Agencies Move To Halt Foreclosures, Evictions Amid Outbreak

By Jon Hill
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Law360 (March 18, 2020, 3:08 PM EDT) -- President Donald Trump's administration on Wednesday announced broad moratoriums on foreclosures and evictions for homeowners with government-backed mortgages, measures intended to help provide relief to borrowers facing financial strains from the coronavirus pandemic.

Under guidance released by the U.S. Department of Housing and Urban Development, mortgage servicers are supposed to halt pending foreclosures and refrain from initiating new ones for the next 60 days for borrowers with single-family mortgages insured by the Federal Housing Administration. Evictions from properties secured by these mortgages are also to be suspended during this time period.

"Today's actions will allow households who have an FHA-insured mortgage to meet the challenges of COVID-19 without fear of losing their homes, and help steady market concerns," HUD Secretary Ben Carson said in a statement.

Separately, the Federal Housing Finance Agency said Wednesday that it is issuing a similar directive to Fannie Mae and Freddie Mac, instructing them to hold off for at least 60 days on foreclosures and evictions for homeowners with mortgages guaranteed by the two government-sponsored enterprises.

FHFA Director Mark Calabria said the move will help keep homeowners in their homes as the U.S. confronts the worsening COVID-19 outbreak, and he urged borrowers to contact their mortgage servicers if they have been affected by the virus.

"The enterprises are working with mortgage servicers to ensure that borrowers facing hardship because of the coronavirus can get assistance," Calabria said in a statement.

The actions by HUD and the FHFA cover potentially millions of borrowers and come the day after Rep. Carolyn Maloney, D-N.Y., and more than 100 other House lawmakers called on federal housing agencies to institute nationwide foreclosure and eviction freezes, citing the "untold health, social and economic damage" inflicted by COVID-19.

"This is a national emergency, and many occupants of federally-assisted housing will not be able to afford rent or mortgage payments through no fault of their own, as a direct result of emergency limitations put in place to safeguard public health," the lawmakers wrote in a letter to the heads of the FHFA, HUD, U.S. Department of Veterans Affairs and U.S. Department of Agriculture.

Similar freezes have been used in the past to provide temporary relief for borrowers in specific regions whose livelihoods have been disrupted by natural disasters, such as in the wake of Hurricanes Harvey, Irma and Maria.

But the measures announced Wednesday apply nationally and aren't limited to a specific subset of affected borrowers, exceeding the scale and scope of previous moratoriums to underscore the unprecedented nature of the threats posed by COVID-19.

"It's not an unexpected development, especially since it's happened before with other disaster relief," said Allison Schoenthal, a Hogan Lovells partner and head of the firm's consumer finance litigation practice. "How it plays out is something we need to watch — it has not always gone smoothly in the past ... Hopefully lessons learned will make this run smoother for customers and for servicers."

Dorsey & Whitney LLP partner Joseph Lynyak, a member of his firm's banking industry group, said holding off on foreclosures and evictions "makes sound sense" under the circumstances and comes with a minimal economic cost compared to its potential to help reduce transmission of the virus.

"It postpones foreclosures, which will allow defaulted borrowers to stay in their homes and not further burden the system because of the need to seek alternative housing," he said. "It allows those borrowers to remain in place and not be forced to engage in unnecessary contact with other members of the public. Finally, it also protects loan servicing and foreclosure personnel whom by this action can refrain from unnecessary contact in the community."

In a statement, the Consumer Financial Protection Bureau's Director Kathleen Kraninger, whose agency has itself urged banks and other financial institutions to be accommodating with customers contending with fallout from the pandemic, applauded Wednesday's moratoriums as an "important step in providing assurance to consumers."

She also pledged to continue to work with other federal and state regulators "to ensure we are providing appropriate flexibilities to benefit consumers during this time."

--Editing by Alyssa Miller and Adam LoBelia.

Update: This story has been updated with additional details and comment.

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