By Holly Chisa, HPC Advocacy, UTA Washington State Lobbyist
Like other states, Washington has been hit hard by COVID-19, closed businesses, and layoffs. The Employment Security Department, or ESD, which provides unemployment insurance benefits, estimates our unemployment rate is now at 15%. Some counties are finally allowed to move to staged Phases to reopen businesses, including restaurants and retail. Masks are highly recommended, and large public gatherings (less than 50 people) won’t be likely available for more populous counties until at least late-June. King and Pierce, our two largest counties, will take much longer.
Add to this property damage sustained in urban areas of Washington that occurred as a result of vandals who undermined the message of peaceful marchers in Seattle, Tacoma, Spokane, and other cities around the state. Damaged restaurants and retailers that were opening back up were forced to close again, preventing workers and owners from getting back to work.
What is significant is the suddenness of ALL of this. In April, financial institutions reported to a state task force that their banking members had about 6% of their mortgage holders call asking for assistance with their mortgage. Of that group over 50% were current in their payments as of March. They were calling because they’d been laid off or had immediately been faced with other financial needs that weren’t even present the previous month. About one-third of those callers were small business owners. Lawmakers NOW want to know what WILL happen once the CARES Act expires, and/or the 90 day forbearance ends. Will the payments be due immediately, will they be refinanced, will they be due as a balloon payment at the end of the life of the mortgage? At this time, financial institutions don’t have much of an answer.
With the prohibition on groups larger than one or two people in Phase I, and five or fewer in Phase II, plus the limitations of the CARES Act, foreclosures and trustee sales have all but stalled in Washington. With the immediate stop to most filings of NOTS, the $325 fees paid by financial institutions to pay for the FFA have stopped, too, leaving the program with no funding source.
There will be several significant problems to work through once the systems begin again in Washington. There are the obvious:
- – How many NODs and NOTS will need to be reprocessed?
- – Will financial institutions be able/allowed to refinance loans internally, or will they process NODs and send these through the FFA instead?
- – How high will the foreclosure count be, as some folks are able to return to work but others are not?
- – How will both business and residential landlords address their inability to pay the mortgage while their tenants cannot pay rent due to unemployment or their businesses are shut?
The Foreclosure Fairness Act (FFA) will be relied on heavily as homeowners attempt to reset from all of this. There is discussion from lawmakers of including non-owner occupied properties in the FFA as well. This is a reflection of the high number of tenants unable to pay rent, and ostensibly the owners of their buildings sliding into foreclosure. This would require a statutory change to the program. However, because NOTS haven’t been filed in months now, there are very few fees being paid into the FFA. There are far fewer housing counselors now than there were at the height of the FFA, and dispute resolution centers are not prepared for an influx of new homeowners underwater on their loan payments.
Estimates are the FFA is currently in the red. The program, which has relied on payments both from financial institutions and federal grants, has drawn the fund balance down to close to negligible. There is hope that the $20 million provided to Washington from the CARES Act could be used to help pay for the FFA, but it’s unclear what the true financial impact of no NOTS fees being paid and a sharp increase in homeowners seeking assistance through the FFA will be. Lawmakers and the Washington Department of Commerce, which is the chief agency responsible for the program, will be asking for help from Congress, as well as a budget proviso in the Washington State budget during the special session and the 2021-23 budget cycle.
The Washington state budget, however, has significant problems of its own. At the time of this column’s drafting, the quarterly fiscal forecast had not yet been released. However, Washington’s budget outlook is expected to be down $7 billion as a result of delayed B&O tax payments, closed businesses, a sharp drop in sales tax revenue, and other revenue sources like the REET from home sales. The state also faces a unique situation in which our unemployment insurance program was the victim of potentially up to $1 billion in fraudulent claims. While about $300 million of that has been collected back, the UI fund faces insolvency. Businesses and the state will be expected to refill the coffers, and those businesses right now cannot pay their taxes, let alone pay an additional UI tax to support the fund.
All of this leads to a budget that cannot sustain itself, let alone provide new funding for the FFA. Even though the ask is small – estimated at $5 million – no one knows where the money will come from.
The Washington Legislature is expected to meet sometime this summer in a special session specifically to address the budget shortfall. It is not expected to take up legislation similar to CA’s AB 2501, although there are Washington lawmakers interested in the policies promoted in that legislation and similar. Depending on what the final laws are in California, we expect a similar effort to be made here in Washington, similar to the attempt to bring HOBR here years ago. What will frustrate lawmakers is the housing crisis of 2020 is not the same as in 2008-2010 when subprime loans and other lending practices were blamed as the “cause” of the housing crisis. This time, it’s a virus that’s created the havoc, and no one knows how to tax their way out.
This will be a bumpy ride for the next several months as we try to determine where all this is headed.