Federal Regulatory Agencies Offer Interagency Statement Regarding COVID-19-Related Loan Modifications and Status Reporting

Federal Regulatory Agencies Offer Interagency Statement Regarding COVID-19-Related Loan Modifications and Status ReportingThe Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, and the Conference of State Bank Supervisors issued an Interagency Statement on March 22 urging regulated financial institutions to work with borrowers affected by COVID-19. The statement “encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19” and states that the agencies “view loan modification programs as positive actions that can mitigate adverse effects on borrowers due to COVID-19.”

Lenders and servicers are responding rapidly to implement temporary loss-mitigation policies to assist borrowers in these difficult times. However, it is critical that the industry receive clear guidance as to how regulators will view such measures. The statement provides limited guidance for institutions as to whether certain loan modifications must be classified as troubled debt restructurings (TDRs), with the attendant accounting and regulatory consequences.

In order for a loan modification to avoid classification as a TDR, it must meet three requirements:

  • The loan must be current (defined as paid within 30 days of the last due date).
  • The modification must be for a short term (the statement offers “six months” as an example).
  • The modification must be “made on a good faith basis in response to COVID-19.”

The statement further indicates that “[t]he agencies’ examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically risk rate credits that are affected by COVID-19, including those considered TDRs.” Accordingly, “agency examiners will not criticize prudent efforts to modify the terms on existing loans to affected customers.”

The statement also offers instructions regarding status reporting for loans where the repayment has been changed by a modification. If a loan is “not otherwise reportable as past due,” then it is not to be reported as past due because of a deferral granted due to COVID-19. Similarly, although the general instructions for deeming loans as nonaccrual assets continue to apply, a loan should not be reported as nonaccrual “during the short-term arrangements discussed in this statement.”

While the statement offers helpful guidance, it is not comprehensive and questions remain regarding how financial institutions should categorize and report loans modified due to COVID-19 issues – e.g., when the modification takes a form other than a short-term deferral of payment. Anticipating the need for further instructions, the agencies committed in the statement to “continue to communicate with the industry as this situation unfolds, including through additional statements, webinars, frequently asked questions, and other means, as appropriate.”

Fannie Mae and Freddie Mac Announce Relief Plan for Multifamily Borrowers

Fannie Mae and Freddie Mac Announce Relief Plan for Multifamily BorrowersOn 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 20-04R, “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.

Updates from 12 State Regulatory Agencies Regarding Coronavirus and Related Work from Home Issues

Updates from 12 State Regulatory Agencies Regarding Coronavirus and Related Work from Home IssuesAs regulatory agencies provide guidance regarding working from home for financial services professionals while the COVID-19 outbreak progresses, we summarized the additional guidance issued in the recent past and current as of March 24, 2020.

California Department of Real Estate Released Frequently Asked Questions Relating to COVID-19

The California Department of Real Estate’s Frequently Asked Questions contain relevant information for licensees who are seeking to manage their licenses and other obligations while the coronavirus challenges exist. The Department of Real Estate has announced that it has canceled all salesperson and broker license exams in all exam centers from March 18, 2020 to April 7, 2020.

Indiana Department of Financial Institutions Posted March 20, 2020, Notice to Mortgage Lender Licensees and Mortgage Loan Originators Regarding Working from Home

The Indiana Department of Financial Institutions (DFI) does not license mortgage branch locations, and it does not have rules or requirements that would restrict where employees are permitted to work or otherwise restrict an individual’s ability to work from home. Indiana law does not require that Indiana DFI be informed of any change to MLO work locations due to the impact of COVID-19.

The Indiana DFI disclaimed any guidance for the Indiana Secretary of State, which licenses loan brokers.

Kentucky Division of Financial Institutions Announced Recommendations on March 20, 2020

The Kentucky Department of Financial Institutions (DFI) recommended that financial institutions take the following actions, including safety precautions, social distancing, and encouragement to work with customers during this crisis. The actions suggested by DFI include:

  • Waive overdraft and/or minimum balance fees
  • Restructure existing loans
  • Extend loan repayment terms
  • Ease terms for new loans

In its notice, DFI requested that institutions providing relief  identify and monitor accounts and loans, and document any actions taken to assist customers.

Financial institutions should manage any temporary staff shortages in a manner that best protects the health and safety of the general public and maintains continuity of services to customers. DFI reminded banks or credit unions to notify Hailey Nolan, DFI’s Director of the Division of Depository Institutions, by email at Hailey.Nolan@ky.gov of any significantly altered in-person operations as a result of COVID-19 related staffing issues.

Lastly, DFI reminded entities that business continuity plans should include pandemic planning.

Minnesota Department of Commerce, Financial Institutions Division Provided Notice on the Coronavirus on March 17, 2020

Mortgage Loan Originators and Servicers

The Department of Commerce reminded mortgage loan originator licensees that there is no branch license requirement for licensees, only a branch registration through the NMLS.  Licensees who maintain branch locations but have mortgage loan originators work from a home location on a temporary basis must maintain data security policies and standards. The licensee must register the location before directing consumers to that location or maintaining any physical records at the location.

Licensees that temporarily close branches must email the department with the anticipated time that the branch will be closed.

Non-Depository Financial Institutions

Licensees that temporarily close branches must email the department with the anticipated time that the branch will be closed and notify the department of any changes.

Licensees may allow some employees to work from home as long as transactions are tied to a licensed location and consumers are not coming to any unlicensed location during the process. No physical records may be kept at any unlicensed location, and data security policies and standards must be maintained.

Regulated Loan Companies

The Department of Commerce also reminded loan companies of branch licensing obligations and the requirement that a licensed location must be open for business and for examination purposes on the schedule provided to the commission and that schedule must be conspicuously posted at the licensed location.

Loan companies that temporarily close branches must email the department with the anticipated time that the branch will be closed and must conspicuously post the schedule at the licensed location. All loan closings must occur at a licensed branch location.

Loan companies may allow some employees to work from home as long as a branch is still offering and closing loans and consumers are not coming to any unlicensed location. No physical records may be kept at the unlicensed location, and data security policies and standards must be maintained.

