Congress has reportedly reached an agreement to fund the government and avoid another shutdown on Saturday, though with the grumbling in conservative circles about the deal, it’s anyone’s guess whether President Donald Trump will sign it. But even if the government doesn’t shut down again, the rare breakout of competence will have come too late for people like Dorothy Leong of Stratford, Connecticut.
Leong, 83, took out a reverse mortgage on her home in 2004, which gives seniors with equity in their home the opportunity to take money out and defer repayment until they die or resell the property. She used up the line of credit from the reverse mortgage long ago and receives no more money from the deal, but as with all reverse mortgages, she’s still required to cover property taxes and homeowner’s insurance. At the same time, Leong suffers from multiple medical maladies, including a recent heart attack and problems with her legs. With health care bills mounting, and her family’s only means of support being her Social Security check and a meager income from her disabled adult son, Leong eventually fell behind on tax and insurance payments.
Leong’s condition qualifies her for a government program called an “at-risk extension.” The Department of Housing and Urban Development, or HUD, which oversees the reverse-mortgage program, allows homeowners over 80 who have serious medical conditions to avoid foreclosure if they miss housing-related payments. The program seeks to avoid the cruelty of throwing sick elderly people out onto the street.
The at-risk extension, however, must be renewed every year. Leong was approved at the end of 2017 but needed a renewal at the end of last year. “Our experience is, if the doctor says these are the issues, HUD approves it,” said Sarah White, an attorney representing Leong, who sent her request for an extension to HUD on December 10. The government shut down 12 days later, and nobody at HUD ever approved the renewal.
Leong’s at-risk extension lapsed, and she was served with a foreclosure notice in late January on the home she’s lived in since 1962.
The case is one of several scenarios in which lack of staffing during a government shutdown could leave borrowers at risk of preventable, unnecessary foreclosures. HUD and the U.S. Department of Agriculture, or USDA, which is also involved with home loans, have provided no data about how many foreclosures were advanced during the shutdown. But with critical bottlenecks inherent in the process, housing advocates warn that the number could be high — and even one preventable foreclosure is a policy tragedy.
If another shutdown hits, the backlog of cases would only increase. “People are losing homes that don’t need to,” said Alys Cohen, staff attorney at the National Consumer Law Center’s Washington office.
HUD spokesperson Brian Sullivan said that the agency is finalizing its contingency plan in the event of another government shutdown, including how to address foreclosure timelines. He declined to comment on how HUD was handling leftover cases from the initial shutdown, like Leong’s. USDA did not respond to a request for comment.
Over 9 million borrowers have loans provided or insured by either HUD or USDA. The majority of them are low-income individuals, seniors, or rural residents.
In addition to reverse mortgages, HUD insures loans through the Federal Housing Administration. Meanwhile, the USDA’s Farm Service Agency has two types of loan programs: a loan-guarantee program, which, like the Federal Housing Administration, backs mortgages made with private lenders, and a Direct Farm Ownership Loan program, in which the government issues the mortgages itself.
Direct loans can go toward the down payment or purchase of farms or ranches, expansion or renovation of an existing plot, or to fund capital expenses. They are often heavily subsidized, with monthly payments rising or falling depending on farm income. “I have clients with payments of $120 a month,” said Geoffrey Walsh, a staff attorney with the National Consumer Law Center.
These variable payments mean that farmers must constantly report their income so that the Farm Service Agency can adjust payments or approve an alternative to foreclosure. All FSA direct loans are handled through one centralized servicing center in St. Louis. And when the shutdown happened, that servicing center closed its doors.
“Nobody was answering the phone for 35 days,” said Walsh, describing the chaotic situation during the nation’s largest-ever government shutdown. Not only could alterations to direct-loan payments not be updated, but struggling borrowers at risk of foreclosure could also not be considered for loss mitigation programs to stay current on their loans.
While foreclosures on direct USDA loans are handled by private servicing companies or in some cases the local U.S. Attorney’s office, if there are disagreements over the amount owed or requests for hardship assistance, answers must come through the USDA’s centralized servicing center. Meanwhile, most foreclosures have timelines for borrower action to stop the march toward eviction and sale of the property. “None of those clocks stopped running during the shutdown,” Walsh said.
Eventually, the USDA caught on to the shutdown’s detrimental impact on farmers — yet it seemed unperturbed by the specific harms facing mortgage borrowers. On January 22, the agency reopened Farm Services Agency offices to assist farmers, but explicitly excluded Farm Ownership loans from the list of programs that would be serviced. The USDA told the National Consumer Law Center that it stopped foreclosure sales during the shutdown, but it never clarified how it handled foreclosure timelines.
The National Consumer Law Center asked the USDA for a stay of all foreclosure activity on its loans during the shutdown, but received no response. “There was no written guidance from USDA about what they were doing,” said Steven Sharpe, an attorney with the Legal Aid Society of Southwest Ohio.
In January, the Atlanta Journal-Constitution profiled Willie Donaldson, a homeowner caught up in this situation. After losing his job due to a stroke, Donaldson appealed to the USDA’s rural housing program, which assisted him with his loan to help prevent foreclosure. But nobody answered the phone. His foreclosure hearing was scheduled for February 5.
When the shutdown ended, problems for USDA borrowers were not immediately alleviated. The centralized servicing center needs to work through a tremendous backlog of claims and appeals, with no additional funding support to accelerate the process. “We think it’s still a mess,” said Walsh.
The situation at HUD is similar to the USDA. In addition to reverse mortgage homeowners with at-risk extensions like Leong, newly widowed spouses whose names aren’t on the reverse mortgage need assistance from HUD to keep foreclosure at bay. But HUD officials who typically approve this deferral were furloughed during the shutdown. Borrowers with Federal Housing Administration-insured loans can normally contact HUD personnel for assistance to prevent avoidable foreclosures, like loss mitigation options; this help was also not available during the shutdown since the main point of assistance, the agency’s national servicing center, was almost entirely furloughed.
Advocates asked HUD for a foreclosure moratorium during the shutdown, without a response. “A couple times, we wrote to HUD and someone responded that they would do something on that case,” said Cohen of NCLC. “But it can’t be the case that you have to send an email to Alys Cohen to get your foreclosure stopped.”
White, Leong’s attorney, said her client was served with foreclosure on January 23. Connecticut has a mandatory mediation program that will prevent the foreclosure from occurring immediately. However, the stress of the situation has led to a further decline in Leong’s health. “She should not be in foreclosure again,” White said.
Any completed foreclosures could trigger payouts from the USDA and HUD’s mortgage insurance funds, costing the government money for no good reason.
Attorneys and housing advocates want the USDA and HUD to extend all foreclosure-related deadlines by 35 days to account for the shutdown. They also want an immediate stay on foreclosures in their programs and extended deadlines for assistance until the backlog is cleared. Finally, all foreclosures executed during the shutdown should be rescinded, they said.
If the government shuts down again, not only would the backlog of cases continue to pile up, but borrowers awaiting an answer on their particular situation would again have no recourse at the USDA or HUD, and find themselves at the mercy of a relentless foreclosure timeline. Many borrowers don’t have attorneys helping them through the intricacies of the system. Low-income rental assistance could also be affected by a renewed shutdown, and if that dries up, substantial numbers of evictions could ensue.
But merely averting a shutdown won’t avert the foreclosure the first shutdown caused.