Due to the COVID-19 pandemic, individuals and businesses throughout the nation are attempting to modify their loans or obtain other forms of relief. Financial institutions have received guidance from state and federal governments, but navigating this uncertain terrain can be a challenge for both the borrower and the lender.
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. In addition to several federal payment packages distributed via stimulus checks and forgivable grants, the act outlines temporary obligations and restrictions for lenders and federally backed loan servicers.
Per the CARES Act, these lenders and services are subject to:
- Foreclosure and eviction moratoriums
- Forbearance obligations
- Credit reporting restrictions
Additionally, lenders and servicers have been cautioned against taking an aggressive approach toward borrowers who are making payments on real property but have filed bankruptcy. To help financial institutions navigate these obligations and restrictions, the FDIC has published answers to frequently asked questions.
These answers can help borrowers:
- Know what to expect from their banks, lenders, and servicers
- Know whether they are being treated fairly and lawfully
Here is an overview of the most important points in the FDIC’s FAQs.
Payment Flexibility
Financial institutions must provide accommodations such as modification, extension, and deferment of payments, but the FDIC stresses that these accommodations should aim toward repayment. Specifically, financial institutions have been encouraged to extend the terms of loans rather than simply suspend payments.
If you are struggling to make ends meet because of the pandemic, you should expect flexibility from your lender or servicer, but this flexibility is not the same as forgiveness. If you choose to take advantage of deferment or forbearance, do so only if you believe your financial hardship is temporary and you’ll be able to pay what you missed at a later time.
Real Estate Collateral
If your real estate is collateral for a secured loan, certain operations and procedures may be unfeasible because of the COVID-19 pandemic. Appraisers, for example, may not be able to enter your property and adequately assess the value. The FDIC explains that appraisers can make assumptions about your property’s interior based on other factors, such as an appraiser’s recent inspection or pictures obtained from you, the borrower. Similarly, your financial institution will not need to conduct a property valuation in order to grant a COVID-19-related loan modification.
Delinquencies and Credit Reporting
If you were current before your financial institution granted you a COVID-19-related deferral, your financial institution should not designate your payments as past due. If you were past due before the COVID-19-related deferral, the FDIC has instructed financial institutions to “freeze” your delinquency status during the deferral period. In general, creditors are prohibited from negative credit reporting if you sought relief due to pandemic-related hardship and you were current before the hardship.
Troubled Debt Restructures
If a financial institution accommodates a borrower facing financial hardship, this accommodation may be considered a Troubled Debt Restructure (TDR) if the institution would not normally have made this accommodation. Because TDRs are subject to increased regulation, reporting, and tracking, financial institutions are highly motivated to refrain from providing this degree of accommodation.
Per the CARES Act, however, not all COVID-19-related modifications will be categorized as TDRs. If the modification is short-term, made in response to COVID-19 hardship, and provided to borrowers who were current before the accommodation, it will not be considered a TDR. If you are receiving this type of modification, your financial institution has been instructed to presume you are not currently experiencing financial hardship, and this presumption will prevent classification as a TDR.
Essentially, your financial institution has been encouraged to work with you and reassured that it will not be criticized by agencies for providing accommodations.
Let Schuyler Elliott & Associates, Inc. Address Your Case-Specific Concerns
If you’re facing financial hardship because of COVID-19, you have several opportunities to obtain relief. Our legal team is fully equipped to help you find the solution you need, and, if necessary, we can negotiate with your creditors on your behalf. The federal government has instructed financial institutions to provide borrowers with additional accommodations at this time, and we are here to hold them to this expectation.
Call (770) 400-9102 or contact us online for help with your financial situation. We look forward to working with you today. Due to the pandemic, we are conducting all consultations remotely.