Michelle Huynh

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3. COMPARE SOME OF THE LENDER AND/OR GOVERNMENT SOLUTIONS DISCUSSED ABOVE AND OTHER POSSIBLE APPrOACHES IN SIMILAR SITUATIONS – Compare the solutions offered by New York State and the Federal Government discussed above to deal with Covid-caused mortgage defaults. Which in your opinion offers the best solution? The CARES Act, HAF, NYSHAF, NYS Business Law Rule 9-X and/or RESPA Regulation-X Amendments all took different approaches at different times and at different stages of the Covid-19 Pandemic. Compare these to each other and to the Government’s dealing with defaulted home mortgages in other crises such as natural disasters, economic downturns, and general home mortgage help to vulnerable persons in society. Compare the remedies used in this health and economic driven mortgage crisis to the ones used in the last recession and the last mortgage crisis, caused by high risk lending, when the Homeowner Assistance Modification Program (“HAMP”) and other programs to help persons with mortgage arrears were offered by the Federal Government. Compare the Covid-19 programs discussed to ones given by the Government to homeowners encountering other disasters and emergencies. Tell Us: How do you compare these government responses to Covid caused homeowner mortgage defaults and contrast and compare these programs to each other and to other possible approaches actually used by the Federal Government and/or other States in this or other similar situations.
Answer: Homeownership is one of the core components of the American Dream. Nearly 75% of Americans rank homeownership as the highest measure of prosperity in the United States, surpassing having a career or an education.[1] Being a homeowner can lead to economic benefits, such as the potential to build generational wealth and home equity, which helps people reach a more comfortable lifestyle. However, the advantages of homeownership also extend outside of the individual; homeownership has been touted by the government as a means to strengthen the economy. In 2003, President George W. Bush signed into law the American Dream Downpayment Initiative to provide low-income families with financial assistance for the downpayment and closing costs of homes,[2] stating that “it is in our national interest that more people own their own home.”[3] Both the federal and state governments promote homeownership, even providing support for homeowners through crises.

The coronavirus disease (COVID-19) uprooted the lives of millions of Americans. In 2020, during the early stages of the pandemic, many businesses temporarily shut down to prevent the spread of the virus. As a result, the unemployment rate skyrocketed to a record high of 14.7% in April 2020 and people were left without a steady stream of income.[4] For homeowners, this economic upheaval disrupted their mortgage payments. With millions of households at stake for mortgage delinquency—with consequences for homeowners ranging from a negative impact on their credit scores to possible foreclosure of their homes—both the federal and state governments worked together to quickly establish programs that provided temporary relief, such as mortgage forbearance which allows borrowers to temporarily pause or lower their mortgage payments due to financial hardship.

Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March 2020 to provide direct financial assistance to families, industries, small businesses, and workers.[5] One of the programs under the act was the mortgage payment forbearance option which allowed borrowers to request an initial forbearance period of up to 180 days for their federally-backed mortgage, along with the option to request an additional 180 days if needed.[6] Because of the dire situation of COVID-19, mortgage servicers were not allowed to ask borrowers for proof of hardship or require a lump sum of deferred payments, making the process a bit easier for homeowners.[7] By May 2020, there were more than 4 million mortgages in forbearance,[8] highlighting the number of homeowners who sought assistance during the pandemic. While borrowers were given some respite from paying their mortgage to focus on other aspects of their life, there was no clarification about the repayment period following the end of forbearance. The CARES Act left the decision up to the lenders, who were subject to the additional extension periods granted through the Biden administration. The initial forbearance period was set to end in February 2021, but after several extension periods, the forbearance period had a new deadline of September 2021.[9] Eventually, the CARES Act and its provisions ended in March 2022.[10]

The federal government also partnered with state governments to enact policies that helped homeowners during the pandemic. Established by Congress through the American Rescue Plan of 2021, the Homeowner Assistance Fund (HAF) provided $9.961 billion to provide relief to homeowners during COVID-19.[11] Unlike the CARES Act, the HAF allocated funding to states, territories, and Indian tribes with guidelines on how to develop their own plan to distribute the relief.[12] The funds were used to support people with housing-related costs, such as mortgage delinquencies and foreclosures, and utilities. Furthermore, the program also provided additional funds to help homeowners who were at risk for or recovering from homelessness.[12] According to the Department of the Treasury, HAF-funded programs—many of which began accepting applications in early 2022—have assisted more than 320,000 homeowners.[11] In 2022, the foreclosure filings were also lower than in any pre-pandemic year.[11] This suggests that many Americans were still in need of assistance, even two years after the start of the pandemic.

