The U.S. Treasury Department on Monday clarified that the $ 10 billion Homeowners Assistance Fund (HAF) funds allocated under the American Rescue Plan (ARP) Act, signed by President Joe Biden in March, includes support for borrowers for unconventional mortgage products, including including reverse mortgages. The guide does not differentiate between a private reverse mortgage and a home equity conversion (HECM) mortgage supported by the Federal Housing Administration (FHA).
This is in line with the official HAF guidance released by the Treasury Department on Monday, as well as previous statements by the Biden administration before the plan was passed and codified into law. A key component of the new guidance is its definition of what constitutes the term “mortgage” in accordance with the language of the law and directives related to the allocation of HAF to states.
While administration officials previously told RMD that HAF funds offer the greatest potential to assist reverse mortgage borrowers, Monday’s release more explicitly qualifies borrowers who meet the thresholds set out in the new guidance.
What is considered a mortgage
In its guidance, the Treasury sets out a number of specific terms that it defines for the use of HAF appropriations. In addition to definitions related to income, eligible entities for HAF assistance, and precisely what constitutes a “dwelling,” the word “mortgage” is specifically defined in the terms of HAF.
“Mortgage means any loan transaction (1) that is secured by a mortgage, trust deed or other agreed security interest in respect of the borrower’s primary residence, which is (a) a residential building of one to four apartments, or (b) residential property, including single-family or four-family housing; and (2) the outstanding principal amount of the loan at the time of disbursement did not exceed the relevant loan limit, ”the definition says.
After determining what constitutes an “appropriate credit limit” according to HAF guidance, the critical component specifically calls the reverse mortgage product and applies it to a potential disbursement of the Fund’s resources. It also includes other forms of non-traditional home lending besides the forward mortgage.
“A reverse mortgage, a loan secured by an artificial home, or a work contract (also known as a land contract) may fall under this definition if it meets the criteria in this paragraph under applicable state law,” the mortgage clause states.
Need for help from non-traditional borrowers
The provisions to cover HAF assistance beyond traditional mortgages came about through efforts by individual states, including New York and Texas, to include non-traditional loan borrowers in the eligible cohort. making report from the New York Times.
In June, New York State published a needs assessment and plan for the use of HAF funding under the American Bailout Plan, including reverse mortgage borrowers in the non-mortgage debt relief program, identifying seniors with reverse mortgage borrowers as a cohort that, likely hit by the economic fallout from the COVID-19 pandemic, especially in the area of taxes.
“Based on data collected from county tax inspectors, tax delinquencies have increased by about 2% since the start of the pandemic,” reports the New York Times. plan reads in part. “This target group includes older people with reverse mortgages, 90% of whom are funded by the Federal Housing Administration (FHA), and who most often live on fixed low incomes.”
States have sought to include these nontraditional borrowers – including those with mobile homes or homes purchased under land contracts – because of the relative ease with which such borrowers can face foreclosures and evictions if only a few are missed. payments.
New York State’s plan also includes cooperative housing residents as well as the state legislature more recently adopted the bill where the residents of the cooperative could get a reverse mortgage. This bill is still awaiting delivery to Governor Andrew Cuomo.
ARP and reverse mortgage
ARP has become very relevant piece of legislation for reverse mortgage borrowers thanks to several key details related to the relief it is intended to bring to Americans in light of the fallout from the pandemic. In February, just before the law was passed and the bill was signed, Biden administration officials said RMD how HAF could potentially benefit reverse mortgage borrowers before the actual qualifying statement is released on Monday.
“A Homeowners Assistance Fund would be a way of providing funds to help homeowners, including seniors with HECM, who may have unpaid tax or insurance payments that must be made due to the hardships of the pandemic,” said a spokesman for the RMD administration. … in February. “And it will be one of the measures that can be used to address the issue of older people and the HECM portfolio.”
Seniors app was further explained FHA Deputy Assistant Secretary of Housing Julien Joseph during a virtual conference with the reverse mortgage industry in July.
“HUD is actively involved in working with the Treasury Department and implementing President Biden’s $ 9.96 billion US bailout plan. […] to help the most vulnerable homeowners in our country, including the elderly, ”explained Joseph. “I am also actively involved in providing as much assistance as possible under our leadership, we are really trying to do that. [With] the bandwidth and capacity that we have, we really want to be sure that we can help those borrowers who are really struggling right now. ”
The adoption of the ARP also codified a $ 100 million payment to Congress-registered nonprofit community development organization NeighborWorks America to administer the national housing counseling program in the United States and Puerto Rico, which includes potential application cancel mortgage counseling.
Read guidance document at the United States Department of the Treasury.