New Jersey Department of Banking and Insurance Issued Multiple Bulletins on March 20, 2020 Regarding the Coronavirus

The New Jersey Department of Banking and Insurance  encouraged all insurers, banks, credit unions, mortgage lenders and brokers, consumer lenders, student lenders, insurance producers, real estate brokers, and any other person or entity subject to licensure or regulation by this department to take into consideration the difficulties residents have endured and will continue to endure until the spread of COVID-19 is controlled, and those affected begin to receive regular payments and have been reimbursed for monies past due. The department specifically encouraged the entities and individuals it regulates to assist those affected by the current conditions by taking specific actions. Those actions include:

Insurance Division Regulated Entities/Individuals: Consistent with prudent insurance practices, insurers should relax due dates for premium payments and insurance policy-based payments, extending grace periods, waiving late fees and penalties, allowing forbearance with regard to the cancellation/non-renewal of policies, allowing payment plans for premium payments, extending timeframes to complete property and automobile inspections or undergo medical exams, and exercising judicious efforts to assist affected policyholders and work with them to make sure that their insurance policies do not lapse.

Banking Division Regulated Entities/Individuals: Consistent with safe-and-sound banking practices, relaxing due dates for loan payments (of all types, including mortgage, commercial, student and other consumer loans), extending grace periods, modifying terms on existing loans, casing credit card limits, extending new credit, waiving late fees and other fees, allowing customers to defer or skip payments, and delaying the submission of delinquency notices to credit bureaus.

The department requested prompt notice in cases in which operational challenges exist for licensees and any changes to operating hours of branch locations. The department also indicated that it will work with licensees in connection with scheduling examinations to minimize disruption and burden.

The Office of Consumer Finance (OCF) in the department has recognized that licensees may wish to temporarily work from home to avoid the further spread of the outbreak. Accordingly, the department is taking a no-action position concerning the requirement that activity by an OCF licensee must be conducted from a licensed branch location. The OCF’s no-action position requires that licensees first make a submission, electronically, to the OCF that contains the following information:

  1. A list of all individuals, working on behalf of the OCF licensee, who will be seeking no­action dispensation. The list must include the full name, home address, telephone number, email address, and, if applicable, NMLS unique identifier of the individual;
  2. A certification, by the OCF licensee, that these individuals are working from home due to a reason relating to the COVID-19 outbreak and have informed the OCF licensee of the reason in writing or by email (see form attached as Annex A); and
  3. A certification, by the OCF licensee, that the location(s) shall ensure the maintenance of a consumer’s right to privacy with respect to conversations and documents involving personal and financial information, including data privacy and cybersecurity, together with a description of the steps being taken and controls being implemented to ensure that consumer information and privacy are protected. Please see NJCCIC best practices and the Statewide Information Security Manual.

Note the OCF’s position is current until April 30, 2020.

North Carolina Office of the Commissioner of Banks Issued Guidance on March 17, 2020

The North Carolina Office of the Commissioner of Banks issued informal guidance that stressed that licensees use flexibility, patience, and practical solutions to benefit consumers that have experienced challenges as a result of the coronavirus. The office requested that licensees inform it of any changes in the operations or services offered by licensees and emphasized that licensees keep safety and security of personal information in mind. To the extent that there are operational changes, the office suggested that licensees contact Tara Malone at tmalone@nccob.gov for any mortgage-related questions.

Puerto Rico Office of Commissioner of Financial Institutions Issued March 17, 2020 Guidance

In its notice, the Puerto Rico Office of the Commissioner of Financial Institutions extended the deadlines for all reports required under the various laws subject to the jurisdiction and implementation of the office, in light of the territorial government closure.

All deadlines for the filing or submission of answers to complaints, requests for information, all types of financial reports, including quarterly and/or monthly reports, and license renewals, as well as any other deadline imposed by the office or by the laws under the office’s jurisdiction, which become due between March 16, 2020 and April 14, 2020 are continued or extended until April 15, 2020.

The documents which must be filed to comply with the aforementioned deadlines will be received by the office electronically. To the extent that there are questions, they should be submitted via email to the Deputy Commissioner of Financial Institutions, Alejandro Blanco Dalmau, Esq., at alejandrob@ocif.pr.gov.

Tennessee Department of Financial Institutions Issued Interim Guidance to All Non-Depository Financial Institutions and Individuals Licensed or Registered with the Compliance Division on March 23, 2020

The Tennessee Department of Financial Institutions (DFI) reminded licensees and registrants that business continuity plans should address the threat of pandemic outbreak and the potential impact on the delivery of financial services and include communication to employees.

The interim guidance is intended to facilitate the ability of licensees and registrants to take precautions deemed necessary to avoid the risk of exposure to or transmission of COVID-19. The DFI will allow companies to temporarily modify work assignments in order to reduce the risk of exposure to or transmission of COVID-19 during this state of emergency. Members of the public may not travel to an employee’s residence to conduct business.

The DFI recommended the following best practices in connection with employees working remotely:

  1. All computers and other devices that contain, or are used to access, confidential information should be encrypted and secure.
  2. Employees should be required to access the licensee’s or registrant’s secure data system remotely using a virtual private network (VPN) or similar system that requires passwords or other forms of authentication to access.
  3. All security updates, patches, or other alterations to the individual’s access device should be maintained.
  4. The employee should not keep any physical business records at the remote location.
  5. Activity should be conducted in a private environment, rather than a public area.

Texas Department of Savings and Mortgage Lending Released March 20, 2020, Guidance on Working from Home

The Department of Savings and Mortgage Lending temporarily suspended the requirement that a physical office be open to the public during posted normal business hours. In addition, they will allow Texas-licensed mortgage loan originators to work from home or other remote locations, even in instances where the location is not licensed. If a Texas-licensed mortgage loan originator or mortgage staff work remotely, their licensed or registered employers must ensure that:

  1. Strict security of information is maintained;
  2. All physical business records are maintained at licensed locations rather than an individual’s home or other remote location; and
  3. Consumers are not permitted to go to a mortgage loan originator’s home.

Texas Office of Consumer Credit Commission Issued Advisory Bulletin to Regulated Lenders on March 13, 2020

The Texas Office of Consumer Credit Commission (OCCC)  temporarily announced that it will not take an enforcement action against a licensee that conducts regulated lending activity from unlicensed locations, so long as the licensee meets the following requirements:

  1. A licensee must prepare a written plan or documentation describing what steps it is taking, as well as the locations where regulated lending activity is taking place. The licensee must maintain this documentation until the OCCC’s next examination of the affected licensed location.
  2. A licensee’s employees must access information in accordance with the licensee’s written information security program under the federal Safeguards Rule, 16 CFR pt. 314. A licensee must continue to maintain the security of each consumer’s personal information.
  3. If an employee accesses secure electronic information from the company, the employee must use a virtual private network or a similar system that requires authentication to access. Any devices must have up-to-date security updates or patches.
  4. A licensee may not keep any physical business records at a location other than a licensed location. All records (physical or electronic) must be accessible from a licensed location.

