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12.3.3.1 Introduction, Timing, and Coverage

Significant Law Change

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.”19

Section 4022 of the CARES Act, however, fails to define “covered period.” There is an argument, however, that the “covered period” should last until March 13, 2021 because 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.20

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.”21

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, the Biden Administration has extended the deadline for requesting initial forbearance periods for FHA, VA, and USDA loans until June 30, 2021, and the GSEs do not tie the availability of forbearance to the CARES Act.22 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. For example, HUD has clearly stated that a borrower who obtains a forbearance within its deadline has a right to an extension regardless of when that request is made.

The CARES Act does not apply to all loans. Rather, its protections only apply to “federally-backed loans,”23 which is a narrower set of loans than the Real Estate Settlement Procedures Act (RESPA). It includes Fannie Mae,24 Freddie Mac,25 FHA-insured,26 VA-guaranteed,27 USDA-guaranteed,28 and USDA-direct loans.29 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

  • 19 CARES Act § 4022(b)(1)(a).

  • 20 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.”).

  • 21 CARES Act § 4023(f)(5).

  • 22 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).

  • 23 CARES Act § 4022(a)(2).

  • 24 See Ch. 7, supra, for a discussion of Fannie Mae and Freddie Mac.

  • 25 Id.

  • 26 See Ch. 8, supra, for a discussion of FHA-insured loans.

  • 27 See § 9.2, supra, for a discussion of VA-guaranteed loans.

  • 28 See § 9.3.3, supra, for a discussion of USDA-guaranteed loans.

  • 29 See § 9.3.2, supra, for a discussion of USDA-direct loans.