Since the funds from the HAF were not dispersed by the federal government, the amount that each homeowner received was highly dependent on their location—though many programs had a household income eligibility requirement to not exceed 150% of the area median income.[13] New York was allocated $540 million and developed the New York State Homeowner Assistance Fund (NYSHAF) to “assist homeowners who are at risk of default, foreclosure, or displacement because of a financial hardship caused by the COVID-19 pandemic.”[14] Eligible applicants were allowed to apply for the amount that they were behind on in mortgage payments, with the maximum amount in aid being $95,000 for mortgage-related payments and $50,000 for non-mortgage housing costs.[15] Applications for the NYSHAF opened in January 2022; however, because funding was limited, applications closed within the first six weeks of opening and the program established a waiting list.[14] Within the first year of the program, almost 83% of available funds had been committed or dispersed to eligible homeowners.

To assist mortgage borrowers during the pandemic, the Consumer Financial Protection Bureau (CFPB) issued an Interim Final Rule (IFR) to amend the Real Estate Settlement Procedures Act Regulation-X (RESPA Regulation-X) in June 2020.[16] Under normal circumstances, federally-backed lenders were prohibited from offering a loss mitigation—which is the process of lenders and borrowers working together to create a plan to prevent foreclosure—for incomplete applications, but the IFR aimed to streamline the process by allowing lenders to offer a loss mitigation option for borrowers experiencing hardship due to COVID-19, even with an incomplete application.[17] In June 2021, following discussions from industry leaders, trade associations, and foreclosure attorneys, the CFPB adjusted some of the amendments from the IFR to lower the burden for servicers, such as allowing them to begin foreclosures on nonresponsive borrowers and providing further clarity about the timeframe of information that is presented to borrowers.[18] Many federally-backed COVID-19 initiatives began to phase out in the summer of 2021, such as the CARES Act, so to ensure a smooth transition out of these protections, the government amended the IFR again—only temporarily until its expiration date in December 2021[19]—so that homeowners had the opportunity to be reviewed for loss mitigation and avoid foreclosure.

Outside of programs for federally-backed mortgages, there were also programs to support homeowners who had mortgages through non-federally-backed mortgages. In June 2020, New York passed the Banking Law Section 9-x. Similar to the RESPA Regulation-X, this law helped homeowners deal with their mortgage beyond the initial forbearance period during the pandemic. However, the Banking Law Section 9-x only dealt with mortgages through conventional or private servicers registered with the state of New York, rather than federally-backed mortgages.[20] Under the law, forbearance could be granted for up to 180 days, with an additional 180 days granted upon proof of financial hardship due to COVID-19.[20] Furthermore, section 9-x(3)(a)-(c) gave borrowers more leverage over lenders as it required the latter to extend the loan term for the number of months the loan was in forbearance, ensure that loan modifications are affordable, and repay the arrears for the remainder of the loan term—all without charging interest.[21] The Banking Law Section 9-x seems to serve as a more permanent program for homeowners who fell behind with their non-federally-backed mortgages during the pandemic.