The OCCC’s guidance is in effect through May 31, 2020.

Utah Department of Financial Institutions Sent a Coronavirus Communication on March 12, 2020

The Utah Department of Financial Institutions sent a communication to express the department’s expectation of mortgage companies in light of the evolving coronavirus pandemic. If a company determines it is in the best interest of its employees or customers to temporarily reduce or suspend operations or reduce operating hours, the company is allowed to proceed. It is not necessary to obtain the department’s approval.

If a company does take any action in this regard, the department requests that the company do the following:

  1. Provide adequate notice to customers.
  2. Send an email to the department’s contact of the action(s) taken to Andrea Staheli, Supervisor of Consumer Credit and Compliance for the Utah Department of Financial Institutions, at astaheli@utah.gov.

Virginia Bureau of Financial Institutions Provided a Policy Statement

The Bureau of Financial Institutions encouraged all supervised financial institutions to work constructively to mitigate the impacts of the coronavirus (COVID-19) pandemic on Virginia consumers and businesses.

The bureau stated that it is not in a position to unilaterally modify statutory requirements, but it is also mindful of the extraordinary extenuating circumstances presented by these recent events. Thus, the bureau will take such circumstances into account should a subsequent issue arise and will attempt to accommodate, consistent with law and sound practices, efforts made by licensees to minimize service disruptions.

The bureau cautioned licensees that data security, internal controls, and adherence to safe and sound lending practices must retain paramount importance in alternative work programs. The bureau will also work with financial institutions to reduce the burden when scheduling examinations and place an increased emphasis on off-site reviews and examinations.

The bureau’s policy statement is effective through June 1, 2020.

Washington Department of Financial Institutions Issued Guidance for Servicers on March 20, 2020

The Washington Department of Financial Institutions has issued guidance to all mortgage servicers so that they can alleviate the overall impact of COVID-19 on Washington borrowers who demonstrate that they cannot make timely payments. The department is encouraging servicers to:

  1. Forbear mortgage payments for 90 days from their due dates;
  2. Refrain from reporting late payments to credit rating agencies for 90 days;
  3. Offer mortgagors an additional 90-day grace period to complete trial loan modifications, and ensure that late payments during the COVID-19 pandemic do not affect their ability to obtain permanent loan modifications;
  4. Waive late payment fees and any online payment fees for a period of 90 days;
  5. Postpone foreclosures for 90 days;
  6. Ensure that borrowers do not experience a disruption of service if the mortgage servicer closes its office, including making available other avenues for mortgagors to continue to manage their accounts and to make inquiries; and

Proactively reach out to borrowers via app announcements, text, email or otherwise to explain the above-listed assistance being offered to mortgagors.

Bankruptcy, Coronavirus (COVID-19), and How Retailers Can Brace for the Impact

Bankruptcy, Coronavirus (COVID-19), and How Retailers Can Brace for the ImpactThe brick-and-mortar retail industry has been in a state of flux since online retailers such as Amazon started business in the mid-‘90s. Recent years have been particularly difficult for retailers: in 2018, retailers represented 5 of the 10 largest Chapter 11 bankruptcies. The pace of retail bankruptcies showed no signs of slowing in 2019, with retailers such as Payless Holding LLC, Forever 21, Gymboree, Z Gallerie, and many others all filing Chapter 11 petitions. As the first quarter of 2020 comes to a close, the coronavirus pandemic has left markets reeling and millions of people confined to their homes.  The long-term impact on the already-fragile retail industry may be devastating and will almost certainly be transformative.

The impact of coronavirus (COVID-19) began to be felt in early January with supply chain issues from China, the world’s leader in exports and the first country to be hit by COVID-19. Business activity in China was 85% lower in January 2020 as compared to previous years. By late February, one footwear store was experiencing shipment delays between two to four weeks. These supply chain issues have continued to reverberate as the virus spread into Europe and the United States.  On March 11, 2020, the World Health Organization (WHO) declared COVID-19 a global pandemic.

Meanwhile, as coronavirus spread rapidly across the globe, supply chain issues were no longer the only problem. The Centers for Disease Control and Prevention (CDC) has urged the suspension of gatherings of 10 or more people. Bars, restaurants, and stores in the U.S. and many other countries have closed for in-person business. In the San Francisco area, residents are under a “shelter in place” order, essentially confined to their homes except for essential activities. The Trump administration is in discussions about enforcing a possible national curfew. As governments and health organizations take these and other steps to enforce social distancing measures to slow the spread of coronavirus, consumer demand has been drastically impacted. While the recent rush to grocery and big box stores may offer a brief reprieve for certain retailers, the decline in consumer demand that is a byproduct of social distancing measures will inevitably leave its mark on the retail industry.

The economic impact of ongoing supply issues, reduced consumer demand, and collective uncertainty about how it will all end has been devastating. On March 16, 2020, after trading hit a circuit breaker within seconds of the opening of the New York Stock Exchange, the Dow Jones Industrial posted its biggest single-day drop since the 1987 crash and hit its lowest point since 2017. Trading has had to be halted multiple times in the past week to slow the market free-fall.

Retailers have been adapting to these unprecedented circumstances in real time as the pandemic unfolds. Some local companies are encouraging customers to purchase gift cards for future use or, if the capabilities are there, offer online sales or deliveries. Larger brick-and-mortar retailers with an established online presence hope that increased online sales may make up for some of the declines in in-store sales.

While there is currently a discussion in Congress of passing legislation to benefit businesses, and particularly small businesses, that are hit hardest by this crisis, the timing of such relief and ultimate benefit to retailers is uncertain.

