In response to the coronavirus (COVID-19) pandemic, New Jersey Governor Phil Murphy has announced an initiative whereby participating financial institutions will provide mortgage forbearance and financial protections for New Jersey residents facing economic hardship as a result of COVID-19.
Building on a similar initiative in California, New Jersey Governor Phil Murphy secured support for the initiative from some of the largest financial institutions, plus more than 40 other federal and state-chartered banks, credit unions, and servicers, to protect New Jersey homeowners. More financial institutions are expected to sign on in the coming days. The New Jersey Bankers Association, CrossState Credit Union Association, and the Mortgage Bankers Association of New Jersey have endorsed the initiative and are encouraging all their members to adopt these policies. The initiative is entirely voluntary; the state welcomes any other institution to participate.
Under Governor Murphy’s proposal, New Jersey residents who are struggling financially as a result of COVID-19 may, upon contacting their mortgage servicer, be eligible for a 90-day grace period for mortgage payments. Financial institutions will offer, consistent with applicable guidelines, residential mortgage payment forbearances of up to 90 days to borrowers economically impacted by COVID-19.
In addition, those institutions will provide borrowers a streamlined process to request a forbearance for COVID-19-related reasons, supported with available documentation; confirm approval of and terms of the forbearance program; and provide borrowers the opportunity to request additional relief, as practicable, upon continued showing of hardship due to COVID-19.
For at least 90 days, financial institutions will waive or refund at least mortgage-related late fees and certain other fees, including early CD withdrawals (subject to applicable federal regulations), for customers who have requested assistance.
With respect to credit reporting, financial institutions will not report derogatory tradelines (e.g., late or missed payments) to credit reporting agencies, consistent with applicable guidelines, for borrowers taking advantage of COVID-19-related relief, but they may, under the New Jersey initiative, report a forbearance, which typically does not alone negatively affect a credit score. In practice, these credit reporting provisions are likely supplanted by the CARES Act amendments to the federal Fair Credit Reporting Act. The CARES Act amendments require, during the period they are effective, all creditors to freeze credit reporting as of the date of the accommodation for any consumer affected by the COVID-19 pandemic.
In addition, for at least 60 days, financial institutions will not initiate foreclosure sales or evictions, consistent with applicable guidelines.
These measures go into effect as of March 28, 2020. The relief is currently only available for residential mortgages.
Although the program is voluntary, financial institutions that have not yet agreed to participate may feel pressured to join the initiative, as the state’s marketing efforts underlying the program make clear that the largest financial institutions in the United States, in addition to a number of other federal and state-chartered banks, credit unions, and servicers, have agreed to participate. In addition, the state positions the program as a further effort for financial institutions “to meet the moment and provide much-needed financial relief to New Jerseyans.”
Much of the program’s structure also appears to be very flexible, with the onus on the part of financial institutions to work constructively with consumers. For example, the program allows for the terms of a forbearance to be agreed upon between the consumer and the mortgage servicer, with financial institutions confirming approval of and terms of the forbearance program. Since it remains unclear how severe or how long the effects of COVID-19 will be, participating financial institutions need to commit to both providing consumer relief and assessing the ongoing conditions and necessity of continuing relief.
Although the state recognizes that financial institutions and their servicers are experiencing high volumes of inquiries, the state also issues an implicit caution to mortgage servicers to be communicative and cooperative with consumers by directing consumers to file a complaint against uncooperative and incommunicative mortgage servicers with the New Jersey Department of Banking and Insurance. The New Jersey Department of Banking and Insurance has particular practical leverage over nonbank mortgage servicers because it administers the state’s licensing program for mortgage servicers, enacted into law last year.
On March 19, Governor Murphy signed Executive Order No. 106, which imposed a moratorium on removing any lessee, tenant, homeowner, or any other person from their home pursuant to an eviction or foreclosure proceeding while the order is in effect. The executive order was enacted pursuant to Assembly Bill No. 3859 and Senate Bill No. 2276, which explicitly provided authority to the governor to issue an executive order declaring a moratorium on removing individuals from their homes pursuant to an eviction or foreclosure proceeding.
Governor Murphy also has asked any financial institution holding residential or commercial mortgages, equity loans, lines of credit, or business loans to implement a process to work with the mortgagors or loan holders to avoid foreclosure or default arising out of financial hardship caused by the COVID-19 pandemic, or by any local, state, or federal government response to COVID-19.
These executive actions are consistent with a national trend, particularly as applicable to consumer mortgages. Recently, the US Department of Housing and Urban Development suspended eviction in foreclosure proceedings on Federal Housing Administration–insured loans, and the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to suspend eviction and foreclosure proceedings for a period of 60 days. In response, Fannie Mae and Freddie Mac went even further, and have directed servicers to provide extensive forbearance relief for their borrowers adversely affected by COVID-19.
In addition, these actions are part of a growing trend of states providing mortgage relief to consumers. For example, New York Governor Andrew Cuomo recently issued two executive orders that place temporary restraints on the ability of banks, residential mortgage servicers, and landlords to exercise remedies under certain agreements, mortgages, and leases. California Governor Gavin Newsom recently issued an executive order banning the enforcement of eviction orders for renters affected by COVID-19 through May 31, 2020, which followed his previous executive order authorizing local governments to halt evictions for homeowners and renters affected by the pandemic.
For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge, which includes a Financial Services COVID-19 Task Force to focus on the issues specifically impacting our financial services industry clients.
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David I. Monteiro