While the federal government is hastily putting together a new safety net for homeowners, proponents of housing construction fear that relief may come too late for some of those hardest hit by the pandemic.
States have a deadline this Sunday, April 25th to apply for a portion of the nearly $ 10 billion Homeowner Assistance Fund set up as part of the latest COVID-19 relief package. These funds can be used to help homeowners with mortgage, insurance, utility, and other payments. However, program participants will have to submit their plans to distribute the money for approval by the Treasury Department, and it is unlikely that even the fastest-moving states will distribute most of the money before late summer, policy experts say.
The Consumer Financial Protection Bureau is meanwhile looking for new protections for mortgage borrowers through a controversial proposal that puts a pause in initiating foreclosures until 2022. These changes are not expected to take effect until the end of August when they are complete.
Do not miss: How to Line Up for Homeowner Assistance Funds
While these relief efforts are under construction, many homeowners need immediate help. “The problem is right now,” says Alys Cohen, attorney for the National Consumer Law Center. “If we don’t act quickly, we will face large-scale unnecessary foreclosures very soon.”
Homeowners at risk include many of those with mortgages who are privately owned and have no government support. These make up about 30% of all single-family mortgages have so far been excluded from nationwide pandemic aidAs do those who don’t have a mortgage but face foreclosure due to non-payment of property taxes – a problem that is on the rise in many states, proponents of housing construction say. Many federally sponsored borrowers are also running out of time as the foreclosure moratorium on their loans expires in late June.
More than a year after the public health emergency began, millions of homeowners are still feeling the crisis. Serious mortgage defaults – which are more than 90 days late – have increased fivefold since the pandemic began, according to mortgage data provider Black Knight. As of the end of March, nearly 2.6 million borrowers were still in indulgence plans to temporarily suspend their payments. Such programs slowed many foreclosures during the pandemic, but foreclosure requests rose 9% quarter over quarter in the first quarter of this year, according to Attom Data Solutions. Part of that increase was likely due to foreclosures on vacant and abandoned properties, says Rick Sharga, executive vice president at RealtyTrac, a unit of Attom.
“The easy part was making people lenient,” said Julia Gordon, president of the National Community Stabilization Trust, a nonprofit that works to protect neighborhoods from disease. “The hard thing is getting them out of indulgence so that they stay in their homes with an affordable payment.”
Brenda Myers, 52, a homeowner in Abbottstown, Pennsylvania, knows this all too well. She fears she will lose her 28-year-old home after her current leniency expires in June. In the months leading up to the pandemic, she lost her job, her husband died after an expensive stay in a nursing home, and she was in default with the start of the COVID crisis.
Your ability to work is restricted due to injuries in a car accident. She does not have the money to update her loan and with no income she will struggle to get a loan modification.
“It’s very difficult and I’m still trying to pay for a funeral,” she says. “Forbearance is good, but it doesn’t help homeowners update their mortgages.” Given the time it might take to distribute the money to help homeowners, she says, “You will see a lot of foreclosed homes.”
The fate of many homeowners like Myers – and possible future allocations to the Homeowner Assistance Fund – will depend on how quickly and efficiently states can distribute their HAF dollars, policy experts say. The Treasury Department initially gives 10% of its total HAF allocation to each approved participating state or tribe and releases additional funds when it approves the participant’s plan to distribute the money.
It will likely take several months for the state programs to get operational, says Stockton Williams, executive director of the National Council of State Housing Agencies. Slower states might not get rolling until 2022, says Russell Graves, executive director of the National Foundation for Debt Management, a nonprofit housing advice agency.
Political experts say that states that want to step on the gas have to learn from past mistakes and – as far as possible – stick to a standardized playbook. A key precedent for the HAF, the Hardest Hit Fund program set up by the Treasury Department in 2010 in response to the last financial crisis, has an incomplete track record, according to proponents of housing construction. Some states have been slow to distribute the money, proponents say; created additional barriers for homeowners that were not mandated by the federal government; and struggled to get cooperation from mortgage service providers.
