State Passes Mortgage Forbearance Legislation  

June 1, 2020 at 9:36 am Leave a comment

Good morning folks.  I don’t know about you but that was one long and depressing weekend.

On Friday the legislature approved measures placing modifying forbearance requirements on state chartered institutions holding primary mortgages.  Although the bill is far from perfect, it’s an improvement over legislation that had been acted on just days earlier.  It still must be signed by the Governor.

Here’s what the legislature did (PART C of A10530).  Individuals suffering financial hardship as a result of COVID-19 would be eligible for a forbearance for up to 180 days and a possible additional six month extension.  Individuals applying for this forbearance would have to demonstrate that they are suffering a financial hardship.  In other words, a borrower is not eligible for an automatic one year forbearance.  If your borrower has already been granted a forbearance pursuant to the Executive Order, then that constitutes compliance with this new measure.    Once a forbearance is granted, it forbids financial institutions from collecting “all monthly payments” due on the mortgage.  A previous version of the bill mandated that all interest be waived.

With regard to modifying the loan, the parties can negotiate to change the terms but in the event that an agreement cannot be reached between the lender and borrower, the outstanding payments will be owed as a separate loan payable at the end of the mortgage.

The most unique part of the final bill is that it allows financial institutions to effectively apply for a waiver by demonstrating to the Department of Financial Services that granting forbearances would constitute an unsafe and unsound practice.

And just the Governor’s previous Executive Order, the bill only applies to state regulated institutions holding mortgages which are not backed by GSEs.

Entry filed under: Compliance, COVID-19, Mortgage Lending, New York State. Tags: , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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