On Tuesday, Fannie Mae and Freddie Mac, in coordination with the Federal Housing Finance Agency, announced relief plans to discourage multifamily landlords from evicting renters from properties as a result of non-payment. In exchange, Fannie Mae and Freddie Mac are allowing multifamily landlords (whose loans are financed by Freddie or Fannie) to defer loan payments up to 90 days due to hardship related to COVID-19. According to Freddie Mac’s press release, it expects that the plan will provide relief for up to 4.2 million U.S. renters across more than 27,000 properties.
Although exact details about Freddie Mac’s plan have not yet been released, Fannie Mae has already provided significant detail about the relief plan. Specifically, Fannie Mae advises in Supplement 20-05, “If a Borrower requests forbearance related to [COVID-19], you should immediately consider executing a pre-negotiation letter with the Borrower and Fannie Mae (if participating in the discussions). Fannie Mae recommends using either the simplified form of pre-negotiation letter contained in the Supplement or the form pre-negotiation letter contained in the Fannie Mae Servicing Guide.” Additionally, Fannie Mae has delegated to servicers the “authority to execute a forbearance agreement for up to 3 monthly payments beginning with the first missed monthly payment, provided the missed payment did not occur before April 1, 2020.” While a pre-negotiation letter is not required to enter into a forbearance agreement, Fannie Mae does require a pre-negotiation letter before engaging in “on-going Borrower discussions.”
With respect to the terms of the forbearance agreement, Fannie Mae is requiring that the borrower:
- Bring the mortgage loan current by the earlier of:
- 12 months after the end of the forbearance period, or
- the borrower’s receipt (or the servicer’s receipt on the borrower’s behalf) of Business Income insurance proceeds (or any other assistance or relief program proceeds), per the forbearance agreement.
- Suspend all evictions of tenants who have been financially impacted by COVID-19 for the longer of:
- 90 days after the forbearance agreement effective date, or
- until the mortgage loan is brought current.
- Permit affected tenants to repay any missed rent payments over a period of no more than 12 equal monthly installments, without late charges, together with the affected tenant’s regular monthly rent, to the extent permitted by applicable law.
Although Freddie Mac has not released specifics yet, it will also require borrowers to forgo any evictions during the forbearance period.
For servicers of Fannie Mae loans, Fannie Mae is requiring that they:
- Certify that they are acting as a prudent commercial real estate lender, conducting sufficient due diligence, and reviewing sufficient information to determine the relief granted to the borrower is necessary;
- Obtain Fannie Mae’s approval of any changes to the forbearance agreement form;
- Require the borrower’s payment of any expenses, including reasonable attorneys’ fees, related to executing the agreement;
- Submit a copy of the executed forbearance agreement in the Multifamily Asset Management Portal (MAMP);
- Retain a copy in their servicing file; and
- Obtain Fannie Mae’s approval for any forbearance or continuation exceeding three months.
Additionally, Fannie Mae will be waiving any late charges to which it might be entitled and “encourages” servicers to “provide relief from the late charges” retained by servicers “unless otherwise provided in the Lender Contract.” However, Fannie Mae has made clear that servicers will be responsible for delinquency advances and servicing advances per the Fannie Mae Guide for loans granted a forbearance.
For multifamily borrowers, it is important to evaluate your situation and determine whether “the operations and financial performance of the Property have suffered as a result of the Health Crisis such that short-term relief from [your] obligations is needed.” As for servicers, it is likely that multifamily borrowers will immediately start seeking forbearance agreements as they begin to assess the impact of COVID-19. As a result, it will be important to start implementing procedures to collect information from borrowers and determine whether forbearance is appropriate.