The Department of Treasury (DOT) has been slow to dole out the nearly $10 billion available under the Homeowner Assistance Fund (HAF), a pandemic aid program enacted by Congress to provide relief to homeowners. Under the HAF, homeowners can apply for relief, including payoff of deferred balances accrued during pandemic forbearance periods. As of October 2022, only about $2 billion in relief funds have been distributed to approximately 150,000 households. The DOT has leaned heavily on states to set up and operate programs disbursing the aid. Consequently, mortgage servicers across the nation have had to navigate the myriad state programs alongside borrowers.

A couple issues servicers may experience are: 1) requirements to pause foreclosure proceedings in certain instances, and 2) increased borrower disputes due to the complexity and delays in the state programs.

Specifically, the Federal Housing Finance Agency requires servicers of Fannie Mae and Freddie Mac loans to suspend foreclosure activities for up to 60 days if the servicer is notified that a borrower has applied for relief under HAF. Although servicers of other types of loans may proceed with foreclosure, they should do so cautiously and under advice of counsel. The Consumer Financial Protection Bureau has recently warned that foreclosing on a borrower who has a pending assistance application, “will merit increased scrutiny.”

The other common issue arising is the increase in disputes and litigation. Notably, many of the state programs require the borrower to be in active forbearance to be eligible for relief. However, under the CARES Act and many servicers’ voluntary forbearance programs, the maximum forbearance period was 18 months, which ended months before many state programs were up and running. This caused many borrowers to be ineligible for HAF relief. In turn, some borrowers have attempted to place blame on the servicers. Although the state programs’ delays have caused borrowers much frustration, servicers are generally under no obligation to continue forbearance or reinstate forbearance beyond the prescribed period. Having counsel explain this to borrowers may be an efficient way to resolve some disputes before litigation ensues.

In all, mortgage servicers should consult with legal advisors to navigate the nuances of servicing in these times of slow distribution of the lingering pandemic relief funds.