April 10, 2020

Berger to NGA: Provide CUs relief by extending real property tax deadlines

Dan Berger

In a letter to Maryland Gov. Larry Hogan, chairman of the National Governors Association (NGA), NAFCU President and CEO Dan Berger urged the governors to pursue efforts to extend tax payment deadlines. This would create some relief for credit unions as they work to find solutions to lessen the strain on capital and liquidity.

Under the program provided by the CARES Act, borrowers may make a forbearance request to their mortgage servicer, affirm that they are experiencing a financial hardship during the coronavirus crisis, and in response mortgage servicers must provide a forbearance that allows borrowers to defer their mortgage payments up to 180 days with an option for an additional 180-day extension.

Currently, most states structure the payment of real property taxes in installments rather than in a single payment. Approximately 36 states have real property tax installments that come due between March and July and, Berger noted in the letter sent yesterday, it is “standard industry practice to advance payment of real property taxes regardless of the performance status of the loan.”

If credit unions do not pay property taxes, they may lose their rights in the collateral which results in the devaluation of the credit union’s assets and a decrease in its net worth.

“Credit unions are preparing to fund new loans to provide their members with relief during this time, with limited capital and without the reliable income of loan payments,” wrote Berger. “In this context, credit unions must also find the liquid cash to fund payments on real property taxes and other mortgage-related costs to protect the value of their collateral and the value of the American mortgage industry as a whole.

“With a significant volume of forbearance applications expected over the next few months and no relief on the required expenditures related to these loans, credit unions may see a negative impact on their net worth as they are forced to use capital reserves to cover these costs,” Berger added.

As most credit unions are small businesses, Berger said they are struggling like many others to determine how they can make payroll and fund operations that are critical to the infrastructure the country.

“Ensuring the safety and health of American citizens is paramount in this moment,” Berger concluded. “However, considering the current economic crisis, preserving the safety and soundness of our nation’s credit unions and our mortgage industry is another important objective.”

NAFCU will continue to advocate for protection and relief for credit union mortgage lenders facing an increase in forbearance requests. Read Berger’s full letter here.