By Michael McKeefery, Esq.; Christianna Kersey Esq.; Richard Solomon, Esq.
Cohn, Goldberg & Deutsch, LLC *
USFN Member (DC, MD)

By Caren Castle, Esq.
The Wolf Firm, A Law Corporation *
USFN Member (CA, ID, OR, WA)

COVID-19 has brought many changes to the default industry, to say the least. One of the most notable programs to stem from the pandemic and the American Recue Plan Act, is the U.S. Department of Treasury’s Homeowner Assistance Fund (“HAF”) program. This program is an almost $10 billion assistance package to help struggling homeowners who are behind on mortgages and other housing expenses due to the impacts of COVID-19. The program is overseen by the Department of Treasury, but will be administered specifically by states, territories, and tribes.
As of this writing, nearly 30 states, Guam, and Puerto Rico have fully launched HAF programs. Some states have been administering pilot programs while they finalize full program details, and others are still working to get their programs approved and administered. To understand what these programs will entail, let’s look at some specific examples to see the complexity and diversity in each program.
MARYLAND: The Maryland Department of Housing and Community Development (“MD DHCD”) recently launched its Maryland Homeowner Assistance Fund program (“MD HAF”). MD HAF assists homeowners in two primary ways. First, MD HAF provides grants to homeowners experiencing COVID-related financial hardships. Second, MD HAF offers deferred payment loans to homeowners. Both of these programs are intended to assist homeowners in making delinquent mortgage payments and to create feasible repayment plans for loan reinstatement. MD HAF is treated as a last resort for impacted homeowners who are denied for loss mitigation options normally offered by their mortgage servicers.

In general, for a borrower to be eligible for MD HAF assistance, they must have an eligible COVID-19 financial hardship occurring after January 21, 2020. This requirement includes hardships that began prior to January 21, 2020, but continued after that date. Additionally, to receive MD HAF funds, the loan at issue must relate to a Maryland one-to-four-unit owner-occupied property, and the owner must be the borrower. Furthermore, the delinquent mortgage must have had a principal balance that did not exceed the GSE conforming loan limit at the time of origination. The main objective of the MD HAF program is to assist Marylanders in keeping their homes. To that end, MD DHCD and the Maryland Commissioner of Financial Regulation (the “Commissioner”) expect mortgage servicers to sign up for the program on the MD DHCD website, and (1) inform borrowers in default who have been denied other options of the existence of the MD HAF program, and of the fact that borrowers can submit a MD HAF application to MD DHCD; (2) reconsider borrowers for applicable loss mitigation options with MD HAF funds included in any further review; and (3) delay the filing of a foreclosure action, to the greatest extent possible, so that defaulted borrowers have sufficient time to apply for and be considered for MD HAF assistance. According to MD DHCD and the Commissioner, the dual tracking rules set up in the Consumer Financial Protection Bureau (“CFPB”) guidelines, codified at 12 CFR §1024.41, apply once a servicer is advised that a borrower has applied for HAF assistance. After being notified that a borrower is applying for MD HAF assistance from MD DHCD, servicers are required to wait at least 14 days for completion of a MD HAF application. If MD HAF funds are approved contingent upon additional loss mitigation offered by the servicer, a servicer must then allow for an additional reasonable period of time for a borrower to complete a loss mitigation application directly with the servicer.