A retailer facing financial distress can take certain steps to best position itself to weather the storm:

  • Know your documents.  Review your leases and loan documents.  Understand the default provisions. Identify any grace periods under the contracts. Determine whether your contract contains a force majeure clause, which might provide a contractual basis for terminating or suspending performance if performance becomes impossible or impracticable. With the World Health Organization (WHO) declaring a global pandemic and President Trump declaring COVID-19 a national emergency, force majeure clauses —and interpretation of these clauses by courts — will play a major role in how the economy deals with the impact of COVID-19.
  • Communicate. Reach out to your lenders and landlords. It can be a natural impulse in times of financial distress to ignore the problem and hope it goes away, but being proactive in communications with lenders and landlords can lead to better outcomes. The instability unleashed by the coronavirus is unprecedented, and parties will have a vested interest in working together to preserve the enterprise and maximize value. On March 22, 2020, an interagency group including the Fed, FDIC, OCC, and state banking regulators issued a joint statement encouraging financial institutions to work with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and relaxing reporting requirements for banks with respect to the categorization of loan modifications as “troubled debt restructurings.” These and other actions by state and federal regulators will incentivize lenders to work with their borrowers through this crisis.
  • Stay informed. Join or stay connected with industry groups that are working on behalf of retailers, including advocacy for legislative relief.
  • Review your insurance policies. Check your insurance policies to see if you already have coverage that might provide some relief during this disruption. Such policies might include:
    • Civil Authority Coverage – When the government restricts access to the policyholder’s premises, ­this type of coverage can protect for losses that arise from the physical loss of the building.
    • Business-Interruption Coverage – Typically, this type of coverage will require a “direct physical loss of or damage to” insured property, but some of these policies contain clauses for communicable diseases. If property has been lost based upon potential contamination by COVID-19, this may be considered a direct physical loss eligible for insurance coverage.
    • Trade-disruption insurance – This coverage helps protect businesses when there is a disruption in trade flows. ­This type of coverage does not usually require a direct physical loss.
  • Understand Restructuring Options. Chapter 11 bankruptcy may provide another option for retailers facing mounting financial pressure as a result of COVID-19. If retailers cannot negotiate a workout with their lenders or landlords, and potential governmental relief is not available (or not available quickly enough), Chapter 11 bankruptcy could offer a pause button for distressed retailers.

When a business declares Chapter 11 bankruptcy, the business is still able to operate in the ordinary course of business. A Chapter 11 bankruptcy imposes an “automatic stay” of actions against the debtor, which halts collection on a business’s debts existing as of the bankruptcy filing and gives a business some breathing room to stabilize operations and work on a plan to repay its creditors. Additionally, such breathing space may allow a retailer to preserve its business while it waits for possible assistance through government-funded programs.

In recent years, there has been pressure on retailers that file Chapter 11 to liquidate or reorganize on truncated timetables. This is because the retail industry is seen as having high-value goods with a lower going concern value. With COVID-19, this trend may pivot towards more traditional Chapter 11 work-out plans. A more traditional Chapter 11 plan allows a retailer to spread out debt payments over a longer time and take a comprehensive look at the business and how to adapt it to the new market.

In addition, Congress recently enacted “Small Business” Chapter 11 provisions for companies with debts under $2,725,625. Small Business Chapter 11 filings trigger the automatic stay and other bankruptcy protections, but streamline the Chapter 11 process, and reduce the cost of Chapter 11, for small businesses that qualify. With the enactment of the Small Business Chapter 11 provisions to the Bankruptcy Code, smaller companies for which traditional Chapter 11 would be cost-prohibitive may be eligible for relief.


The ability of U.S. companies to adapt to an ever-evolving business landscape is part of what helps make our economy resilient. The coronavirus pandemic will test virtually every industry, especially the retail industry, which was already struggling. But if history is any indication, businesses will adapt and emerge in some form. Consumers’ demand for goods will eventually rebound, and they will need healthy companies from which to buy. The market will adjust. Government bailouts of a massive scale for certain industries are likely inevitable and will no doubt play a significant role in future restructurings.

Bradley’s Bankruptcy and Creditors’ Rights and Retail practice groups actively represent clients in all aspects of contractual and lending relationships. We have years of experience helping clients evaluate the risk and opportunities that economic distress presents. Firm clients find early analysis of strategic options extremely helpful as they decide how to react to the changing market. While Bradley has taken measures to protect its team members and clients from the risks posed by COVID-19, our firm is fully functioning and ready to assist you. We are available to discuss navigating these challenging times with you as a valued partner.

What Will COVID-19 Relief Look Like and How Will It Affect Financial Services Companies?

What Will COVID-19 Relief Look Like and How Will It Affect Financial Services Companies?Both parties have recognized the need for significant and immediate relief to assist consumers and small businesses affected by COVID-19. On March 18, 2020, Rep. Maxine Waters (D-CA), the chairwoman of the House Financial Services Committee, released plans for responding to the COVID-19 pandemic. At this point, the plans are merely a high-level list of proposals that, if implemented, would significantly affect the financial services industry:

  • Suspension of all consumer and small business credit payments – The plans call for the suspension of all consumer and small business credit payments, including payments on mortgages, car notes, student loans, credit cards, small business loans, personal loans, etc. While the plans do not provide critical details about how these suspensions would be operationalized, they do indicate that suspended payments should not accrue interest or fees during the suspension period and that lenders should provide affordable repayment arrangements.
  • Create a means for the Federal Reserve or Treasury to reimburse creditors and servicers for lost revenue and expenses – The Federal Reserve or Treasury would provide financing related to the suspended credit payments in order to allow financial institutions to remain solvent.
  • Suspend all negative consumer credit reporting – The plans call for a suspension of all negative credit reporting for the duration of the pandemic and for 120 days after the pandemic, as well as a prohibition on lowering consumer’s credit scores. This proposal is far broader than the existing guidance from Fannie Mae and Freddie Mac regarding mortgages.
  • Prohibition on debt collection activities – The plans propose a complete moratorium on all consumer debt collection, repossessions, and wage garnishments for the duration of the pandemic and for 120 days after the pandemic. While details are not provided, we presume this includes collection calls and mailings, as well as any litigation to pursue collection.
  • Moratorium on foreclosures, evictions, and repossessions – The plans would ban all foreclosures, including the initiation of new foreclosure actions, as well as the suspension of all pending foreclosure actions, evictions, and repossessions, for the duration of the pandemic. This proposal aligns closely with the foreclosure moratoriums recently issued by Fannie Mae, Freddie Mac and HUD.
  • Forbearance for mortgages secured by rental properties – The plans would require lenders to institute forbearance programs for mortgages secured by rental properties.
  • Designate $290 million for fair housing enforcement activity – The plans would provide $90 million to state and local agencies to deal with fair housing related complaints and investigations, including pandemic-related scams, as well as $200 million to HUD’s Office of Fair Housing and Equal Opportunity.
  • Suspend commercial rental payments by private sector actors – The plans would suspend rental payments for small businesses and non-profit organizations.
  • Enhanced corporate disclosures – The plans would require the SEC to implement rulemaking requiring companies to disclose their supply chain disruption risks, as well as their pandemic risks.
  • Moratorium on federal rulemaking – Federal financial regulators would be prohibited from rulemaking, with the exception of rulemaking related to COVID-19, during the pandemic.
  • Ban on stock buybacks and dividends – The plans would ban corporate stock repurchase activities and paying dividends until the impact of the coronavirus on the American financial system has ended.
  • Requirements on corporations receiving government assistance – Corporate recipients of government assistance would have to implement restrictions on executive compensation, golden parachutes, stock buybacks, and dividend payments. Additionally, these companies would have to provide additional disclosures, including human capital disclosures, environmental disclosures, social and governance disclosures, and disclosures regarding how the company uses financial assistance to support the company’s employees.
  • Forgive at least $10,000 of student loan debts for each borrower – The plans would require a minimum $10,000 reduction for each borrower with student loan debt.
  • Repayment arrangements – The plans would require lenders to offer borrowers affordable repayment arrangements that would allow borrowers to repay arrearages without late fees or back interest.

