The United States Department of the Treasury on Monday specified that funds from the $10 billion Homeowners Assistance Fund (HAF) – allocated as part of the American Rescue Plan Act (ARP) signed into law by President Joe Biden in March – includes support for borrowers of non-traditional mortgage products which includes reverse mortgages. The guidance does not distinguish between proprietary reverse mortgages and Home Equity Conversion Mortgages (HECMs) backed by the Federal Housing Administration (FHA).
This is according to official guidance about the HAF distributed by the Treasury Department on Monday, as well as previous statements from the Biden administration issued prior to the plan’s passage and codification into law. The key component of the new guidance comes in its definition for what constitutes the term “mortgage” under the language of the law and the directives associated with HAF allocations to states.
While administration officials had previously relayed to RMD that the HAF funds provided the most potential for providing assistance to reverse mortgage borrowers, the issuance of Monday’s language more overtly qualifies borrowers who meet the thresholds laid out in the new guidance.
What counts as a ‘mortgage’
In its guidance, the Treasury Department lays out a number of specific terms which it defines for use of the HAF allocations. In addition to the definitions associated with income, eligible entities for HAF assistance and precisely what constitutes a “dwelling,” the word “mortgage” is specifically defined under the terms of the HAF.
“Mortgage means any credit transaction (1) that is secured by a mortgage, deed of trust, or other consensual security interest on a principal residence of a borrower that is (a) a one- to four-unit dwelling, or (b) a residential real property that includes a one- to four-unit dwelling; and (2) the unpaid principal balance of which was, at the time of origination, not more than the conforming loan limit,” the definition reads.
After defining what constitutes a “conforming loan limit” under the HAF guidance, the critical component specifically calls out a reverse mortgage product and applies it to the potential disbursement of the Fund. It also includes other forms of nontraditional home lending outside of a forward mortgage.
“A reverse mortgage, a loan secured by a manufactured home, or a contract for deed (also known as a land contract) may fall within this definition if it satisfies the criteria in this paragraph, in accordance with applicable state law,” the relevant provision of the mortgage definition reads.
Nontraditional borrowers’ need for assistance
Provisions allowing for HAF assistance coverage beyond traditional mortgages came from the efforts of individual states including New York and Texas which aimed to include borrowers of nontraditional loans as part of the eligible cohort, according to reporting from the New York Times.
In June, New York state published a needs assessment and plan for the use of allocated HAF funds under the American Rescue Plan, including reverse mortgage borrowers in a non-mortgage arrears satisfaction program, identifying seniors with reverse mortgage borrowers as a cohort which has likely been affected by the economic impact of the COVID-19 pandemic particularly in the area of taxes.
“Based on data collected from a sample of county tax collectors, there has been an estimated 2% increase in tax delinquencies since the start of the pandemic,” the New York plan reads in part. “Included in this target population are seniors with reverse mortgages, for whom 90% are backed by the Federal Housing Administration (FHA), and who are most commonly living on fixed, low incomes.”
States aimed to include these nontraditional borrowers — including those with mobile homes or houses acquired through land contracts — due to the relative ease with which such borrowers could face foreclosure and eviction if only a few payments are missed.
New York’s state plan also includes residents of co-operative housing, and the state legislature recently passed a bill there which would allow co-op residents to take out a reverse mortgage. That bill is still awaiting delivery to Gov. Andrew Cuomo.
The ARP and reverse mortgages
The ARP has become a very relevant piece of legislation for reverse mortgage borrowers due to a couple of key details related to the kind of relief it aims to bring to Americans in light of the impacts of the pandemic. In February, immediately prior to the passage of the legislation and the signing of the bill into law, Biden administration officials told RMD how the HAF could potentially benefit reverse mortgage borrowers prior to the actual qualification language released on Monday.
“The Homeowners Assistance Fund would be a way in which to provision funds to help homeowners, including seniors with HECMs, that may have back tax or insurance payments that need to be made due to hardships related to the pandemic,” an administration official told RMD in February. “And that would be one of the measures in which seniors and the HECM portfolio can be addressed.”
The application for seniors was further explained by FHA Deputy Assistant Secretary for Single Family Housing Julienne Joseph during a virtual conference with members of the reverse mortgage industry in July.
“HUD is actively involved in working with the Department of the Treasury and the implementation of President Biden’s $9.96 billion dollar American Rescue Plan […] to provide relief for our country’s most vulnerable homeowners, which includes our seniors,” Joseph explained. “I’m also heavily engaged in providing as much relief as possible under our authority, we’re really trying to do that. [With] the bandwidth and the capacity that we have, we really want to make sure that we’re able to assist those borrowers who are really struggling right now.”
The passage of the ARP also codified the disbursement of $100 million to congressionally chartered nonprofit community development organization NeighborWorks America to administer a national housing counseling program across the United States and Puerto Rico, which includes potential application to reverse mortgage counseling.
Read the guidance document at the U.S. Department of the Treasury.