May 19, 2020
What is At Stake:
The House of Representatives passed H.R. 6800, the HEROES Act last Friday. It is going to be sent to the Senate where it faces a more uncertain future in the hands of that Republican-held chamber. We expect that the Senate will begin discussions this week and take the negotiated text to a vote in June.
This version of the HEROES bill is an ambitious piece of legislation that reflects the Democratic party’s priorities for addressing the crisis. The headline for this bill is support for states and large municipalities to handle the short term impacts to their revenues and spike in costs as a result of the crisis.
Digging a little bit deeper in the 1800 pages of the legislation reveals some of the most critically important proposals for homeowners and aspiring homeowners. Below is a brief summary of what is proposed and explanation of why it is necessary.
Homeowner Assistance Fund: The bill provides $75B in funding to states to help homeowners avoid foreclosure. Structured as a revival of a 2008 program that was in place in 18 states known as the “Hardest Hit Fund,” this structured program was seen as an efficient means of federal support for struggling homeowners. The program allocates money to state housing authorities to help homeowners reinstate their mortgages or achieve a newly affordable payment, pay taxes or insurance or utilities. (Sec. 110202)
The bill proposes:
To give any borrower who falls behind in their mortgage 60 days of forbearance automatically. If the borrower seeks formal forbearance, they would be entitled to an additional 120 days, which is then renewable upon a showing of COVID-19 related hardship for another 180 days.
To allow the borrower a right to end forbearance at anytime. (Title K, Sec. 203)
Post-Forbearance Repayment Plans:
The bill continues to ensure that borrowers who take advantage of forbearance are not charged extra fees or interest. It also dictates that the at least one of the repayment plans they are offered does not require the borrower to pay any additional amount over what was due prior to the forbearance. (Title K, Sec. 203)
Emergency Rental Assistance:
The bill provides $100B in emergency rental assistance to renters (and their landlords) who have lost their incomes in the crisis and qualify as “extremely low income” and “very low income” according to census data. $100B was calculated as the amount that would help a significant proportion of those renters whose incomes are defined as very low or extremely low (current and expected) spend only 30% or less of their monthly income on housing. It is not intended or drafted to be a “free rent” for the unemployed. It is intended to help the renters maintain their residence, while also preserving the expected revenue landlords expect to make in order to maintain facilities for residents. (Title K, Sec. 201)
Servicers are eligible for a special financing mechanism to help them continue operations while a significant proportion of borrowers are in forbearance. Recall that your servicer still needs to send the principal and interest to the owners of your mortgage even if you are not paying. They will eventually be compensated for that advance, but in the short term, this government mandated deferral is expensive and results in charges the servicer was unprepared to take on without warning. This should take pressure off the servicer, and hopefully result in more rational customer experiences. (Title K, Sec 204)
Some aspiring homeowners were unable to pay their rent while furloughed or experiencing other forms of COVID-related impacts. While homeowners could forbear, renters had no such protection. This lending facility attempts to help landlords make it through this time period where they may be short on funds and are willing to grant their renters more time to make up missed payments. (Title K, Sec 204)
State and Local Tax Deduction (“SALT”): The bill permits homeowners to deduct the full amount of state and local taxes paid in 2020 and 2021. The amounts available for deduction were previously capped under the tax reforms earlier in this Administration. This bill provision temporarily reverts to the original full deduction for 2020 and 2021. (Title I, Sec. 161)