Many of Rep. Waters’ proposals may fail to garner necessary support in Congress. Indeed, on March 19, 2020, Senate Majority Leader Mitch McConnell introduced a COVID-19 relief bill that was focused on cash payments to affected Americans, small business loans, loans to support affected industries, and resources to combat the virus. However, Congress is under immense pressure to pass additional COVID-19 relief, and it is possible that some of the ideas from Rep. Water’s plans could find their way into a pending or future proposed relief package. We urge financial services companies to closely monitor any updates and work through their government relations groups and industry trade associations to ensure COVID-19 relief legislation incorporates industry feedback.

Bradley’s Financial Services and Governmental Affairs practice groups are actively monitoring and engaging with Congress and the administration on these issues.  Please contact Brian Epling, Lee Gilley, Christy Hancock, Alex McFall or David Stewart if you have any questions or would like to engage in the COVID-19 policy process.

COVID-19 and the Mortgage Industry: 7 Things We Know Today

COVID-19 and the Mortgage Industry: 7 Things We Know TodayOperating a financial institution is always a challenge, but the COVID-19 outbreak has triggered a unique set of overlapping and sometimes conflicting concerns for mortgage originators and servicers. Here is what we know as of March 20:

  1. On March 18, 2020, HUD issued Mortgagee Letter 2020-04, announcing a 60-day moratorium for foreclosures and evictions, effective immediately. The moratorium applies to all properties secured by FHA-insured single-family mortgages and Home Equity Conversion Mortgages (more commonly known as HUD reverse mortgages). CFPB Director Kathleen Kraninger issued a statement commending HUD’s action and expressing support for “appropriate flexibilities” to benefit consumers.

On the same day, the Federal Housing Finance Agency (FHFA) announced a 60-day moratorium for foreclosures and evictions for properties secured by Enterprise-backed mortgages (i.e., mortgages held or securitized by Fannie Mae or Freddie Mac). Fannie Mae and Freddie Mac have yet to provide specific instructions for implementing the moratorium. For now, mortgage servicers should assume that the moratorium is as least as broad as the one announced by HUD.

We discuss the HUD Mortgagee Letter and the FHFA announcement in more detail here.

  1. Federal regulators have not provided definitive guidance for how mortgage servicers should report account information to the credit reporting agencies while the moratorium (or the COVID-19 outbreak generally) is in place. As discussed elsewhere, many policymakers have specifically identified adverse credit reporting as a potential problem and have urged lenders not to provide adverse information regarding borrowers who are delinquent or in default possibly as a result of the virus outbreak. Reporting such accounts as affected by a “natural disaster” carries some risk of being inaccurate and creating operational issues.

Fannie Mae issued a Lender’s Letter directing servicers to suspend credit reporting “during an active forbearance plan, or a repayment plan or Trial Period Plan where the borrower is making the required payments as agreed, even though payments are past due, as long as the delinquency is related to a hardship resulting from COVID-19.” Similarly, the Veterans Administration has issued a bulletin directing servicers to suspend adverse credit reporting for “affected” loans. Servicers should follow Fannie Mae’s and the VA’s guidance as to any applicable loan where the servicer has a basis for believing the default or deficiency is related to the virus outbreak. Servicers may want to consider implementing broader suppression policies that would cover loans that are delinquent or in default but for which the servicer has not received a request for forbearance or other indication that the delinquency or default is related to COVID-19. Each servicer will need to review its own system and assess whether suppressing reporting for all accounts would avoid inaccurate reporting without creating significant operational issues.

  1. Some states have stepped ahead of the federal regulators in seeking to provide relief to mortgagors. Gov. Andrew Cuomo of New York announced yesterday in a press conference that the State of New York would “waive” or “defer” (the announcement was unclear) certain mortgage payments for a period of 90 days and further mandate no negative reporting to the credit bureaus. Some jurisdictions, including Miami, San Jose, and Las Vegas, have effectively suspended judicial foreclosures and evictions by closing the courts responsible for those functions.
  2. State shut-down and “shelter in place” orders have also disrupted foreclosure operations, even in non-judicial foreclosure states. Borrowers and potential bidders may not be able to access sales locations, even if sales could otherwise proceed. Similarly, vendors providing document custody or other foreclosure-related services may be operating at a reduced capacity. Any company trying to pursue foreclosures should consult with counsel to identify and assess a number of legal and practical issues before proceeding.
  3. As many states have closed “non-essential” offices, jurisdictions across the country have shut down land recording offices. Lacking access to recording offices will create obvious issues for originators trying to originate new loans (as applications continue to pour in as a response to historically low interest rates), as well as for servicers handling an increased volume of reconveyances and releases for existing mortgages. Many jurisdictions allow for electronic recording; these jurisdictions are generally able to operate at lower staffing levels and may remain open even when other offices have closed. For jurisdictions where there are no options to record documents currently, originators and servicers need to be diligent about documenting their efforts to record the necessary documents and the hurdles in the way.
  4. As originators struggle to find ways to close loans in a social distancing environment, the use of remote notarization has found renewed support. On March 18, Sens. Kevin Cramer and Mark Warner proposed the bipartisan Securing and Enabling Commerce Using Remote and Electronic (SECURE) Notarization Act of 2020, which would permit the nationwide use of remote electronic notarizations. The bill is supported by the Mortgage Bankers Association, the National Association of Realtors, and the American Land Title Association.
  5. As originators move to having loan originators work remotely, they face potential risks associated with authorized licensing locations. In recent years, state licensing regulators have cracked down on licensing locations and penalized companies for allowing their loan originators to work remotely – such as at home or in coffee shops – if those locations are not specifically licensed. As discussed here, regulators in Washington, Connecticut, New York, Massachusetts, Michigan, Alabama, Idaho, Nebraska, Montana, Oregon, Alaska, Arkansas, Maryland, New Hampshire, North Dakota, Oklahoma, South Dakota, Vermont, Nevada, Rhode Island, Mississippi, Kansas, Wisconsin, Colorado, Iowa, Louisiana, New Mexico, Indiana, Minnesota, West Virginia, and Texas have issued guidance regarding whether loan originators may work from an unlicensed home location. We anticipate more guidance will be forthcoming.

