Government LendingMortgageServicing

FHFA brings foreclosures to a screeching halt for borrowers who applied for Treasury assistance

Foreclosures must be halted for at least 60 days if a borrower applied for assistance from the Homeowner Assistance Fund

Borrowers with Fannie Mae or Freddie Mac-backed mortgages have been granted an additional two months to avoid foreclosure if they’ve applied for assistance from the Department of the Treasury.

An announcement by the Federal Housing Finance Agency on Wednesday notified servicers that they must halt foreclosure activities for up to 60 days if a borrower with a GSE-backed mortgage applied for assistance from the Treasury’s Homeowner Assistance Fund (HAF).

Under the American Rescue Plan Act of 2021, HAF provides close to $9.96 billion in financial relief for homeowners, with at least 60% of the funds being targeted to lower-income homeowners. This money is allocated to states, territories, and tribal entities and then distributed to homeowners to address housing-related costs.

Sandra Thompson, the acting director of FHFA, said in a statement that giving borrowers extra time to apply for financial relief is one of the ways that the agency is supporting sustainable homeownership.

“Today’s action will provide borrowers who need temporary mortgage assistance with additional time to be evaluated for relief through their state’s approved Homeownership Assistance Fund,” she said.

The Treasury funds can be used for mortgage payment assistance, mortgage principal or interest rate reductions. Homeowners can also use the funds to pay for flood or mortgage insurance, homeowner’s association expenses, or broadband internet.

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To apply, homeowners must document and describe their financial hardship, which must have occurred after Jan. 21, 2020. They also must have incomes that do not exceed 150% of either the area median income or 100% of the median income for the United States, whichever is greater.

States and eligible territories are tasked with administering the money, subject to the Treasury’s approval. Each state must also submit its own HAF plans to the Treasury for approval. As of October 2021, only 10% of the funds have been distributed upfront for states to initiate pilot programs.

The Consumer Financial Protection Bureau has also been vocal about the importance of the Homeowners Assistance Fund and how it can be a useful tool for borrowers to avoid foreclosure.

In March 2022, the CFPB issued a warning to servicers that it will be closely monitoring complaints of servicers not giving borrowers the option or time to apply for the HAF.

The watchdog said in a blog that servicers should provide borrowers with sufficient time to move through the HAF application process prior to proceeding with foreclosures and that foreclosing on a homeowner while a HAF application is pending will “merit increased scrutiny.”

According to the CFPB, as of March 1, 2022, over 768,000 mortgages remain in active forbearance, many of these mortgages are seriously delinquent and at risk of foreclosure.

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