States have some leeway to improvise with their Homeowner Assistance Fund programs, which makes some policy experts nervous. Large variation between government programs “could be counterproductive to getting the money out quickly” and raises concerns about how to target funds to those most in need, said David Dworkin, CEO of the National Housing Conference. And while HAF legislation doesn’t impose excessive licensing or documentation requirements, “the question is whether states lose sight of defeat” by designing programs with more stringent requirements, says Joseph Sant, general counsel and vice president of the Center for New Yorkers Neighborhoods.
The potential for large differences between government programs is also an issue for service providers operating in many different states, says Meg Burns, executive vice president of Housing Policy Council, a trading group for mortgage lenders and service providers. The Treasury Department has announced that it will provide a template that participants can use in designing their programs.
Even if the money goes out quickly and smoothly, some proponents say many homeowners could get left out in the cold. “It’s pretty clear that $ 10 billion won’t be enough” to help all those in need, Dworkin says, although that may provide the basis for further Congressional funding.
Many proponents also sought the HAF program as backing for borrowers whose mortgages are not covered by the state-chartered Fannie Mae
FNMA + 0.41%
or Freddie Mac
FMCC, + 1.67%
or by the federal government. But Mid-April instructionsThe Treasury Department urged states to prioritize certain federal borrowers, including those on mortgages from the Federal Housing Administration, the Department of Veterans Affairs, and the U.S. Department of Agriculture.
While these guidelines are in line with the program’s goal of reaching lower-income borrowers and do not exclude non-federally supported borrowers from the program, experts say, they appear to be many lower-income home mortgage borrowers who have lower incomes and are in some cases who have withdrawn from the program did not receive pandemic relief. “People with private mortgages currently have no protection for Congress,” says Gordon. In some cases, they were exposed to harsh conditions during the pandemic, such as being asked to make a lump sum repayment when an forbearance expires – a practice not allowed for those on government-secured mortgages. “I was surprised that the focus was no longer on covering personal loans,” she says. “This is where some of the worst practices happen.”
Finance did not respond to requests for comment.
Unsupported borrowers would fall under the CFPB’s proposal to stop initiating foreclosures by 2022, with possible exceptions if servicers took certain steps to evaluate other options or made reasonable efforts to address unresponsive borrowers to contact. But this proposal also attracts fire from all sides.
One problem in the mortgage industry is that the proposal could force service providers to breach their contractual agreements with mortgage investors. “The industry can handle this, but I hope this is not a sign of how the office will behave in the future as it is very disruptive,” said David Stevens, CEO of Mountain Lake Consulting, former head of the Mortgage Bankers Association and a former FHA commissioner.
Others see a legal battle. “You have contract law among the servicers and note holders,” says Sharga. If the rule goes into the future, he says, “I would have to assume that someone will challenge this in court.”
“In general,” said a CFPB spokesman, the bureau does not believe its rule would require mortgage service providers to breach contracts with investors, but would like to review comments on the matter.
Homeowner advocates say the CFPB has the authority to stop foreclosures by the end of the year – this just isn’t the best idea for many borrowers. For example, some borrowers could face immediate risk if they come out of indulgence in 2022, “and this proposal offers them virtually nothing,” Cohen says.
The rulemaking process will also take months, but “a lot of people, especially those with personal loans, are now out of indulgence or indulgent and need help right now,” says Cohen. These borrowers “must set a standard by the office that all mortgage lenders must provide sustainable options to homeowners.”
The CFPB is concerned that some borrowers, including those whose loans are in private label securities, are falling through the cracks while the rule is finalized and are using other tools to address the problem, says Diane Thompson, a senior advisor to the office. For example, at the beginning of April The office warned mortgage servants prepared for a surge in borrowers in need of help, saying they would closely monitor responses to borrower queries.
Cohen also questions aspects of the proposal that have received less attention, including the requirement that servicers must orally disclose available leniency options when speaking to borrowers who are experiencing COVID-related difficulties and are not yet participating in such programs. “Many reports point to confusion and misinformation,” she says when borrowers speak to servicers. “Failure to put anything in writing is a significant weakness of the proposal.”
“Just because you put it in writing doesn’t mean it’s clear and someone reads it,” Thompson says. “Ultimately, we, and most homeowner advocates, want there to be a more nuanced conversation” that will help borrowers understand their options.