Mortgage Servicing Compliance Challenges Associated with Verbal Loss Mitigation Applications, Short-Term Repayment and Forbearance Plans Will Be Amplified by COVID-19

Mortgage Servicing Compliance Challenges Associated with Verbal Loss Mitigation Applications, Short-Term Repayment and Forbearance Plans Will Be Amplified by COVID-19While paying attention to the CFPB’s guidance in its Supervisory Highlights reports is always important, in the midst of the COVID-19 pandemic it is now critical that mortgage servicers be mindful of the loss mitigation violations that were described in the Winter 2020 edition. In its Winter 2020 Supervisory Highlights report, the CFPB described several legal violations that it had uncovered during recent supervisory activities. With respect to mortgage servicing, the CFPB noted different ways in which entities failed to comply with Regulation X’s loss mitigation requirements. Two compliance issues – the failure to recognize verbal loss mitigation applications and the failure to comply with the CFPB’s rules related to short-term loss mitigation options – are particularly relevant in the context of what is now happening across the country with COVID-19.

Mortgage servicers are already reporting an uptick in requests for assistance from borrowers who are impacted by the pandemic. As servicers continue to field calls for help, they should be mindful of what the CFPB published related to compliance with loss mitigation obligations. We previously wrote about the issues surrounding verbal loss mitigation applications and encouraged servicers to be vigilant in recognizing when a borrower’s request for help meets the standard of a loss mitigation application under the law, regardless of whether it is in writing or over the phone.

The CFPB’s current guidance to consumers that may be impacted by COVID-19 and are not able to pay certain bills is to contact the servicer, inform the servicer about the situation, and be prepared to discuss income, expenses and assets.

The conversations that the CFPB is encouraging homeowners to have with their lenders and servicers may very likely rise to the level of a loss mitigation application. Again, servicers who don’t have a process in place to recognize or take in verbal applications should tread carefully.

The other issue the CFPB raised in the Winter 2020 report related to short-term loss mitigation options, which is also likely to be prevalent as borrowers impacted by COVID-19 need temporary assistance to help get through tough times that may lie ahead. The CFPB explained that at least one entity fell short when managing short-term forbearance offers made in connection with a disaster. In that case, the servicer would offer a forbearance to any borrower “in a disaster area [who] experienced home damage or incurred a loss of income from the disaster.” The CFPB notes in the report that “[b]orrowers did not submit any form of written application to receive the forbearance. Rather, borrowers spoke with the servicers over the phone about their financial concerns due to the disaster and received the forbearances based on these conversations.”

The CFPB explains in the report that the conversations the borrowers had with their servicers qualified as a loss mitigation application under Regulation X, and that servicers failed to send the notice that is required when a short-term forbearance (or repayment plan) is offered. Although short-term forbearance and repayment plans can be offered at any time, they are particularly common in response to disasters and are likely to be heavily relied upon as we navigate COVID-19. Fannie Mae and Freddie Mac, for example, are encouraging the use of forbearance plans to help borrowers in need. Therefore, servicers should make sure their processes align with the requirements of Regulation X to avoid compliance issues and being the subject of future Supervisory Highlights reports.

As a reminder, there are several requirements in Regulation X related to short-term forbearance and repayment plans:

  • In order to offer a short-term forbearance or repayment plan based off of an incomplete application, the plan must meet certain criteria. This includes certain limitations on the number of payments that can be addressed and the length of time a borrower can be given to repay amounts owed.
  • A servicer must provide a notice to the borrower promptly after offering a short-term forbearance or repayment plan. The notice must include certain content, including the specific payment terms and duration of the program or plan, and a statement that the servicer offered the program or plan based on an evaluation of an incomplete application.
  • Short-term forbearance and repayment plans are considered loss mitigation options under the law, so dual tracking restrictions apply while a borrower is complying with the plan’s terms.

Although things continue to change and evolve on a daily basis, mortgage servicers should be mindful of their obligations, particularly since the volume of calls from borrowers seeking help is likely to continue to rise. As the volume increases, so will the risks servicers face if they do not handle loss mitigation obligations properly.

How Is the COVID-19 Pandemic Impacting the Student Lending Industry?

How Is the COVID-19 Pandemic Impacting the Student Lending Industry?Like the country and economy at large, the COVID-19 pandemic is significantly impacting secondary education and the student lending industry. In response to the pandemic, colleges across the country closed their campuses, sent students home, and turned to online learning platforms, creating uncertainty for current student borrowers. President Trump, Congress, and the U.S. Department of Education are also attempting to address the potential repayment hardships for borrowers caused by business closures and quarantines. Below, we breakdown some of the latest news on how the COVID-19 pandemic is affecting the student lending industry.

  • While no one can be certain at this time, President Trump’s administration and the CDC have both suggested that social distancing policies — that may require college closures or a shift to online learning — may last at late as August. This uncertainty will certainly impact enrollment for summer semesters and could impact fall enrollment. Origination of new loans will likely slow. On a more positive note, low interest rates could lead to a boom in student loan refinancing.
  • Federal Guidance

President Trump announced that his administration would waive the interest on all federally held student loans. Nothing written has been provided on this policy as of the time of publishing this post, but the plan is generally believed to be structured as follows:

  • The interest waiver applies to all federally held student loans, which includes direct loans, Family Federal Education Loans (FFEL), Perkins Loans, Parent Plus and Grad Plus loans.
  • The interest waiver will be applied retroactive to March 13, the date of the announcement.
  • The interest waiver will be applied automatically — borrowers will not need to request the waiver.
  • While it is unclear exactly how the waiver will affect monthly payment amounts, it is believed that the interest waiver will not lower the borrower’s monthly payment amount, but rather the whole payment will be applied to principle. If structured this way, the waiver may not result in a decrease in monthly payments.
  • President Trump and the Department of Education have stated that forbearance agreements will be available to those affected by COVID-19 and unable to make a payment. Servicers may need to boost their capacity to field requests for forbearance and other loss mitigation plans, if demand increases due to extended social distancing policies or an economic slowdown.

