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CRS Reviews COVID-19-Related Forbearances and Other Relief Options

The Congressional Research Service ("CRS") assessed COVID-19-related economic relief provided through loan forbearances and other relief options (see here and here).

In a report on the "Impact of COVID-19-Related Forbearances on the Federal Mortgage Finance System," the CRS stated that loan forbearance may have negative short-term and long-term effects on the federal mortgage finance system. In the short-term, the CRS predicted that some mortgage services may become illiquid. To mitigate this risk, the CRS advised those mortgage services to utilize the secondary market, noting that "government-sponsored enterprises" ("GSEs") (i.e., Fannie Mae and Freddie Mac) will step in to purchase certain qualifying loans. In the long term, the CRS warned that (i) the Federal Housing Administration ("FHA"), Department of Veterans Affairs ("VA"), and Department of Agriculture ("USDA") will face losses if borrowers default on mortgages guaranteed by those agencies and that (ii) counterparty risk for the secondary market guarantees issued by Ginnie Mae and the GSEs could increase.

In its report "COVID 19: Consumer Loan Forbearance and Other Relief Options," the CRS warned that if the pandemic causes prolonged economic disruptions, Congress should consider legislation on:

  • further loan forbearance (student loans et al.);

  • loss mitigation and loan modification;

  • new consumer credit reporting requirements which mark consumers current on credit payments if they "enter into an agreement to defer, forbear, modify, make partial payments, or get any other assistance on their loan payments from a financial institution and fulfil those requirements"; and

  • incentives for banks to grant a forbearance for non-federally-backed loans.

The CRS also recommended non-legislative federal COVID-19 responses designed to encourage loan forbearance and other relief. These include:

  • CFPB consumer regulatory guidance (i) on compliance in light of increased loan forbearance requests, (ii) on compliance with Regulation X in connection with mortgage loan transfers and (iii) to temporarily delay mandatory data collection reporting requirements;

  • a CFPB and Federal Housing Finance Agency joint initiative to share mortgage servicing information between the agencies to help protect borrowers;

  • financial regulators' guidance (i) on other types of relief, designed to encourage financial institutions to provide small-dollar loans, and (ii) authorizing financial institutions to "temporarily weaken their financial position" to provide different types of credit without regulatory action;

  • The Federal Financial Institutions Examination Council's updated influenza pandemic guidance on adverse effects of COVID-19;

  • Federal Reserve Board, OCC and FDIC guidance to financial institutions on repayment accommodations (e.g., "waiving fees, offering repayment accommodations, extending payment due dates, increasing credit card limits, and increasing ATM withdrawal limits");

  • bank regulators' (i) guidance indicating that certain consumer activities are eligible for credit towards their Community Reinvestment Act ("CRA") performance assessments and (ii) statement incentivizing depository institutions to continue working with low- and moderate-income customers and communities by offering favorable CRA consideration;

  • Fannie Mae and Freddie Mac guidance providing mortgage relief options;

  • FHA, VA and USDA forbearance relief; and

  • a joint statement by federal banking agencies and state bank regulators urging mortgage servicers to continue working with homeowners affected by COVID-19.

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