Introduction

The American Rescue Plan Act of 2021 (ARPA, P.L. 117-2) included $9.961 billion for a new Homeowner Assistance Fund (HAF) administered by the Treasury Department.¹ Through the program, Treasury allocates funds via formula to eligible entities, which in turn can use the funds to assist eligible homeowners with mortgage payments or certain other related housing expenses.

This report provides an overview of the HAF based on ARPA and program guidance released by Treasury as of the cover date of this report. (Treasury released initial program guidance on April 14, 2021² and updated that guidance on August 2, 2021.³) It includes brief background on the creation of the HAF, information on funding allocations, a description of key program parameters, and a discussion of certain outstanding questions.

Background

The COVID-19 pandemic and its resulting economic ramifications have made it difficult for many households to afford their housing payments.⁴ Since the beginning of the pandemic, Congress and the Trump and Biden Administrations have taken several steps to assist both renters and homeowners who are having difficulty remaining current on housing payments. Assistance for renters has included funding for an emergency rental assistance program as well as temporary federal moratoriums on evictions under certain circumstances.⁵ Assistance for homeowners has included mortgage forbearance⁶ and a temporary foreclosure moratorium for federally backed mortgage loans.⁷ The foreclosure moratoriums for federally backed mortgages expired after July 31, 2021,⁸ and the federal eviction moratorium is no longer being enforced.⁹

Although many homeowners have benefited from mortgage forbearance or foreclosure moratoriums, there have been concerns about homeowners' ability to resume mortgage payments or repay past due amounts¹⁰ after these protections end.¹¹ In addition, for homeowners whose mortgages are not federally backed, mortgage servicers are generally not required to offer forbearance or other specific assistance options (although many may do so). Some homeowners may also face foreclosure or displacement due to an inability to pay other housing-related costs (e.g., association fees or property taxes). Given these concerns, a variety of housing, consumer, and industry organizations had urged Congress to provide additional assistance for homeowners having difficulty meeting their housing costs due to financial hardships experienced during the pandemic.¹²

Section 3206 of ARPA established the $9.961 billion HAF at the Treasury Department. Under it, Treasury allocates funds via formula to states, territories, tribes, and the Department of Hawaiian Homelands (DHHL). These entities, in turn, can use the funds to assist eligible homeowners with certain qualified expenses related to their housing costs in order to prevent mortgage delinquency, default, foreclosure, displacement, or loss of utilities or home energy services.

Funding Allocations

States, territories, federally recognized tribes, and DHHL are all eligible to receive funding from the HAF. Puerto Rico and the District of Columbia are considered states for the purposes of the HAF. As described below, there are some differences in how funds are allocated between these eligible entities, and some differences in how certain requirements (namely, deadlines for requesting funds) apply to states and territories as compared to tribes and DHHL.

Of the $9.961 billion provided for the HAF, ARPA sets aside the following amounts:

• a total of $498.1 million (5% of total funding) for tribes and DHHL;
• a total of $30 million for the territories;
• up to $40 million for Treasury for administration, oversight, and technical assistance; and
• up to $2.6 million for the Treasury Office of Inspector General (OIG) to provide program oversight.

The remaining $9.4 billion is for allocations to the states.

State and Territory Allocations

ARPA directed Treasury to allocate funds to states (including the District of Columbia and Puerto Rico) using a formula that referenced the average number of unemployed individuals over a period of between 3 and 12 months and the number of mortgages more than 30 days past due or in foreclosure in a state. It also established a minimum state allocation of $50 million.

Treasury developed a formula that used a four-month average of the number of unemployed individuals on a seasonally adjusted basis and the number of borrowers with mortgage payments more than 30 days past due.¹³ It weighted the unemployment factor at 25% and the mortgages past due factor at 75%. State allocations are shown in Table 1.

ARPA set aside a total of $30 million to be distributed among the territories (American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands) based on each territory's population as a share of the combined population of all of the territories. Territory allocations are shown in Table 2.