While additional guidance from the Department of Education may help clarify this plan for servicers, it currently looks to be a significant logistical challenge for servicers to implement the interest waiver.

  • On March 5, the Department of Education issued guidance for interruptions in study for current students, which addresses situations including professional judgment, satisfactory academic progress, enrollment status reporting, and length of academic year for students. As it relates to the repayment of loans for a current or upcoming enrollment term, the guidance provides some relief for current students. Where a loan has already been distributed for a term, but the student was unable to begin attendance due to a coronavirus-related closure, the provisions of 34 CFR § 668.21(a)(2)(ii), requiring the institution to notify the servicer of that student’s failure to begin attendance, do not apply. Accordingly, the institution should not notify the servicer, and the student borrower will instead be permitted to repay any Direct Loan funds received under the terms of the promissory note. This also prevents the student from entering repayment within six months of withdrawing if the student withdrew because of a coronavirus-related interruption.
  • Legislation
    • The Supporting Students in Response to Coronavirus Act was introduced in both the House and the Senate on March 13. As it relates to loan repayment, the proposed legislation provides flexibility for secondary education students to ensure continued access to federal financial aid to help remove the financial stress caused by a temporary leave of absence related to COVID-19. The legislation would exempt students from repaying student loans that were taken out for a disrupted term by providing a temporary waiver of Return of Title IV Rules, which require repayment of federal student loans for certain situations. Additionally, the proposed legislation relaxes financial aid rules related to satisfactory academic progress and subsidized loans.
    • On March 19, Sens. Schumer, Murray, Brown, and Warren unveiled an expansive proposal for direct payments for federal student loan borrowers. Under this proposal, the Department of Education would make payments equivalent to the amount due for all federal student loan borrowers (including Direct Loans and FFELs) for the duration of the national emergency declaration. The plan calls for the Department of Education to pay down a minimum of $10,000 for all federal student loan borrowers. The plan would also stop all garnishment of wages, tax refunds, and Social Security benefits, as well as formalizing the previously announced waiver of interest. After the national emergency declaration has been lifted, the senators’ plan would give student loan borrowers a three-month grace period, during which missed payments will not result in fees, penalties, or negative credit reporting.
  • State Action
    • Andrew Cuomo announced on March 17 that student debt owed to the State of New York and referred to the New York Attorney General’s Office for collection will be frozen for the next 30 days. It appears that about 165,000 cases fall within this freeze. The policy also suspends the accrual of interest and fee collection during the freeze. The policy will be reassessed after the 30-day period ends.

Bradley will continue to monitor the coronavirus developments affecting the student lending industry and will provide updates as new information becomes available.

Four Additional States Issue New Guidance Relating to Working from Home; Massachusetts and New York Supplement Previous Guidance

Four Additional States Issue New Guidance Relating to Working from Home; Massachusetts and New York Supplement Previous GuidanceAs we continue to follow the trend of regulatory agencies providing guidance allow working from home for financial services professionals while the COVID-19 outbreak progresses, we summarized the additional guidance issued in the recent past and current as of March 19, 2020.

Colorado Department of Regulatory Agencies, Division of Real Estate Issued an Advisory on March 16, 2020

The Division of Real Estate reminds companies that the State of Colorado does not license mortgage companies, as those entities are only required to register with the Nationwide Mortgage Licensing System and Registry (NMLS). Therefore, the Colorado Board of Mortgage Loan Originators does not have any requirements concerning the location of where a mortgage company is doing business in Colorado, as long as they are operating legally in the state in accordance with standards determined and administered by the Colorado Secretary of State.

With regard to Colorado mortgage loan originators (MLO), the Mortgage Loan Originator Licensing and Mortgage Company Registration Act and the Board of Mortgage Loan Originator administrative rules are silent regarding the location of where an MLO is required to operate their business and perform licensed activities. Therefore, an MLO is able to perform their mortgage-related activities at a location other than at their registered license location.

Iowa Division of Banking Issued Regulatory Guidance on March 18, 2020

The Iowa Division of Banking is allowing licensees, registrants, and their employees, including licensed or registered mortgage loan originators, to work remotely from their residence or another location designated by the employer during the COVID-19 pandemic, even if the residence or designated location is not a licensed or registered location.

The Division suggests the following best practices for remote workers to ensure that all licensees maintain information security even while working from remote locations:

  • Computers and devices that leave a licensee’s authorized location(s) should include at-rest encryption.
  • If paper records containing confidential information are taken off the premises of a licensee’s authorized location(s), procedures must be established to secure that information at the offsite location.
  • Connections to the licensee’s authorized location(s) or sensitive systems via any out-of-office device (e.g., laptop, desktop, phone, tablet) should be encrypted in transit by use of a virtual private network (VPN) or similar technology that requires a password or other form of authentication.
  • Activity should be conducted in a private home environment, avoiding public areas such as coffee shops or libraries.

The division reminds licensees that all other Iowa laws remain in effect, and it is still the responsibility of all licensed companies to oversee the activities of their employees and to conduct business in a manner that otherwise complies with all applicable Iowa laws during this emergency. All licensed companies must have temporary policies, procedures, and a plan for supervision of employees in place.

Louisiana Provided Guidance to Residential Mortgage Lenders/Brokers/Originators Regarding COVID-19 Procedures on March 18, 2020

The Louisiana Office of Financial Institutions issued an emergency declaration allowing Louisiana licensed companies to temporary close licensed locations, relocate licensed locations and allow mortgage loan originators (MLOs) to work from home. Any licensee whose business is materially affected by the health crisis should contact the Office of Financial Institutions immediately regarding the temporary location.

The required prior written notice for office changes is waived during this time period, and the fees associated with the location change will be considered for waiver on a case-by-case basis. Licensees should provide their temporary locations to the regulator by email (ofiland@ofi.la.gov), U.S. mail, or fax. The information should not be updated in the NMLS at this time. The notification information should include:

  • Name/address of closed location
  • Name/address/contact information of the new location
  • Such other information that the commissioner may request

This declaration is set to expire on April 9, 2020.

Massachusetts Division of Banks Supplemented Previous Guidance on March 19, 2020

Supplementing previously provided guidance, the Division of Banks understands that business interruptions may take place as a result of COVID-19. The Division of Banks wishes to remind its licensees to minimize disruption to consumers and communicate with consumers regarding any closures. The Division of Banks also encourages re-opening locations that are impacted by COVID-19 when practicable.

