In response to the outbreak of the COVID-19 pandemic, the Federal Housing Finance Agency (“FHFA”), which oversees Fannie Mae and Freddie Mac, announced in March that it would give borrowers the opportunity to pause or reduce payments on multifamily loans financed by Fannie Mae or Freddie Mac. The agency action was codified by Congress, which included forbearance provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, which became law at the end of March.
Due to the ongoing effects of the pandemic, the FHFA has further extended the real estate forbearance programs timeline under Fannie Mae and Freddie Mac multifamily loans.
A SIX-MONTH BREAK
Initially, the FHFA only allowed a three-month window for forbearance. However, on June 29 the agency announced that forbearance measures would extend to six months.
The new guidelines require servicers of Fannie Mae and Freddie Mac loans to grant a three-month extension to the initial three months of forbearance following a request from a borrower who is experiencing financial hardship amid the COVID-19 outbreak. Servicers are prohibited from assessing additional interest, fees, or penalties for non-payment and must treat borrowers as if they had made their payments on time and in accordance with the terms of the applicable loan documents.
The forbearance extension is available for qualified real estate with a Fannie Mae or Freddie Mac-backed multifamily mortgage who are experiencing a financial hardship due to the coronavirus national emergency. Once the extension concludes the borrower may qualify for up to 24 months to repay missed payments.
In exchange for forbearance, building owners must, in turn, provide relief to tenants affected by the COVID-19 pandemic.
Once forbearance is granted, the borrower must agree to suspend evictions for renters unable to pay rent. Additionally, if the forbearance is extended, the repayment schedule is modified, or a new forbearance agreement is executed, the borrower is required to provide the following tenant protections during the repayment period:
- Give the tenant at least a 30-day notice to vacate;
- Not charge the tenant late fees or penalties for nonpayment of rent; and
- Allow the tenant flexibility to repay back rent over time and not in a lump sum.
MORE TO COME?
The FHFA has said it will continue to monitor the coronavirus’ impact on renters, borrowers, and the mortgage market, and update policies as needed.
In addition, Congress, at this writing, is continuing negotiations on a new coronavirus-related relief package. The legislation is likely to include an additional forbearance extension for multifamily property owners, and potentially, federal relief dollars aimed at the rental housing market. The eviction moratorium for renters would be extended, as well.
The House version of the legislation would extend forbearance rules for multi-family mortgages to private, as well as government-backed mortgages. It would also allow them a year to repay missed mortgage payments.
Mortgage servicers would also gain access to government loans and investment vehicles during the forbearance period in an effort to improve their liquidity. And a federal credit program would be established to provide long-term, low-interest loans to multi-family property owners who have lost income due to reduced rents. The loan terms would require landlords to suspend evictions and prohibit them from charging penalties for unpaid rents.
The real estate team at Kaplan Voekler Cunningham & Frank will continue to monitor developments around real estate forbearance programs and the federal government’s response to COVID-19. If you have questions about how these policies may affect your real estate investments, contact us for a consultation.