Homeowners’ New Safety Net Leaves Many at Risk

As the federal government hurries together a new safety net for struggling homeowners, housing advocates fear that relief will come too late for some of those hardest hit by the pandemic. the nearly $ 10 billion Homeowner Assistance Fund created as part of the latest COVID-19 relief package. Those funds can be used to help homeowners with mortgage payments, insurance, utilities, and more. But program participants must submit their plans to distribute the cash to the Treasury Department for approval, and even the fastest-moving states are unlikely to start turning over most of the money before the end of the summer, say policy experts.

Meanwhile, the Consumer Financial Protection Bureau is seeking to add new protections for mortgage borrowers through a controversial proposal that includes a pause in foreclosure initiations until 2022. Those changes, if finalized, are unlikely to come into effect. valid before the end of August. Don’t Miss: How to Queue for Homeowner Assistance Funds While these relief efforts are under construction, many homeowners need immediate help. “The problem is now,” says Alys Cohen, an attorney with the National Center for Consumer Law. “If we do not act quickly, very soon we will face unnecessary foreclosures in high volume.” Homeowners in immediate danger include many of those with mortgages that are privately owned and not federally backed, accounting for approximately 30% of all single-family mortgages and have thus far been excluded from pandemic relief nationwide, as well like those who don’t. l have mortgages but face foreclosure due to non-payment of property taxes, a problem that is increasing in many states, housing advocates say. Many federally backed borrowers are also running out of time, as the moratorium on foreclosures on their loans expires at the end of June. More than a year after the start of the public health emergency, millions of homeowners still feel pressured. Severe mortgage delinquencies – that is, more than 90 days late – has increased fivefold since the start of the pandemic, according to mortgage data provider Black Knight. At the end of March, nearly 2.6 million borrowers were still on forbearance plans temporarily suspending their payments. Such programs have slowed down many foreclosures during the pandemic, but foreclosure filings in the first quarter of this year were up 9% from the previous quarter, 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 of RealtyTrac, a unit of Attom. “The easy part was getting people to be lenient,” says Julia Gordon, president of the National Community Stabilization Trust, a nonprofit that works to protect neighborhoods from blight. “The hard part is getting them out of forbearance in a way that keeps them in their homes with an affordable payment.” Brenda Myers, 52, a homeowner in Abbottstown, Pennsylvania, knows this all too well. He fears losing his 28-year-old home after his current forbearance expires in June. In the months leading up to the pandemic, she lost her job, her husband died after a costly nursing home stay, and she began falling behind on mortgage payments just as the COVID crisis began. His ability to work is limited, he says, due to injuries sustained in a car accident. She doesn’t have the money to update the loan, she says, and, with no income, she’s having trouble getting a loan modification. “It is very difficult and I am still trying to pay for a funeral,” he says. “Forbearance is good, but it doesn’t help homeowners update their mortgage.” Given the time it could take to distribute the homeowner assistance money, he says, “you will see a lot of houses foreclosed.” 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 will initially award each approved participating state or tribe 10% of its total HAF allocation and will release additional funds when it approves the participant’s plan to distribute the money. State programs are likely to take several months to start operating, says Stockton Williams, executive director of the National Council of State Housing Agencies. The slower-moving states may not kick in until 2022, says Russell Graves, executive director of the National Foundation for Debt Management, a nonprofit housing counseling agency. States that want to step on the gas should learn from past mistakes and, where possible, stick to a standardized playbook, policy experts say. An important precedent for HAF, the Hardest Hit Fund program established by the Treasury in 2010 in response to the latest financial crisis, has a spotty track record, housing advocates say. Some states were slow to distribute the money, advocates say; created additional obstacles for homeowners that were not required by the federal government; and had trouble getting the cooperation of mortgage servicers. States have some leeway to improvise with their Homeowner Assistance Fund programs, which makes some policy experts nervous. The wide variation between state programs “could be counterproductive to getting the money out quickly” and raises concerns about how funds will go to those most in need, says David Dworkin, executive director of the National Housing Conference. And while HAF