During unprecedented times of hardship, the federal and state governments come together to provide relief to millions of Americans. In August 2005, Hurricane Katrina hit the United States. The hurricane and its aftermath claimed more than 1,800 lives and cost around $125 billion in damages.[22] Most impacting Louisiana and nearby states, the hurricane damaged more than 1 million homes across all those states.[23] Fannie Mae, a federally-backed mortgage servicer, paused mortgage payments for three months and reduced payments for up to 18 months.[24] Louisiana also used the Community Development Block Grant Disaster Recovery (CDBG-DR) grant funds, allocated by the Department of Housing and Urban Development (HUD), to aid affected homeowners. Homeowners were able to receive up to $150,000 for damage to their property that was not covered by other local, state, or federal programs, but had to agree to rebuild their homes in accordance with housing codes and ordinances.[25] Following the September 11 attacks, the federal government lowered federal fund rates to make money more available to consumers.[26] Because of the low mortgage rates, borrowers took advantage of this deal to purchase a home; even those who would not normally qualify for a home loan were able to purchase a home. However, the excessive lending eventually burst the housing bubble and millions of homeowners lost their homes. This led to the “Great Recession,” a period of global economic decline that lasted from late 2007 to 2009. To stabilize the economy and prevent further foreclosures, the Department of Treasury established the Troubled Assets Relief Program (TARP) in October 2008.[27] Around $46 billion of the funds supported programs that aimed to help families avoid foreclosure, with the program ending in October 2010.[28] The recession continued to affect Americans in the years to come, so in February 2010, President Barack Obama created the Hardest Hit Fund (HHF) to provide aid to families affected by the downturn of the housing market.[29] Similar to the HAF, certain states received the HHF and created their own plan to foreclosures in areas that had been hit the hardest by unemployment. The HHF-funded programs varied by state, but often included helping unemployed homeowners with paying their mortgage payments or finding more affordable homes.

Compared to the relief programs that arose during the pandemic, the programs in place during prior natural disasters and economic recessions were not as thorough. Following the aftermath of Hurricane Katrina, many governmental programs provided mortgage forbearance for up to 90 days, which was about half the length of time given to homeowners affected by COVID-19. During the “Great Recession,” many funds from the HHF went toward mortgage payments, whereas there were several initiatives that provided financial assistance for other housing-related costs, such as utilities. The magnitude of the federal and state government programs to address the coronavirus disease was likely due to the fact that it was a global pandemic that affected all walks of life, rather than those in a certain area. Businesses shut down or laid off people to prevent the spread of the virus. But most importantly, the pandemic exposed the fragility of a system that was not prepared to support its citizens tackling a health crisis. As a result, drastic measures and policies had to be taken to ensure that Americans got the support they needed.

A number of homeowners struggled to keep up with their mortgage following the economic fallout of COVID-19—with an estimated 7.5 million adults living in households that were behind on mortgage payments in late 2021,[30] which was more than a year since the pandemic started—but there were initiatives such as forbearance agreements, financial assistance, or flexible standards on mortgage agreements that came to their aid. Both the federal and state governments set up programs to prevent the foreclosure of homes from homeowners for as long as possible, as keeping people inside their home was a priority due to the infectious nature of the coronavirus disease and the negative impact foreclosures would have on not only the individual, but also the economy. However, each program was different and dependent on the borrower, servicer, and government policies. To address the late mortgage payments, the CARES Act and Banking Law Section 9-x provided a mortgage forbearance option to federally-backed and non-federally backed mortgages, respectively. Homeowners were able to request forbearance for nearly a year in most cases, giving them the time to attempt to rebuild their finances and life. Banking Law Section 9-x also prevented lenders from asking for interest on the COVID-19-caused arrears due to forbearance, saving borrowers money. During the pandemic, many people were focused on surviving; the amendments made to RESPA Regulation-X allowed homeowners who had not completed their applications to still be offered the option to pursue loss mitigation and prevent possible foreclosure. Meanwhile, some programs, such as the HAF and NYSHAF, explicitly handed out funds to support struggling homeowners with their housing-related costs such as rent, mortgage, or utilities. Because of the number of diverse programs that were created as a result of the pandemic, there have been many discussions about which initiative has been the most helpful to American homeowners.

