On March 21, 2020 the New York financial services community took note when Governor Cuomo issued an executive order which stated that banks subject to the jurisdiction of the New York Department of Financial Services ("DFS") who failed to provide forbearance to businesses or consumers experiencing financial hardship would be deemed to be engaging in an "unsafe and unsound" practice.1 The Governor's order contemplated additional regulatory guidance from the DFS, and on March 24, the Superintendent of the DFS issued an emergency regulation (the "Emergency Regulation") to "establish standards and procedures that regulated institutions must follow in their review of requests for relief and determinations to provide financial relief to those experiencing financial hardship, consistent with the purposes of Executive Order 202.9, this regulation and safe and sound practices of the regulated institutions."2
Significantly the Emergency Regulation applies only to residential (not commercial) mortgage loans. New York regulated banking organizations3 and mortgage servicers4 are required to make applications for forbearance of any payment due on a residential mortgage of a property located in New York, "widely available" to any individual who resides in New York and who demonstrates financial hardship as a result of the COVID-19 pandemic. Regulated banking organizations and mortgage servicers are expected to grant forbearance for periods of 90 days.
The Emergency Regulation does not apply to loans made, insured or securitized by any agency or instrumentality of the United States, any US government-sponsored enterprise (i.e., Fannie Mae or Freddie Mac) or a Federal Home Loan Bank, including lenders, issuers, servicers (including Ginnie Mae servicers) or trustees of such obligations.5 Additionally, it should not apply to subsidiaries of New York banks that are not engaged in the activities covered by the Emergency Regulation.
Apart from providing forbearance on residential mortgage loans, regulated banking organizations are required to eliminate fees charged for use of owned or operated ATMs. Overdraft fees and credit card late payment fees are to be eliminated as well. Regulated banking organizations and mortgage servicers are encouraged to take additional action to assist individuals facing COVID-19 related financial hardships in any manner they deem appropriate.
Within 10 business days regulated banking organizations and mortgage servicers are expected to broadly issue e-mail, website notices, or mass mailings to broadly communicate to customers how to apply for COVID-19 relief. Criteria should be clear and easily understood and regulated banking organizations and mortgage servicers are expected to seek out customers if applications are submitted with insufficient information that the institution cannot provide. Applications are expected to be processed within 10 business days of receipt and decisions are to be communicated in writing. We will describe these requirements in more detail in a subsequent blog post.
Importantly the Emergency Regulation did not retract Governor Cuomo's Order, which is in effect through April 20, 2020 (unless extended), and as a result it remains possible under Section 39 of New York Banking Law for a regulated banking organization or mortgage servicer to be found to have engaged in unsafe or unsound practices for failing to grant forbearance as specified in the regulation. However, the Emergency Regulation provides context regarding the factors that DFS will consider in assessing whether to initiate an enforcement action. In particular, the DFS will consider the adequacy of the process established by regulated banking organizations or mortgage servicer to process forbearance applications, the thoroughness of the review afforded to applications, the payment history, creditworthiness and financial resources of the borrower and the application of other laws that would prohibit forbearance.
1 Andrew Cuomo, Exec. Order No. 202.9 (Mar. 21, 2020), https://www.governor.ny.gov/news/no-2029-continuing-temporary-suspension-and-modification-laws-relating-disaster-emergency.
2 A copy of the Emergency Regulation can be accessed here: https://www.dfs.ny.gov/industry_guidance/regulations/emergency_banking (to be codified at N.Y. Comp. Codes R. & Regs. tit. 3, pt. 119).
3 "Banking organization ... means and includes all banks, trust companies, private bankers, savings banks, safe deposit companies, savings and loan associations, credit unions and investment companies." N.Y. Banking Law § 2(11). The March 20 Executive Order cited N.Y. Banking Law § 39. Notably that section includes entities such as US branches of foreign banks. It appears that by citing Section 2(11), DFS sought to narrow the range of entities covered by the Emergency Regulation to potentially exclude US branches of foreign banks, among others.
4 "Mortgage loan servicer ... shall mean a person or entity registered pursuant to subdivision two of this section to engage in the business of servicing mortgage loans for property located in" New York. N.Y. Banking Law § 590(1)(h); "Mortgage loan servicer ... means a person registered or required to be registered pursuant to Banking Law, section 590(2)(b-1) to engage in the business of servicing mortgage loans for property located in [New York], or a person exempted from such registration requirement." N.Y. Comp. Codes R. & Regs. tit. 3 § 418.3(c).
5 The regulatory impact statement for the Emergency Regulation states that it is intended to operate "in parallel with directives issued by the federal Department of Housing and Urban Development, Fannie Mae and Freddie Mac concerning mortgage forbearances" and that DFS "will strive to harmonize its efforts with the federal government and government sponsored enterprises that originate, purchase, securitize and service residential mortgage loans."
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