legislation does not mandate excessive eligibility or documentation requirements, “the question is whether states will snatch defeat from the jaws of victory” by designing programs with more onerous requirements, says Joseph Sant, general counsel and vice president of the Center. of New York City Neighborhoods. The wide potential variation between state programs is also a concern for servicers operating in many different states, says Meg Burns, executive vice president of the Housing Policy Council, a trade group for mortgage originators and servicers. The Treasury has said it will provide a template that participants can use to design their programs. Even if the money comes out fast and smooth, some advocates say many homeowners might be left out in the cold. “It’s pretty clear that $ 10 billion won’t be enough” to help everyone in need, Dworkin says, though it may set the stage for more congressional appropriations. Many advocates also wanted the HAF program to serve as an endorsement for borrowers whose mortgages are not backed by Fannie Mae FNMA, + 0.41% or Freddie Mac FMCC, + 1.67% or by the federal government. But in mid-April, the Treasury urged states to prioritize certain federal borrowers, including those with mortgages from the Federal Housing Administration, the Department of Veterans Affairs, and the U.S. Department of Agriculture. Guidance is consistent with the program’s goal of reaching lower-income borrowers and does not exclude borrowers who are not federally backed from the program, experts say, appears to bypass many private mortgage borrowers who do have lower income And, in some cases, they have not received help related to the pandemic. “People with private mortgages don’t have any protection from Congress right now,” Gordon says, and in some cases they have been subjected to harsh terms during the pandemic, such as being told to pay a lump sum when a forbearance expires. This practice is not allowed for those with mortgages backed by the federal government. “I was surprised that there wasn’t a greater focus on private loan coverage,” he says. “It’s where some of the worst practices are happening.” The Treasury Department did not respond to requests for comment. Borrowers without federal backing would be covered by the CFPB’s proposal to stop foreclosure initiations until 2022, with possible exceptions where servicers have taken certain steps to evaluate other options or have made reasonable efforts to contact unresponsive borrowers. But that proposal is also drawing criticism from all sides. In the mortgage industry, one concern is that the proposal could force servicers to violate their contractual agreements with mortgage investors. “The industry can handle it, but I hope this is not a sign of how the office will behave in the future, because it is very disruptive,” says David Stevens, CEO of Mountain Lake Consulting, former director of the Association of Mortgage Bankers and former FHA commissioner. Others see that a legal battle is brewing. “There is a law of contracts between administrators and ticket holders,” says Sharga. If the rule goes ahead, he says, “I would have to assume that someone will challenge it in court.” “As a general matter,” according to a CFPB spokesperson, the office does not believe its rule requires mortgage servicers to violate contracts with investors, but wants to review comment letters on the matter. Meanwhile, homeowner advocates say the CFPB has the authority to stop foreclosure initiations until the end of the year; It is simply not the best idea for many borrowers. Some borrowers, for example, could be at immediate risk if they come out of forbearance in 2022, “and this proposal offers them next to nothing,” says Cohen. The rulemaking process will also take months to complete, but “many people, especially with private loans, are coming out of forbearance now or are not in forbearance and need help right now,” says Cohen. These borrowers “need the office to set a standard that all mortgage companies must provide sustainable options to homeowners.” The CFPB is concerned about some borrowers, including those whose loans are included in private label securities, being lost while the rule is finalized, and is using other tools to help address the problem, says Diane Thompson, the office’s senior counsel. In early April, for example, the bureau warned mortgage servicers to be prepared for a surge in borrowers who need help and said it would closely monitor responses to borrower requests. Cohen also disagrees with aspects of the proposal that have attracted less attention, including the requirement that administrators orally disclose available forbearance options when speaking with borrowers experiencing COVID-related difficulties who are not yet in such programs. “Many reports point to confusion and misinformation” when borrowers speak to servicers, he says. “Not providing anything in writing is a significant weakness in the proposal.” “Just because I put it in writing doesn’t mean it’s clear and someone reads it,” says Thompson. “Ultimately, what we want, and most homeowner advocates, is for there to be a more nuanced conversation” that helps borrowers understand their options.