The Business Council of New York State, Inc. opposes S.8744 (Sanders) / A.10532-A (Bichotte), which would mandate state regulated banks to grant up to 360 days forbearance for mortgages on residential or commercial investment property which contain one to four separate units and where the owner receives more than 30 percent or more of their income from such property after an owner’s showing of financial hardship as a result of COVID-19.
We understand the impetus for this bill and recognize that the intention of measures like this one are appropriate during these unprecedented times. We are concerned, however, that this bill has a number of problematic consequences, is far too restrictive and will ultimately cause a number of unintended consequences.
The Business Council's membership includes a number of financial institutions who lend through mortgages. Some are state-chartered and subject to this bill, and others are federally-chartered and thus not subject to this bill. One thing that unites them all is that each institution has worked, and intends to continue to work, with their customers who are struggling financially as a result of issues related to this pandemic. These banks and credit unions have worked to be flexible and creative with their customers because it is to everyone’s benefit to keep borrowers out of default. Overly broad, one-size-fits-all legislation discourages flexibility and simply encourages borrowers to go into forbearance, even when that may not be the best solution.
Further, unlike previous mandates on residential mortgage forbearance, this bill also applies to commercial lending. Commercial mortgages, by their very nature, work differently than those on residential real property. The terms of such mortgages vary far more than residential mortgages, and the pool of lenders is far wider than the scope of lenders captured in this bill. Commercial mortgages are unique and a broad measure such as this bill fails to take that into consideration.
In addition to these fundamental problems, the bill also does not address a number of practical issues related to mortgages. For example, the bill does not contemplate or address what to do with previously agreed upon forbearances, whether such forbearances are less expansive or more expansive than the narrow allowances of this bill.
Also, and no less important, the bill fails to substantially deal with the treatment of escrow during forbearance. For smaller community lenders, the increased potential burden of covering a lender’s taxes and property insurance may prove to be extremely detrimental to the institution in such a trying financial times. These are institutions that we simply can’t risk losing.
As mentioned above, The Business Council appreciates the good intentions that lead to this legislation, but has deep concerns that the bill is ripe with issues that make it highly problematic and may potentially risk the financial health of lenders. For these reasons, The Business Council opposes the passage of S.8744 (Sanders) / A.10532-A (Bichotte).