Under ARPA, states and territories were required to request allocated funds from Treasury within 45 days of enactment (i.e., by April 25, 2021). If there were remaining funds that were not requested by that date, Treasury was to reallocate those funds among other eligible states within 180 days of enactment (i.e., by September 7, 2021). According to Treasury, all states and territories requested their funding by the deadline.¹⁴

Tribal Allocations

ARPA provides that 5% of the total amount of funding for the HAF is for Indian tribes (or their tribally designated housing entities) that were eligible to receive grants under HUD's Indian Housing Block Grant (IHBG) program in FY2020 and DHHL.¹⁵ Five percent of the total funding is $498.1 million. Of that amount, 0.3% ($1.5 million) is for DHHL.

The remaining $496.6 million is to be distributed to tribes using the same method required under Treasury's Emergency Rental Assistance Program.¹⁶ Namely, each tribe or its tribally designated housing entity is to receive the same proportion of funding that it received under the IHBG formula in FY2020,¹⁷ with adjustments to allow tribes that opted out of IHBG funding in FY2020 to choose to receive HAF funding.¹⁸ Treasury has said it will announce tribal allocations after a tribal consultation process.¹⁹

The deadline for tribes and DHHL to request funds from Treasury is September 30, 2021 (rather than the April 25, 2021, deadline that applied to states and territories).

Program Parameters

Once eligible entities—states, territories, tribes or their tribally designated housing entities, and DHHL—notify Treasury of their intention to participate in the HAF, Treasury is to provide funds to these entities to use to assist eligible homeowners with certain allowable housing-related expenses. Participating entities have discretion in how to use their funds and set up their individual programs, within the parameters set by ARPA and related Treasury guidance.²⁰ Homeowners are to apply for funding through the participating entity or its designee (e.g., a state housing finance agency). A participating entity can set up one or more programs targeting different populations of eligible homeowners or providing different types of assistance.

Eligible Uses of Funds²¹

ARPA provides that HAF funds are "for the purpose of preventing homeowner mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services, and displacements of homeowners experiencing financial hardship after January 21, 2020, through qualified expenses related to mortgages and housing." Qualified expenses specified in ARPA include the following:

• Mortgage Assistance: Several eligible uses of funds are related to helping homeowners with mortgage payments, including mortgage payment assistance, assistance to reinstate a mortgage (i.e., repay past due amounts to bring a mortgage current), principal reduction, and facilitating interest rate reductions.
• Assistance with Certain Other Housing Costs: ARPA explicitly includes assistance with certain other costs related to homeownership, including payment assistance for utilities; internet service; homeowner's, flood, or mortgage insurance; and homeowners' or condominium association fees or common charges.
• Reimbursing Governments for Funds Previously Expended for These Activities: ARPA allows funds to be used to reimburse a state, local, or tribal government for funds it expended for related purposes between January 21, 2020, and the date that the eligible entity first disburses HAF funds.
• Other Assistance as Determined by Treasury: ARPA provides that funds can be used for "any other assistance to promote housing stability for homeowners, including preventing mortgage delinquency, default, foreclosure, post-foreclosure eviction of a homeowner, or the loss of utility or home energy services, as determined by the Secretary." Treasury's HAF program guidance includes certain other activities not specifically mentioned in ARPA, including payment assistance for delinquent property taxes and activities such as repairs to retain a home's habitability or assisting homeowners to obtain clear title in order to avoid displacement. It also specifies that participating entities can use up to 15% of HAF funds received for planning, community engagement, needs assessment, and administrative expenses related to the HAF.

Eligible Homeowners

The HAF can be used to assist homeowners experiencing financial hardship after January 21, 2020.²² Treasury's guidance requires homeowners to submit an attestation describing their financial hardship.²³

All eligible homeowners must have incomes at or below 150% of area median income, and the home must be a primary residence.²⁴ The unpaid principal balance of a mortgage at the time the mortgage was originated must not have exceeded the Fannie Mae/Freddie Mac conforming loan limit.²⁵

Targeting of Funds

Under ARPA, at least 60% of the funds made available to a participating entity must be used to assist households with incomes at or below 100% of area median income or the median income for the United States, whichever is greater.