The Division of Banks also requests that licensees notify their office regarding any location closures, business disruption, or other significant disruptions to the operations of the business relating to COVID-19. Such information is critical so that the Division of Banks can monitor the industry and understand local and systemic issues.

New Mexico Guidance on Working from an Unlicensed Home Residence

On March 17, 2020, the New Mexico Financial Institutions Division (FID) issued a memorandum outlining temporary regulatory guidance regarding the ability of mortgage licensees to work from an unlicensed home residence. The guidance is effective until May 31, 2020, or until modified or withdrawn.

FID will permit New Mexico mortgage licensees and their staff to work from a home residence, which may not be a licensed branch location, so long as the following standards are met:

  • The company has established security protocols in place for employees to securely access systems through a VPN or other secure system;
  • Security protocols are in place to protect consumer information;
  • Company and employees do not advertise or hold their residence out as a place of business;
  • Employees do not meet with consumers at, or have consumers come to, an unlicensed residence; and
  • Companies and employees must exercise due diligence in safeguarding both company and consumer data, information and records, whether in paper or electronic format, to protect them against unauthorized or accidental access, use, modification, duplication, destruction or disclosure.

New York Department of Financial Services Granted Relief to Licensed Institutions on March 12, 2020

The New York Department of Financial Institutions has allowed the temporary relocation of any authorized place of business, as well as the closing of any such location, if adversely impacted by COVID-19, without the requisite advance notice. This relief applies to the following New York regulated institutions: New York State regulated banking organizations, foreign banking corporations, licensed lenders, check cashers, money transmitters, sales finance companies, premium finance agencies, budget planners, mortgage bankers, mortgage brokers, mortgage loan originators, mortgage loan servicers, student loan servicers, and virtual currency licensees.

Importantly, the Department of Financial Services also will allow professionals, including licensed mortgage loan originators, to work from home or other temporary locations without having first licensed those locations. To do so, however, the individual must remain subject to the full supervision and oversight of their licensed or registered employer. Those institutions must maintain appropriate safeguards and controls, including but not limited to those related to data protection and cybersecurity. Finally, if an individual will conduct licensable activity from a home that is not licensed, such individual may not meet with members of the public at their personal residence.

Pennsylvania Department of Banking Announced on March 16, 2020, That It Will Not Object to Alternate Site Arrangements

The Pennsylvania Department of Banking and Securities announced that the department had closed its offices while the Commonwealth of Pennsylvania is under a Proclamation of Disaster Emergency. The department is maintaining operations through electronic communication, and all mail must also be emailed to the department, including digital copies of checks for any paper checks that are being sent via regular mail.

The department will not object to licensees and registrants working from alternate site locations, whether licensed or not, during the time in which the Commonwealth of Pennsylvania is under a Proclamation of Disaster Emergency. Once that proclamation ceases, the expectation is that licensees will resume their traditional mode of business operations.

South Carolina Board of Financial Institutions Consumer Finance Division and South Carolina Department of Consumer Affairs Separately Issued Interim Regulatory Guidance on March 18, 2020, Regarding Working Remotely from Unlicensed Locations

The Board of Financial Institutions expressed the Consumer Finance Division’s intent to temporarily allow licensed mortgage loan originators to work from home, whether located in the State of South Carolina or another state, even if the home is not a licensed branch. The Interim Regulatory Guidance is effective through April 30, 2020. The Interim Regulatory Guidance of the South Carolina Department of Consumer Affairs is nearly identical, and the guidance in both notices follows.

If the provisions set forth below are met, the division will not take administrative or other punitive action against a licensed mortgage loan originator or the sponsoring licensed company if the mortgage loan originator conducts activities requiring licensure from home. Those provisions include:

  • The sponsoring employer must have temporary policies, procedures, and a plan for supervision in place while under the state of emergency.
  • The licensed mortgage loan originator must be able to access the company’s secure origination system (including a cloud-based system) directly from any out-of-office device the mortgage loan originator uses (laptop, phone, desktop computer, tablet, etc.) using a virtual private network (VPN) or similar system that requires passwords or other forms of authentication to access.
  • All security updates, patches, or other alterations to the device’s security must be maintained.
  • The licensed mortgage loan originator must not keep any physical business records at any location other than the licensed main office.
  • Licensed mortgage loan originators working from unlicensed homes may not meet with consumers at their home.

2019 Mortgage Log Submissions

The division recognizes the disruption associated with COVID-19 and, in coordination with the South Carolina Department of Consumer Affairs, has deferred the filing deadline for Mortgage Loan Logs until June 1, 2020. If a mortgage origination and servicing company submits a completed 2019 Mortgage Loan Log by June 1, 2020, the division and the department will not take punitive action against the licensee and will not assess the statutory late fee of $100 per day.

Credit Reporting During the COVID-19 Outbreak: Fannie Mae and the VA Offer New Guidance

Credit Reporting During the COVID-19 Outbreak: Fannie Mae and the VA Offer New GuidanceWe previously blogged about the push among lawmakers and regulators to encourage or force financial institutions to cease providing adverse credit reporting on consumer loans where the delinquency or default may be related to the outbreak of COVID-19. Given the rapidly changing environment, it is not surprising that there have been some material changes in the past two days.

On March 18, Fannie Mae issued a Lender’s Letter  directing servicers to suspend credit reporting “during an active forbearance plan, or a repayment plan or Trial Period Plan where the borrower is making the required payments as agreed, even though payments are past due, as long as the delinquency is related to a hardship resulting from COVID-19.” Similarly, the Veterans Administration has issued a bulletin directing servicers to suspend adverse credit reporting for “affected” loans. Servicers should follow Fannie Mae’s and the VA’s guidance as to any applicable loan where the servicer has a basis for believing the default or deficiency is related to the virus outbreak.

Mortgage servicers may want to consider implementing broader suppression policies that would cover loans that are delinquent or in default but for which the servicer has not received a request for forbearance or other indication that the delinquency or default is related to COVID-19. Such an approach would anticipate even more rigorous restrictions on adverse credit reporting, such as those envisioned in Representative Maxine Waters’s March 11 letter or in New York Governor Andrew Cuomo’s March 19 announcement indicating that any adverse credit reporting related to the failure to make a mortgage payment for the next 90 days would be suppressed. Each servicer will need to review its own system and assess whether suppressing reporting for all accounts would avoid inaccurate reporting without creating significant operational issues.