According to guidance promulgated by MD DHCD and the Commissioner, the following actions are deemed violations of Maryland law and regulations: (1) Requiring a borrower to apply for MD HAF assistance before considering the borrower for other loss mitigation alternatives; (2) Failing to reasonably and timely cooperate in the MD HAF application process after being notified by MD DHCD that a borrower has applied for MD HAF funds more than 37 days prior to a scheduled foreclosure sale; (3) Failing to notify a borrower of existence of the MD HAF program when advising the borrower of any denial of a loss mitigation option; (4) Failing to wait 14 days after notifying the borrower of denial of an option before proceeding with a foreclosure action; (5) Refusing to reconsider a denial for loss mitigation options if the borrower has subsequently been afforded assistance through MD HAF; (6) Filing a notice of intent to foreclosure, filing an order to docket a foreclosure case, or proceeding with a foreclosure sale if the servicer is notified that the borrower has applied for MD HAF assistance more than 37 days prior to a scheduled foreclosure sale; and (7) Refusing to accept MD HAF funds if the servicer would otherwise directly accept those funds from the borrower.
DISTRICT OF COLUMBIA: A second example is the District of Columbia’s “Pilot Program,” administered by the District of Columbia Department of Housing and Community Development (“DC DHCD”) with $50 million in Homeowner Assistance Funds made available by the U.S. Treasury. To be eligible for the District’s HAF-Pilot, a homeowner must (1) qualify for the program based on income; (2) own a condominium in the District in the following ZIP codes: 20019, 20020, 20024 and 20032; (3) have bought the condominium using a down payment and/or closing cost assistance directly from DC DHCD; and (4) be in arrears on their mortgage or other real property-related payments, such as condominium fees, property taxes, and/or homeowners’ insurance. It is important to note that funds provided to condominium owners through the pilot program do not have to be paid back; rather, these funds are distributed in the form of a grant. The primary objective of the District’s HAF pilot program is to assist eligible condominium owners to retain their properties.

Income limits have been set for the D.C. program. To be eligible for the pilot program, household income may not exceed either 100% of area median income (“AMI”) or 100% of the U.S. median income, whichever is greater. DC DHCD has set the AMI for condominiums ranging from one-person condominiums to eight-person condominiums.

CALIFORNIA: Last but not least, in California, the California Housing Finance Agency (“CalHFA) through its special purpose affiliate, CalHFA Homeowner Relief Corporation (“CalHRC”), is the state administrator of its HAF program. Funds to be received total $1.055 billion, of which at least 10% is currently being distributed pursuant to the approved program. Servicers interested in participating in the program must sign an agreement with CalHFA.

The program was designed to assist lower income and socially disadvantaged households and to aid in fully reinstating defaulted mortgages. The goal is to provide these homeowners with a “fresh start.” The program, in its initial stage, is specifically designed to help those homeowners who were unable to receive other assistance with their delinquency. Therefore, if a homeowner received a COVID related loan modification, by way of example, they would not be eligible for the California HAF program. CalHFA does reserve the right to change its requirements going forward should funds remain available. The program is designed to not only bring a defaulted mortgage current, but to assist the borrower with education and counseling.

The basic eligibility requirements are as follows:

1. The homeowner, a natural person, must own and occupy the property as their primary residence and cannot own or occupy another property; and
2. The homeowner must attest that they have experienced a “Qualified Financial Hardship” after January 21, 2020, and the attestation must describe that hardship.
   a. Qualified Financial Hardship is defined as a material reduction in income or material increase in living expenses due to the coronavirus pandemic, which either created or increased the risk of mortgage default, foreclosure and/or displacement; and
3. The original, unpaid principal balance of the mortgage, at the time of origination, cannot be greater than the then GSE conforming loan limit as defined under the Housing and Economic Recovery Act of 2008; and
4. The homeowner must meet the income eligibility requirements which consists of the cumulative income of all household members; and, that income cannot exceed the area median income as adjusted for household size.

The maximum assistance available is $80,000 and is in the form of a one-time only tax-free grant. CalHFA disburses the funds directly to the mortgage servicer to bring the account current, including escrow deficiencies. The program is scheduled to allocate all funds on or before September 30, 2025, and to have disbursed all funds on or before September 30, 2026.

From the above examples, it is easy to see how difficult administration of these jurisdictionally specific plans will be on the mortgage servicing industry as a whole. With over 50 possible programs, and with the CFPB closely monitoring servicer conduct, it is extremely important that servicers and law firms communicate openly and clearly with each other regarding HAF programs and the specific issues that arise from them. For more information on any state specific plan, please reach out to consult with local counsel. For links to each state-specific program, you can visit the National Council of State Housing Agencies here https://www.ncsha.org/homeowner-assistance-fund/ .