The pandemic affected the ability of homeowners to pay their mortgage, but it also affected their ability to pay for other necessities. At the beginning of the pandemic, people were unable to work for months, which put their entire livelihoods at stake. Programs such as the CARES Act, RESPA Regulation-X, and the Banking Law Section 9-x offered homeowners the option for mortgage forbearance, but it did not necessarily relieve homeowners of the burdens they dealt with during the pandemic. For example, even if homeowners received mortgage forbearance, those who were unemployed still had to pay their utility bills, which were not covered under any of those programs. If they missed a payment, their electricity or water would be cut off. Furthermore—barring the Banking Law Section 9-x—interest still accumulated on the deferred federally-backed mortgage payments, making the amount owed to lenders higher than it was at the beginning of the pandemic. COVID-19 was a time of chaos and confusion; many people would argue that focusing on the present was more important than the uncertain future. For that, the HAF and the HAF-funded programs were likely the better solution for homeowners during the pandemic. HAF not only directly provided financial assistance to homeowners for their mortgage, but they also assisted them with other housing-related costs such as mortgage insurance, homeowner association fees, and utility services. Having these tangible funds helped homeowners prioritize other bills or needs, such as food or health, as the HAF assisted them with their housing-related costs. For example, the North Carolina Homeowner Assistance Fund (NCHAF) was able to provide, on average, $13,000 of assistance per household.[31] With that amount in funding, homeowners would have had a greater capacity to budget their bills. Additionally, the funding received from HAF did not have to be repaid.

In the end, each household had different experiences with COVID-19. Some homeowners did better with the mortgage forbearance agreements, especially if they had a substantial savings or were able to continue working during the pandemic, which also helped them pay other bills; however, some homeowners preferred the programs that gave them direct economic relief, especially if they were laid off or had no savings to cushion them. However, choosing a direct form of economic relief was more likely beneficial to people during the pandemic because of the other expenses, such as medical, that people had to consider while paying their mortgage.

Works Cited

[1] Schmidt, Gregory. “Homeownership Remains the American Dream, Despite Challenges.” The New York Times, 2 June 2022, www.nytimes.com/2022/06/02/realestate/homeownership-affordability-survey.html.

[2] “American Dream Downpayment Initiative.” [PDF File]. U.S. Department of Housing and Urban Development.

[3] “President Bush Signs American Dream Downpayment Act of 2003.” National Archives and Records Administration, 16 Dec. 2003, https://georgewbush-whitehouse.archives.gov/news/releases/2003/12/20031216-9.html.

[4] “Unemployment Rate Rises to Record High 14.7 Percent in April 2020.” U.S. Bureau of Labor Statistics, 13 May 2020, www.bls.gov/opub/ted/2020/unemployment-rate-rises-to-record-high-14-point-7-percent-in-april-2020.htm.

[5] “About the Cares Act and the Consolidated Appropriations Act.” U.S. Department of the Treasury, 13 Apr. 2021, home.treasury.gov/policy-issues/coronavirus/about-the-cares-act.

[6] “CARES Act Forbearance Fact Sheet for Mortgagees and Servicers of FHA, VA, or USDA Loans.” [PDF File]. Department of Housing and Urban Development.

[7] “Mortgage Forbearance during COVID-19: What to Know and What to Do.” Consumer Financial Protection Bureau, www.consumerfinance.gov/coronavirus/mortgage-forbearance-during-covid-19-what-know-what-do/.

[8] “Mortgage Forbearance Rates during the COVID-19 Crisis.” Freddie Mac, www.freddiemac.com/research/insight/20201117-mortgage-forbearance-rate-during-COVID-19.

[9] Martin, Erik J. “Mortgage Forbearance End Date and Extension Options: 2023.” Mortgage Rates, Mortgage News and Strategy: The Mortgage Reports, 18 May 2023, https://themortgagereports.com/69687/cares-act-mortgage-forbearance-ending-what-to-do.

[10] “United States Bankruptcy Court.” Expiration of CARES Act Bankruptcy Code Amendments on March 27, 2022 | Southern District of New York | United States Bankruptcy Court, 28 Mar. 2022, www.nysb.uscourts.gov/news/expiration-cares-act-bankruptcy-code-amendments-march-27-2022.

[11] “Homeowner Assistance Fund.” U.S. Department of the Treasury, 23 May 2023, https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/homeowner-assistance-fund.

[12] “Get Homeowner Assistance Funds.” Consumer Financial Protection Bureau, www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/help-for-homeowners/get-homeowner-assistance-funds/.

[13] “Homeowner Assistance Fund Income Limits (HAF).” Homeowner Assistance Fund Income Limits (HAF) | HUD USER, www.huduser.gov/portal/datasets/haf-il.html.