Remaining funds are to be prioritized to socially disadvantaged individuals. ARPA does not define socially disadvantaged individuals for the purposes of the HAF, but Treasury included a definition in its April 2021 guidance²⁶ and a revised definition in its August 2021 guidance. The definition adopted by Treasury in the August 2021 guidance reads as follows:

Socially disadvantaged individuals are those whose ability to purchase or own a home has been impaired due to diminished access to credit on reasonable terms as compared to others in comparable economic circumstances, based on disparities in homeownership rates in the HAF participant's jurisdiction as documented by the U.S. Census. The impairment must stem from circumstances beyond their control. Indicators of impairment under this definition may include being a (1) member of a group that has been subjected to racial or ethnic prejudice or cultural bias within American society, (2) resident of a majority-minority Census tract; (3) individual with limited English proficiency; (4) resident of a U.S. territory, Indian reservation, or Hawaiian Home Land, or (5) individual who lives in a persistent-poverty county, meaning any county that has had 20% or more of its population living in poverty over the past 30 years as measured by the three most recent decennial censuses. In addition, an individual may be determined to be a socially disadvantaged individual in accordance with a process developed by a HAF participant for determining whether a homeowner is a socially disadvantaged individual in accordance with applicable law, which may reasonably rely on self-attestations. ²⁷

Funding Availability and Planning Requirements

Treasury's guidance states that it will make initial payments to participating entities in an amount of 10% of their total allocation once they sign a required agreement with Treasury and agree to use funds only for eligible uses.²⁸ To receive their remaining allocations, entities need to submit a detailed plan for their use of the funds for Treasury's approval (a "HAF plan").²⁹

Treasury expects certain information to be included in a HAF plan, including information describing the needs of eligible homeowners in the jurisdiction, the design of each program the entity plans to implement, performance goals, and the entity's readiness to implement the program(s). Treasury has provided a template for eligible entities to use that includes the required elements of the plan,³⁰ as well as a streamlined template for use by participating entities that receive less than $5 million in HAF funding.³¹ Participating entities can choose to submit multiple HAF plans describing different uses of HAF funds, which may allow certain activities to be approved and implemented more quickly.³² Treasury set a deadline of August 20, 2021, for states and territories to submit their HAF plans, or identify a date by which they intended to submit their plans.³³ This deadline did not apply to tribes.

Reporting Requirements

Treasury intends to require participating entities to submit quarterly reports with certain required information, as well as annual reports on the impact of the program. It states that it will release additional guidance on these reporting requirements in the future.³⁴

Outstanding Questions

This section discusses certain broad, outstanding questions about the HAF, the answers to which will remain uncertain at least until states design and implement their programs, if not longer.

How will participating entities structure their programs?

As described above, funds from the HAF can be used for a range of qualified expenses to assist eligible homeowners. Until Treasury approves participating entities' HAF plans and they begin implementing their programs, it will be unclear to what extent each entity will fund any specific activity or what kinds of requirements they may place on the program or programs they create. The National Council of State Housing Agencies has been tracking the progress of state HAF programs and providing links to state-specific program information.³⁵

Participating entities have significant discretion in designing their programs, including which eligible activities to fund, which eligible homeowners to target, how homeowners will apply and what to require from applicants, and whether any additional requirements or conditions will apply. This discretion can allow entities to develop programs that are responsive to housing conditions and homeowner needs in their jurisdictions. However, the ability of participating entities to establish various programs with different requirements also has the potential to cause confusion or increase complexity for homeowners or mortgage servicers. In addition, some observers have expressed concerns that if participating entities establish eligibility requirements that go beyond those required by ARPA or Treasury guidance, it may unnecessarily limit the ability of some homeowners to access assistance.³⁶

The initial program guidance that Treasury released in April 2021, and its updated guidance issued in August 2021, required or encouraged participating entities to prioritize certain types of activities or ways of targeting assistance, which may influence participating entities' decisions as they develop their programs. Areas where Treasury encouraged certain actions include the following:

• As noted earlier, Treasury made 10% of a participating entity's allocation available initially; to receive the remaining amounts, entities need to submit HAF plans for Treasury's approval. For the initial 10% payments, Treasury's guidance encouraged eligible entities to "use these initial payments to create or fund pilot programs to serve targeted populations, and to focus on programs that are most likely to deliver resources most quickly to targeted populations, such as mortgage reinstatement programs."³⁷
• In describing the required content of the HAF plans, Treasury's August 2021 updated guidance says that entities "must" fund "one or more programs intended to reduce mortgage delinquency among targeted populations."³⁸ (The original April 2021 guidance had "strongly encourage[d]" this.) The guidance also encourages entities to "consider program designs that leverage utility assistance from other federal programs that have been created expressly for that purpose before using HAF funds for utility assistance."³⁹
• Treasury's August 2021 updated guidance encourages participants to consider programs to preserve homeownership for low-income households, including households without mortgages, in areas with rising property tax and utility costs.⁴⁰
• Treasury's guidance encourages entities to prioritize assistance to homeowners with mortgages backed by the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or U.S. Department of Agriculture (USDA), or those with mortgages funded through mortgage revenue bonds or other programs that target low- or moderate-income homebuyers.⁴¹ To the extent that these programs largely serve borrowers with incomes in the range to which participating entities are to target most of their funds, focusing on borrowers with these types of mortgages could help meet the program's targeting requirements. However, mortgages backed by FHA, VA, and USDA (or by Fannie Mae and Freddie Mac) have been covered by CARES Act (P.L. 116-136) mortgage forbearance provisions and a foreclosure moratorium for much of the pandemic, whereas mortgages that are not backed by any of these entities may not have benefitted from the same protections.⁴² Treasury's August 2021 guidance also notes that homeowners with mortgages that are not federally backed may have fewer assistance options and therefore be at greater risk of foreclosure, and states that "the HAF plan must describe how the HAF participant will determine and address these needs."⁴³

How effective will the HAF be?

It remains to be seen how effective the HAF will be at achieving its stated goals of preventing mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services, and displacements for eligible homeowners. The extent to which the program achieves its goals could depend on a variety of factors, including the following:

• How available funding compares to homeowner need: Estimating the total number of homeowners in need, and the amount of assistance required, is difficult due to a variety of factors. As of mid-June 2021, the Mortgage Bankers Association, an industry group, estimated that there were about 2 million borrowers currently in forbearance⁴⁴; as of early September 2021, it estimated that number to be 1.5 million.⁴⁵ While the number of borrowers in forbearance gives a sense of how many homeowners are having difficulty making mortgage payments, not all homeowners in forbearance will require assistance when forbearance ends. Many homeowners who have exited forbearance to date have been able to resume payments and enter into agreements to repay past due amounts or have otherwise paid off their mortgage debt (e.g., by refinancing or selling the home).⁴⁶ The Consumer Financial Protection Bureau notes, however, that those who remain in forbearance longer may be in deeper financial distress and will owe more in missed payments upon exiting forbearance.⁴⁷ While not all homeowners currently in forbearance will necessarily require additional assistance, some homeowners in need of assistance may not have mortgages in forbearance. They may be behind on mortgage payments but not qualify for forbearance, or they may be current on mortgage payments (or not have a mortgage) but be having difficulty meeting other costs, such as property tax payments or association fees.
• How quickly programs are set up and homeowners can access funding: Participating entities are in the process of designing and implementing their programs and opening them up for homeowners to apply for funding. The amount of time it takes to design and implement programs, including having plans approved by Treasury, could affect how many eligible homeowners are able to access assistance.
• The types of assistance provided and program criteria: Other factors that will affect HAF's effectiveness at achieving its goals may include the types of assistance participating entities choose to provide and how restrictive eligibility and program criteria are. Additional eligibility requirements or restrictions on how funds can be used could reduce the number of homeowners who would qualify for assistance or make it more difficult for some to access funding. Treasury's August 2021 guidance "discourages" participating entities from "imposing additional eligibility criteria such as foreclosure status, credit score, bankruptcy status, the existence of liens on the property, or previous cash-out refinances." It directs that entities seeking to include additional eligibility criteria "must explain with specificity how those criteria would further the objectives of the HAF, including how they would help the program reach eligible homeowners."⁴⁸