as many as 30 states’ moratoriums have expired since May, according to The Eviction Lab at Princeton University.
As of September 1, 2020, a new eviction moratorium was issued by the Centers for Disease Control and Prevention (“CDC”) suspending evictions through the end of 2020. The failure of Congress to pass an additional coronavirus relief bill led to the CDC to fill the gap left to avoid a mass eviction crisis. Differing rules have created confusion however, as the CDC requires tenants to submit a declaration to their landlord that demonstrates their hardship under penalty of perjury. Further, landlords have taken tenants to court over it, with results varying in different jurisdictions.
State and federal regulators had acted rapidly to protect the housing market from the economic collapse, such as the Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency (FHFA) issuing immediate foreclosure moratoriums on March 18, which included directing Fannie Mae and Freddie Mac to suspend all foreclosures. The CARES Act codified the suspension of foreclosures and required servicers to grant forbearances to borrowers with government backed mortgages for up to 180 days. Per the New York Times, “the bill puts a temporary, nationwide eviction moratorium in place for any renters whose landlords have mortgages backed or owned by Fannie Mae, Freddie Mac and other federal entities. About 70 percent of all mortgages fall into this category.”
Notably, this relief impacts both homeowners and landlords. The CARES Act provides also for multifamily (5+ units) borrowers to request forbearances for 30-day periods, with up to two extensions. The CARES Act does require services to document borrowers’ hardships for forbearance for multifamily borrowers and requires borrowers to provide tenant protections, including prohibitions on evictions and late payment fees.
Banks and mortgage loan servicers have had to navigate a number of customer protection rules to stay in regulatory compliance, and regulators have had to scramble to issue clear guidance. The Real Estate Settlement Procedures Act (“Regulation X”) provides protection for consumers with mortgage loans, however some protections run up against the COVID-19 forbearances. Per the American Bankers Association’s Risk and Compliance magazine, “under the CFPB’s loss mitigation rules, if a borrower requests a forbearance and indicates a financial hardship, the servicer must treat the request as an incomplete loss mitigation application under Regulation X. This triggers, among other things, the obligation to send an acknowledgement notice within five days of receiving the incomplete application.” On April 3, 2020, the Consumer Financial Protection Bureau (“CFPB”), in a joint statement along with other banking regulators, clarified that “mortgage servicers may provide borrowers a CARES Act forbearance under the existing Regulation X mortgage servicing rules without having to comply with all of the otherwise applicable rules.” Additionally, the CFPB issued an interim final rule (IFR) on June 23, 2020 to further make it clear that customer protection rules will not stand in the way of forbearance relief for consumers.
The coming crisis
Up until this point, government programs have avoided the foreclosure crisis of 2008, with the CARES Act in large part preventing the worst-case scenario. As of September 11, 2020, 3.7 million borrowers are in government and private sector mortgage forbearance programs, or 7% of US mortgages. As the pandemic languishes on, however, the 180-day forbearance relief is expiring for over 2 million borrowers by the end of September.
As for the looming eviction crisis, the new federal eviction ban has gone into effect, but courts across the state and the country are creating confusion that results in evictions nonetheless. For instance, in Houston, TX, of 100 eviction cases heard in Harris County during the first week of the moratorium, 99 of 100 cases proceeded despite the CDC guidance. A coalition of nine institutions found in August 7, 2020 that 30-40 million people in America are at risk of eviction in the next several months.
The Great Recession displaced at least 10 million people from more than 4 million homes across the country, which was an unconscionable crisis in and of itself. Per John Hopkins data as of September 30, 2020, there has already been 206,665 U.S. coronavirus deaths and 7,219,635 U.S. confirmed cases – the dual crises of a foreclosure and eviction crisis met with the pandemic would be devastating.