[14] “NYS Homeowner Assistance Fund Program Update — June 2023.” New York State Homeowner Assistance Fund, www.nyhomeownerfund.org/reports.

[15] “FAQs.” New York State Homeowner Assistance Fund, www.nyhomeownerfund.org/faqs.

[16] Brandriss, Chava. “CFPB Amends Regulation X to Account for Covid-19-Related Mortgage Relief: Davis Wright Tremaine.” Financial Services Law Advisor | Davis Wright Tremaine, 24 June 2020, www.dwt.com/blogs/financial-services-law-advisor/2020/06/cfpb-regulation-x-covid-19-mortgage-relief.

[17] “Protections for Borrowers Affected by the COVID-19 Emergency under the Real Estate Settlement Procedures Act (RESPA), Regulation X.” Consumer Financial Protection Bureau, www.consumerfinance.gov/rules-policy/final-rules/protections-for-borrowers-affected-by-covid-19-under-respa/.

[18] Winder, Phoebe S., et al. “Covid-19: CFPB Narrows Servicers’ Obligations in Final COVID-19 Mortgage Servicing Regulations.” HUB | K&L Gates, 13 July 2021, www.klgates.com/COVID-19-CFPB-Narrows-Servicers-Obligations-in-Final-COVID-19-Mortgage-Servicing-Regulations-7-13-2021.

[19] “CFPB and DOJ Put Landlords and Mortgage Servicers on Notice About Servicemembers’ and Veterans’ Rights.” [PDF File]. U.S. Bureau of Consumer Financial Protection and Department of Justice, Dec. 2021.

[20] “Industry FAQs: Mortgage Forbearance Statute – Section 9-X of the New York Banking Law.” NY Department of Financial Services, www.dfs.ny.gov/apps_and_licensing/mortgage_companies/mortgage_forbearance_statute_sect9x_faqs.

[21] Singh, Mitra P., and Brian S. McGrath. “New York State Enacts New Procedures for Residential Mortgage Forbearance Plans.” Consumer Crossroads: Where Financial Services and Litigation Intersect, 24 June 2020, www.hinshawcfs.com/new-york-state-enacts-new-procedures-residential-mortgage-forclosure.

[22] “Research Guides: Louisiana Hurricanes: Impact on Economy.” Impact on Economy – Louisiana Hurricanes – Research Guides at Louisiana State University, https://guides.lib.lsu.edu/Hurricanes/KatrinaEconomy.

[23] “A Look Back at Hurricane Katrina.” HUD USER, www.huduser.gov/portal/pdredge/pdr-edge-frm-asst-sec-092121.html.

[24] “Hurricane Katrina Victims Get Relief from Fannie and Freddie.” Mortgage News Daily, 31 Aug. 2005, www.mortgagenewsdaily.com/news/8312005-hurricane-katrina.

[25] “Obtaining Mortgage Relief for Victims of Disasters: A Practice Guide for Advocates.” [PDF File]. National Consumer Law Center, Feb. 2020.

[26] Singh, Manoj. “The 2007–2008 Financial Crisis in Review.” Investopedia, 5 Apr. 2023, www.investopedia.com/articles/economics/09/financial-crisis-review.asp.

[27] “Troubled Assets Relief Program (TARP).” U.S. Department of the Treasury, 5 Jan. 2023, https://home.treasury.gov/data/troubled-assets-relief-program.

[28] “Troubled Asset Relief Program (TARP).” History.Com, www.history.com/topics/21st-century/troubled-asset-relief-program.

[29] “Hardest Hit Fund (HHF).” U.S. Department of the Treasury, 22 June 2021, https://home.treasury.gov/data/troubled-assets-relief-program/housing/hhf.

[30] “Tracking the COVID-19 Economy’s Effects on Food, Housing, and Employment Hardships.” Center on Budget and Policy Priorities, www.cbpp.org/research/poverty-and-inequality/tracking-the-covid-19-economys-effects-on-food-housing-and.

[31] “Program Overview.” NC Homeowner Assistance Fund, https://experience.arcgis.com/experience/3d68e1936c7f4774b76cce7a551c8602/page/Overview/.