July 14, 2020

Volume X, Number 196

July 14, 2020

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July 13, 2020

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COVID-19 Update: DFS Releases Emergency Regulation on Forbearance Actions

The New York State Department of Financial Services (“DFS”) has issued an emergency regulation on Governor Andrew Cuomo’s Executive Order No. 202.9 from March 21 (the “Executive Order”).  As discussed in our memorandum from March 23, the Executive Order temporarily requires, among other things, that banks subject to the jurisdiction of the DFS grant 90-day forbearance relief to “any person or business who has a financial hardship as a result of the COVID-19 pandemic.”  The Executive Order has sparked a flurry of questions within the lending market as to the scope of parties and products covered by its terms.

The new regulation, which was issued by the DFS on March 24, requires that “New York regulated institutions” provide residential mortgage forbearance on property located in New York for a period of 90 days to any individual residing in New York who demonstrates financial hardship as a result of the COVID-19 pandemic, subject to the safety and soundness requirements of the regulated institutions.  Importantly, under the regulation: (i) forbearance is required only in respect of residential mortgages of individuals; (ii) commercial mortgages and other loans are expressly excluded; and (iii) mortgage loans made, insured or securitized by any U.S. government instrumentality, government-sponsored enterprise or Federal Home Loan Bank, or the rights and obligations of any lender, issuer, servicer or trustee of such obligations, including servicers for Ginnie Mae, are excluded.

For purposes of the regulation, a New York regulated institution is “any New York regulated banking organization as defined under New York Banking Law and any New York regulated mortgage servicer entity subject to the authority of the [DFS].”  The regulation does not apply to national banks located in New York (as they are chartered under federal law) or to the New York branches of foreign banks (as they do not fall within the term “banking organization” under Section 2(11) of the New York Banking Law, which includes “all banks, trust companies, private bankers, savings banks, safe deposit companies, savings and loan associations, credit unions and investment companies,” and which has not been interpreted to otherwise encompass branches of foreign banks for purposes of the regulation).

The regulation outlines the qualifying criteria for individuals affected by the COVID-19 pandemic to apply for forbearance relief and the procedures that New York regulated institutions shall follow in processing applications and communicating to applicants.  According to the regulation, institutions that make “prudent and reasonable efforts to grant forbearance of any payment on a residential mortgage” will not be criticized by the DFS in supervisory examinations.

© Copyright 2020 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume X, Number 85


About this Author

Scott Cammarn Financial Law Attorney Cadwalader Law Firm

Scott Cammarn has 28 years of experience in the banking industry and his legal career has spanned all areas of banking compliance and finance law. His practice focuses on regulatory matters, mergers & acquisitions, legislation, transactions, and training. He represents a number of national and international financial institutions and has practiced before the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, and numerous state banking departments.

Mark Chorazak, Cadwalader Law Firm, New York, Corporate and Finance Law Attorney

Mark Chorazak is a partner in the Financial Services Group. Mark represents financial institutions on a wide range of bank regulatory, transactional and compliance matters. He regularly counsels banks, thrifts, investors and other financial services firms on strategic matters and compliance issues arising under the Bank Holding Company Act, the Dodd-Frank Act and other key U.S. banking laws. Among other areas, his practice encompasses Volcker Rule compliance, fintech and financial innovation issues, authority and control matters, anti-money laundering counseling, corporate governance and enforcement actions. In addition, he advises on capital and debt offerings, bank mergers and new charters, as well as on minority investments in bank and non-bank financial institutions by private equity firms. 

Mark joined the firm from Simpson Thacher, where he was the lead regulatory counsel on some of the largest bank mergers since the financial crisis.

Mark received his J.D. from Duke University School of Law, where he was Editor of the Duke Law Journal and won the Bidlake Prize for Excellence in Legal Writing. He received his MSc in 2002 from Oxford University and his B.A., summa cum laude, from Syracuse University in 2000.