There is a lot to praise about President-elect Biden’s proposed $1.9 trillion relief package aimed at combating the economic crisis and COVID 19 pandemic, including stimulus payments, rental assistance and an extension of unemployment insurance. Those efforts will go a long way toward stabilizing vulnerable communities. However, the relief package falls short in addressing the needs of homeowners who are struggling to keep their homes.
While recognizing that million of homeowners are behind on mortgage payments, and that many homeowners of color face the risk of losing their homes — which would further exacerbate the racial wealth gap — the relief package primarily extends the federal foreclosure moratoria. It also allows for continued applications for forbearance on federally-backed mortgages and calls for funding for legal assistance for COVID-affected households.
“While homeowners do need an extension of the foreclosure moratoria and the availability and length of forbearance on government-backed loans, these are measures the federal housing agencies can and should implement through immediate administrative action,” wrote a coalition of 147 groups in a letter to the incoming Biden Administration. “However, additional action from Congress is urgently needed to address the acute needs of homeowners facing COVID hardships, especially low-income homeowners and homeowners of color.”
The Center has joined with advocates in calling on incoming Biden administration officials to take bolder steps to forestall what many experts believe is a housing crisis in the making. One important way is by creating a $75 billion Homeowner Assistance Fund (HAF) for direct payments to help homeowners.
Designed as a stop gap for the majority of Americans that will not qualify for other mortgage relief programs like forbearance and loss mitigation, the HAF would prevent foreclosures by providing Americans with direct assistance for their mortgage payments, property taxes, property insurance, utilities, and other housing related costs.
The HAF will augment COVID-related forbearance, specifically providing direct assistance to homeowners who have experienced long-term unemployment due to COVID-19; homeowners who have partially recovered their income but still can’t afford a loan modification; homeowners who may not qualify for traditional loss mitigation loan modifications; and homeowners who are struggling with non-traditional mortgages.
We’ve done this before. The HAF was developed on the Hardest Hit Fund (HHF) model that was administered by the U.S. Treasury in 2010 and provided $9.6 billion to 18 “hardest hit” states. Research has shown that receiving HHF reduced the probability of default for distressed borrowers by 35% and 28% after 12 and 24 months, respectively. This represents a 49% reduction in the average default rate of distressed borrowers.
In New York, while we did not have a HHF, we had the New York State Mortgage Assistance Program (MAP), which fulfilled the same purpose. The program ultimately prevented over 3,000 homes from being foreclosed on since the 2010 crisis, with $80 million distributed to struggling homeowners between 2017 and 2019. Thirty-one percent of MAP-approved loans were distributed to Black homeowners (9% of homeowners statewide are Black).
While HHF did have its struggles, it was improved over time. More importantly, failure to take action now will have homeowners reaching the precipice and potentially falling off a financial cliff. That could let loose a new foreclosure crisis as deep as the one the country experienced during the Great Recession. Now is the time to bring to bear our best tools to cushion the blows of the economic fallout caused by the pandemic, and so that homeowners do not lose their homes.