On June 17, 2020, the Office of the Comptroller of Currency (“OCC”) issued Bulletin 2020-62 (the “Bulletin”), which addresses federal preemption of state and local COVID-19 relief programs. The Bulletin—addressed to national banks and federal savings and loan associations—is designed to provide guidance to banks regulated by the OCC in light of the myriad of state and local regulations prohibiting or limiting foreclosure due to the COVID-19 pandemic.
On March 13, 2020, President Donald J. Trump issued a Proclamation Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak. This proclamation was followed on March 27, 2020 by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was aimed at providing assistance to individuals and businesses affected by the pandemic. The CARES Act includes several provisions affecting mortgage servicing and protecting borrowers with federally backed mortgages (i.e., loans that were purchased or securitized by Fannie Mae or Freddie Mac and loans made, insured, or guaranteed by the Department of Housing and Urban Development, the Department of Veterans Affairs, or the Department of Agriculture), such as a moratorium on foreclosures, except with respect to vacant and abandoned property and also the availability of forbearance for borrowers experiencing a financial hardship due to the COVID-19 emergency. It also provides other protections for multifamily and investment property.
In response to the COVID-19 pandemic, numerous states and municipalities also issued emergency proclamations and orders imposing limits on default servicing. For example, Governor Kimberly K. Reynolds of Iowa issued a Proclamation of Disaster Emergency on March 19, 2020, suspending most evictions in the State of Iowa and then another Proclamation on March 22, 2020 that suspended foreclosures—without exception—until the expiration of the Proclamation. In Florida, Governor Ron DeSantis issued an executive order, which has been extended through July 1, 2020, halting the filing of new residential foreclosure actions in all Florida state courts. Finally, in Massachusetts, the legislature passed an expansive law staying all non-essential residential and certain small business evictions, as well as placing a moratorium on foreclosures of certain owner-occupied buildings.
Together, these executive actions and laws (and others) create a patchwork of regulations governing how servicers must treat borrowers in default. Because of the piecemeal nature of these orders and laws, federally chartered banks operating across many states face a minefield of new regulations relating to the COVID-19 pandemic, which directly affects their ability to service loans in default. The OCC Bulletin explains that, while it recognizes the importance of “prudent and proactive efforts to assist individuals affected by the COVID-19 emergency,” the “proliferation of a multitude of competing requirements will conflict with banks’ ability to operate effectively and efficiently, potentially increasing the risk to banks’ safety and soundness and ultimately harming customers.” Further, federal preemption “permits banks…to achieve efficiencies associated with operating under a uniform set of rules.” The Bulletin therefore explains that national banks and federal savings associations are “governed primarily by uniform federal standards and generally are not subject to state law limitations.” Because OCC regulations preempt state laws that conflict with the real estate lending powers of banks, the OCC explains that state action that limits banks’ ability to foreclose on a defaulted loan and take possession of collateral “would interfere with banks’ powers to make secured mortgage loans” as provided for in (among other statutes and regulations) 12 U.S.C. § 371.
Ultimately, the Bulletin concludes with a request that states and localities expressly exempt federally chartered banks from their laws.
At this time, the Bulletin is nothing more than a recommendation from the OCC. Because it did not go through the notice and comment period that a regulation must undergo under the Administrative Procedures Act, it is not provided the same amount of deference as a regulation. Instead, the Bulletin would only constitute persuasive authority. For that reason, we would strongly encourage that any federally chartered bank attempt to comply with local rules—especially the emergency proclamations, which either have or will sunset shortly—to avoid litigation on the issue. Moving forward, however, hopefully states and municipalities will take the Bulletin into account when crafting rules for mortgage default servicing so that federally chartered banks are explicitly exempted from those regulations. Further, the Bulletin may provide something of a shield in the event of an inadvertent violation of one of the myriad regulations affecting foreclosures and evictions.