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12.3.3.1 Introduction, Timing, and Coverage

As described above, forbearance is temporary pause on the borrower’s obligation to make payments. The CARES Act provides details on when forbearance applies and leaves some other specific details to investors, as described in later sections.

In response to the rising pandemic, Congress passed the CARES Act to, among many other things, assist borrowers facing COVID-19 hardship. According to the section covering mortgages, Section 4022, its provisions apply “during the covered period.”267

Section 4022 of the CARES Act, however, fails to define “covered period.” There is an argument, however, that the “covered period” should last until the end of the COVID-19 emergency, which is still outstanding. The CARES Act refers to the COVID-19 Emergency, and, under the National Emergency Act, a presidentially declared emergency terminates after a year, unless the President takes specific steps to extend it.268

Alternatively, the CARES Act defines “covered period” in Section 4023 as the sooner of “the termination date of the national emergency concerning the novel coronavirus disease (COVID-19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act” or “December 31, 2020.”269

Many borrowers may receive COVID forbearances regardless of whether they make the request during the covered period, because the relevant investor has stated no specific deadline for making the request. In fact, in July of 2021, FHA, VA, and USDA stated that borrowers may start their initial forbearance periods through the end of the COVID-19 National Emergency, as described below. The GSEs also do not tie the availability of forbearance to the CARES Act.270 The issue of CARES Act coverage, however, may become relevant if there is a dispute regarding forbearance and the borrower claims that the statute is more protective than the relevant agency guidance. Courts have not yet considered the impact of the statute, which does not have a remedies provision, on a servicer’s right to foreclose.

Borrowers should make initial forbearance requests and requests for extensions as early as possible given the statue’s ambiguity. In addition to the undefined covered period, the statute also includes two non-identical sections regarding the right to an extension of forbearance after receiving initial forbearance. In Section 4022(b), which focuses on borrowers’ rights, a borrower who receives an initial forbearance is automatically granted the right to an extended, 180-day period of forbearance upon request. However, in Section 4022(c)(1), which outlines the servicers’ responsibilities, extended forbearance is mandatory provided it is requested during the covered period. In any conflict regarding a borrowers’ right to extended forbearance, advocates should focus on the right to extension created by Section 4022(b) and to relevant agency guidance.

The CARES Act does not apply to all loans. Rather, its protections only apply to “federally-backed loans,”271 which is a narrower set of loans than the Real Estate Settlement Procedures Act (RESPA). It includes Fannie Mae,272 Freddie Mac,273 FHA-insured,274 VA-guaranteed,275 USDA-guaranteed,276 and USDA-direct loans.277 It does not include portfolio loans and loans held in trust through private labeled securities. Roughly two-thirds of home mortgage loans in the United States fall within the “federally-backed” definition of the CARES Act.

Footnotes

  • 267 CARES Act § 4022(b)(1)(a).

  • 268 50 U.S.C. § 1622(d) (“Any national emergency declared by the President in accordance with this subchapter, and not otherwise previously terminated, shall terminate on the anniversary of the declaration of that emergency if, within the ninety-day period prior to each anniversary date, the President does not publish in the Federal Register and transmit to the Congress a notice stating that such emergency is to continue in effect after such anniversary.”).

  • 269 CARES Act § 4023(f)(5).

  • 270 The White House, Fact Sheet: Biden Administration Announces Extension of COVID-19 Forbearance and Foreclosure Protections for Homeowners (Feb. 16, 2021); Federal Housing Finance Agency, News Release, FHFA Extends COVID-19 Forbearance Period and Foreclosure and REO Eviction Moratoriums (Feb. 25, 2021).

  • 271 CARES Act § 4022(a)(2).

  • 272 See Ch. 7, supra (discussing Fannie Mae and Freddie Mac).

  • 273 Id.

  • 274 See Ch. 8, supra (discussing FHA-insured loans).

  • 275 See § 9.2, supra (discussing VA-guaranteed loans).

  • 276 See § 9.3.3, supra (discussing USDA-guaranteed loans).

  • 277 See § 9.3.2, supra (discussing USDA-direct loans).