VA and USDA issue guidelines for implementing CARES Act relief measures
On April 8, 2020, the Department of Veterans Affairs (“VA”) and the Department of Agriculture (“USDA”) each issued guidelines implementing the Humanitarian Aid, Relief and Economic Security Act. coronavirus (the “CARES Act”) to provide relief. measures for mortgage borrowers affected by the COVID-19 crisis. The VA Circular 26-20-12 and USDA Stakeholder announcement dated April 8, 2020 are part of continued efforts by federal housing agencies to provide financial assistance to mortgage borrowers since President Trump issued the March 13, 2020 proclamation declaring a national emergency regarding the COVID-19 outbreak. While these recent VA and USDA announcements implementing Section 4022 of the CARES Act are largely similar, they also contain important differences as well as additional details that are not specified in Section 4022 of the CARES Act. the CARES law.
Circular VA 26-20-12
Circular VA 26-20-12 implements article 4022 of the CARES law by announcing an abstention requirement for borrowers of loans guaranteed by VA or held by VA who are experiencing financial difficulties due, directly or indirectly, to the COVID-19 emergency, regardless of delinquency status. In accordance with article 4022 of the CARES law, to benefit from the relief from forbearance under circular VA 26-20-12, the borrower only has to (1) submit the request to the manager and (2) certify that the borrower is experiencing financial difficulty due to the COVID-19 emergency. Also in accordance with the CARES Act, the length of the abstention period announced in the VA circular is initially 180 days, with an extension period that the borrower can request for up to 180 additional days.
Circular 26-20-12 further mentions that the VA “expects the manager to inform the borrower of the borrower’s waiver rights”, and that the borrower, and not the manager, is entitled to determine the waiver period, subject to the legal limit of up to 360 days. Article 4022 of the CARES law does not mention any obligation for the manager to disclose information to borrowers and does not clearly indicate which party, the manager or the borrower, must determine the length of the forbearance period, whether ‘exception of the maximum of 180 initial days and extension periods. Of the Federal Housing Agencies and Fannie Mae and Freddie Mac (together, the “GSEs”) who have issued guidelines implementing the forbearance of the CARES Act to date, the VA requirement could arguably be the more user-friendly for borrowers in this regard.
Circular 26-20-12 also stipulates that service managers are prohibited from charging fees, penalties or interest in excess of the amounts provided or calculated as if the borrower had made all contractual payments on time and in full according to the terms of the mortgage contract, which corresponds to article 4022 of the CARES law. The circular further requires VA loan managers to comply with the credit reporting requirements of the CARES Act, which means, among other requirements, that managers cannot report an account as overdue simply because of a abstention planned in the context of a difficulty related to COVID-19. At the end of the forbearance period, the VA requires managers of VA guaranteed loans to consider all loss mitigation options described in Chapter 5 of the VA. VA M26-4 Service Manualincluding: (1) repayment plans, (2) loan modifications, (3) streamlining modifications, (4) affordable VA modifications, (5) VA disaster modifications and (6) disaster extension changes. The guidelines expressly prohibit service officers from requiring borrowers to make a lump sum payment at the end of the forbearance period if the amount would equal what would have been due had the forbearance not been in effect. , unless: (i) the lump sum payment is paid at the end of the loan term, or (ii) the borrower elects to make a lump sum payment instead of the loss mitigation options mentioned above. Managing officers are also required to review loan records for all possible loss mitigation options no later than 30 days prior to the end of the forbearance period and document these reviews in their loan management systems. . If no loss mitigation option is possible, service officers should refer the case back to the appropriate regional lending center for VA to consider a loan repayment if the borrower’s home has equity. When repayment is not possible, the Circular asks VA-guaranteed loan repairers to consider short sales and deeds instead of foreclosure.
Finally, Circular 26-20-12 provides for a 60-day moratorium, as of March 18, 2020, on any initiation of a foreclosure process, movement for a foreclosure judgment, or order for the sale or execution of an eviction or foreclosure related to foreclosure. sale, this moratorium excluding any vacant or abandoned property. This moratorium complies with the CARES law and replaces the previous VA circular 26-20-7, which did not require a 60-day moratorium on foreclosures but only “strongly encourages[ed]”Services to establish one, which we discussed in our Legal update of March 23, 2020.
USDA Stakeholder Announcement dated April 8, 2020
In his Stakeholder announcement dated April 8, 2020,1 USDA also implemented the CARES law forbearance requirement for mortgages under the USDA Secured Loan Program. USDA requires lenders to grant immediate forbearance to a borrower who certifies financial hardship caused directly or indirectly by COVID-19 for a period of up to 180 days, which period can be extended up to 180 days additional at the request of the borrower. In accordance with the CARES Act, no accumulation of fees, penalties or interest can be charged to the borrower beyond the amounts calculated as if the borrower had made all contractual payments on a timely basis. The USDA announcement differs from the aforementioned VA circular in that the USDA announcement does not (1) refer to an expectation or requirement that the borrower be informed of their forbearance rights, or (2) specifically states which party determines the length of the forbearance period.
Similar to VA guidelines and guidelines from other federal housing agencies and GSEs in response to the COVID-19 crisis, USDA departments are required to analyze loss mitigation options at the end of the abstention period. According to the USDA stakeholder announcement, at the end of the forbearance, the lender is required to contact the borrower to determine if they are able to resume their monthly payments, and if so. , the lender must offer the borrower a written repayment. or, at the borrower’s request, extend the term of the loan for a period at least equal to the abstention period. If the borrower is unable to resume their monthly contractual payments at the end of the forbearance period, the manager should assess the borrower for all available options presented in the Loss Mitigation Guide, which follows. found at USDA Technical Manual Chapter 18 Attachment 18-A.
Finally, the USDA announcement states that lenders can approve the initial 180-day forbearance period no later than October 30, 2020. This deadline for offering the initial forbearance period effectively means that all periods of ‘COVID-19 forbearance for mortgages under the USDA Secured Loan Program could end around the end of October 2021, assuming the borrower requests the 360-day maximum. The October 30, 2020 deadline to provide the initial forbearance period is also the same deadline set by the FHA in its Mortgage Letter 2020-06, as mentioned in our Legal update April 9, 2020. Currently, the FHA and USDA are the only two federal housing agencies or GSEs to specify specific dates with respect to Section 4022 of the CARES Act, which only refers to a “period. covered ”which is not defined in article 4022.
Also note that the USDA’s announcement does not refer to a foreclosure moratorium under section 4022 of the CARES Act, possibly because the USDA has already announced a 60-day foreclosure moratorium for all loans in the. USDA’s single-family housing secured loan program in its stakeholder announcement. dated March 19, 2020.