Covid-19 Impact on Mississippi Financial Institutions
Prepared by Shauncey H. Ridgeway
March 26, 2020
The economic impact of the coronavirus disease (“coronavirus”)[1] will be hard felt and far-reaching for consumers and business owners both large and small. It is inevitable that consumers facing temporary unemployment or unpaid leave and business owners facing decreased revenues will increasingly begin struggling to maintain their outstanding debts. Over the duration of this pandemic, creditors are going to see a plethora of emergency response measures put into place by federal and state mandates alike to ease the economic burden on consumers and businesses affected by the coronavirus.
The FDIC & Government Mandates
The FDIC began sharing a series of press releases and financial institution letters just before the World Health Organization declared the coronavirus a pandemic and called for financial institutions to work with impacted customers. [2] The FDIC’s call to financial institutions is aimed at facilitating efforts to serve the long-term interest of both communities and financial systems affected by the coronavirus. Following on the heels of the FDIC statement, the White House ordered the Department of Housing and Urban Development to suspend evictions and foreclosures for the next 60 days for mortgages on single-family homes that are backed by the Federal Housing Administration (“FHA”).[3] The Federal Housing Finance Agency similarly directed Fannie Mae and Freddie Mac (the “Enterprises”) to adopt the same suspension protocols in addition to its previous announcement that it would provide payment forbearance of up to 12 months to borrowers impacted by the coronavirus for undue hardship.[4]
Multiple states are also beginning to implement relief measures for those impacted by the coronavirus. On Saturday, Mississippi’s governor issued Executive Order No. 1462 suspending all collection activities concerning such measures established by the Mississippi Department of Employment Security (“MDES”).[5]
Implications for Lenders
So what does all of this mean for lenders? How do lenders address breaches and events of default that would otherwise entitle lenders to exercise their rights under the loan documents? And what do lenders’ responses look like?
Of note, the moratorium on evictions and foreclosures for FHA- and Enterprise-backed mortgages not only prevents the initiation of new foreclosures but also suspends such foreclosure actions that are currently in progress.
Mississippi institutions should also note that the governor’s executive order suspending collection activities established by MDES is inclusive of but not limited to interception of tax refunds, payment agreements, lien enrollment activities, tax garnishments, and claimant overpayment garnishments.[6] The suspension on such collection activities is currently in effect through June 27, 2020.[7] While Executive Order No. 1462 appears to be limited to collection efforts by MDES, as opposed to a blanket suspension on all collection activities generally, banks should assess customer accounts as appropriate to ensure garnishments levied by MDES are suspended.
The FDIC provided additional clarification for lenders in a statement released on Sunday. In its Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus, the FDIC stressed the importance of actively working with borrowers affected by the coronavirus. In sum, this latest FDIC statement clarifies that the FDIC:
- Will not criticize institutions for prudent loan modifications;
- Will not direct supervised institutions to automatically categorize COVID-19-related loan modifications as troubled debt restructurings (“TDRs”);
- Confirmed with staff of the Financial Accounting Standards Board (FASB) that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs;
- Views that modification efforts described in the interagency statement for borrowers of one-to-four family residential mortgages where loans are prudently underwritten and not past due or carried in nonaccrual status do not result in loans being considered restructured or modified for the purpose of respective risk-based capital rules; and
- Views prudent loan modification programs to financial institution customers affected by COVID-19 as positive actions that can effectively manage or mitigate adverse impacts on borrowers due to COVID-19, and lead to improved loan performance and reduced credit risk.[8]
The FDIC’s statement suggests that lenders will not be criticized for actions (or non-actions) taken in response to the coronavirus so long as lenders are making reasonable and prudent decisions to balance the interests of lenders and borrowers against that of the economy.
Lenders should maintain communications with their borrowers and their attorneys in navigating ongoing developments with state and federal mandates. Lenders would do well to advise borrowers of suspended foreclosure proceedings that were previously initiated and advise delinquent borrowers to take advantage of the moratorium period to enter into remedial agreements with their lenders. And in that same vein, lenders should consult with their attorneys before exercising any remedies they would otherwise be entitled to under loan documents. Lenders responding to increased demand for loan accommodations should also seek assistance in preparing loan modification and/or forbearance agreements to ensure they are compliant with both regular and newly emergent regulatory guidelines and directives, as well as state- and local-level mandates. While the FDIC is stressing the importance of working with borrowers, the FDIC has also stated that all accommodations made by lenders should ultimately be targeted toward loan repayment.
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[1] The World Health Organization defines coronavirus disease (COVID-19) as the disease caused by the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). It remains to be seen whether a distinction between the virus and the disease will be determinative for future relief eligibility. See https://www.who.int/emergencies/diseases/novel-coronavirus-2019/technical-guidance/naming-the-coronavirus-disease-(covid-2019)-and-the-virus-that-causes-it (last accessed March 24, 2020).
[2]https://www.fdic.gov/coronavirus/ (last accessed March 24, 2020).
[3] https://www.forbes.com/sites/advisor/2020/03/20/mortgage-relief-tracker-covid-19-relief-for-homeowners-and-renters/#7d4a34602f19
[4] https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Suspends-Foreclosures-and-Evictions-for-Enterprise-Backed-Mortgages.aspx (last accessed March 24, 2020).
[5] https://www.sos.ms.gov/Education-Publications/ExecutiveOrders/1462.pdf (last accessed March 24, 2020).
[6] Id.
[7] Id.
[8] https://www.fdic.gov/news/news/press/2020/pr20038a.pdf (last accessed March 24, 2020).