Roughly seven months after it was established, the $10 billion federal Homeowner Assistance Fund is expected to begin approving state plans in the coming weeks. But many homeowners won’t receive checks until 2022.
A component of the American Rescue Plan Act, the assistance fund was approved by Congress in March and allocates $10 billion to prevent homeowners from falling behind on their mortgage, losing utility services, or being displaced.
But consumer protection attorneys and servicers still have major questions about how the money will be distributed and who will be left holding the bag if something goes wrong.
According to the program rules, states and eligible territories are tasked with administering the money, subject to the Treasury Department approval. Each state must also submit its own HAF plans to the Treasury for approval. For servicers, it means that they may have to follow different rules – far from an easy task.
“I think [with] this program it’s not going to help enough people. But the ones it does, it is going to help a bunch. And you’re (servicers) going to be dealing with 50 states,” said Jason Kwasny, executive vice-president of Servicing at The Money Source Inc., during a panel in the Mortgage Bankers Association Conference in San Diego.
As part of Freddie Mac’s mission to provide liquidity, stability, affordability and equality to the housing market, Freddie Mac created its Housing Solutions team in 2020 to reduce barriers to homeownership and provide solutions to some of the nation’s toughest housing challenges.
Presented by: Freddie Mac
Nanci Weissgold, the financial services & products group co-chair at Alston & Bird, LLP, said that the mortgage servicing industry is attempting to hammer out a deal with the states so it can have one uniform cooperative agreement to distribute the funds.
“It is always easier to have these plans as consistent as possible among the states because the servicers will have to operationalize it,” she said. “And if you have 50 different plans, it makes it very challenging.”
Initially, states and eligible territories received 10% in upfront payments to develop pilot programs that are already in place in 12 states, including California, Ohio, and Tennessee.
At the moment, states are waiting to have their plans approved to receive the bulk of the funding. The Treasury Department told HousingWire this week that it has begun to send feedback to states on their HAF plans. The expectation is the agency will begin approving plans in the coming weeks.
Marina Walsh, the Mortgage Bankers Association‘s vice president of industry analysis, said the sooner the funds are spent, the more successful the program will be.
“If you’re a struggling borrower, you need the money now,” she said.
Borrowers, however, may start not receive checks until 2022, according to Weissgold. There remain outstanding questions about eligibility, such as who will be responsible for approving borrowers and how HAF funds will be applied to their payments, she said.
“Servicers don’t want to be put in that place of having somebody possibly second-guess their decisions,” she said.
Under the Biden administration, regulators at the CFPB and other agencies have loudly said they won’t tolerate servicers who don’t do right by borrowers coming out of forbearance this fall. “Unprepared is unacceptable,” the agency warned in one letter. Then, in late June the CFPB laid out the rules for mortgage servicers to follow in a 200-page guidebook.
The guidelines to the HAF program require that homeowners document and describe their financial hardship — and it has to have occurred after Jan. 21, 2020. They must also 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.
The funds can be used for mortgage payment assistance or mortgage principal or interest rate reductions. It can also be used to cover utility payments — including electric, gas, home energy (including firewood and home heating oil), water and wastewater.
Homeowners are also permitted to use the funds to pay for broadband internet, flood or mortgage insurance, homeowner’s association expenses, condo association fees, co-op fees.
The Treasury said it had discouraged participants from imposing additional eligibility criteria – such as foreclosure status, credit score, bankruptcy status, the existence of liens on the property, or previous cash-out refinances. If they do, they must explain how they would help the program reach eligible homeowners.
“All programs can be helpful. The key is making sure that the servicers and the investors are aware and understand the eligibility; then, in turn, that the customer is made aware of it,” said Perry Hilzendeger, president of servicing at Homepoint.