National Mortgage Settlement Program

National Mortgage Settlement Program

North Carolina Department of Justice

North Carolina Housing Finance Agency

The auditor should not consider the Supplement to be “safe harbor” for identifying audit procedures to apply in a particular engagement, but the auditor should be prepared to justify departures from the suggested procedures. The auditor can consider the supplement a “safe harbor” for identification of compliance requirements to be tested if the auditor performs reasonable procedures to ensure that the requirements in the Supplement are current.

The grantor agency may elect to review audit working papers to determine that audit tests are adequate.

Auditors may request documentation of monitoring visits by the State Agencies.

I. PROGRAM OBJECTIVES

The 2012 National Mortgage Settlement (“Settlement”) is the outcome of multi-year work between state attorneys general. Funded by contributions from the five, leading mortgage servicers (Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo) at $25 billion, the Settlement offers much-needed assistance to distressed homeowners. While the majority of the direct benefits the Settlement offers to homeowners will be overseen and handled directly by the servicers, a portion of the Settlement’s proceeds was awarded to states to fund local priorities. In North Carolina, the North Carolina Housing Finance Agency (“Agency” and “NCHFA”) was asked by the Attorney General to oversee disbursement of $30.7 million (“Settlement” or “Program”), which will be used to support legal assistance services, to support the state’s Housing Trust Fund, and to build the capacity of housing counseling agencies.

The primary purpose of this funding is to build the human capital, training, technology, and marketing and outreach capacity of HUD-approved housing counseling agencies providing foreclosure prevention counseling to distressed homeowners, and to support the consumer protection and foreclosure prevention work of designated legal service partners. The Settlement’s consent order puts special emphasis on the benefits available to eligible households. Funded agencies approved for this demonstration must be able to assist homeowners with getting access to refunds and the benefits specifically outlined in the language of the Settlement.

Settlement benefits to existing homeowners whose loans are serviced by the five servicers associated with the Settlement include, but are not limited to: 1) reducing principal balances on loans where borrowers are delinquent or at risk of default and owe more on their homes than what they are worth (“underwater”), 2) refinancing for borrowers who are current on their mortgages, but owe more than their homes are worth (“underwater”), 3) principal forbearances for borrowers who are unemployed, 4) “short” sales, 5) assistance during transitions, 6) stipulations to prevent blight, 7) service-member benefits, and 8) servicing standards and requirements. Settlement benefits to eligible homeowners whose homes were sold or taken into foreclosure between January 1, 2008 and December 31, 2011 include restitution cash payments.

II. PROGRAM PROCEDURES

1. General.

Housing Counseling Agencies.

In July, 2012, the North Carolina Housing Finance Agency invited sixty-two, nonprofit housing counseling agencies approved by the U.S. Department of Housing and Urban Development with experience in providing in-person, foreclosure-related housing counseling to express interest in participating in the North Carolina Housing Finance Agency’s National Attorneys General Settlement-funded capacity building demonstration. Interested agencies were asked to submit proposals and requests for funding according to the published “Guidelines for Proposals and Requests for Funding” to address four, capacity building focus areas: Human Capital, Training, Technology, and Marketing (i.e., outreach to Settlement benefit-eligible households and clients in need of housing counseling services.)

In August, 2012, proposals and requests for $34.3 million in funding (“applications”) were received from 77% of the invited agencies. The respondents represented both urban and rural service delivery areas, good geographic coverage of the state, and organizations of large and small size.The Agency had $13.97 million available to allocate to maintain housing counseling services in existing counties, expand housing counseling services into underserved counties, train new counselors, improve technology, and support outreach to borrowers eligible for Settlement benefits from their servicer or in need of housing counseling services. Individual agency funding requests were adjusted to ensure uses were appropriate, met the Agency’s understanding of the intent of the Settlement.

In its review of interested agencies’ proposals and requests for funding, the Agency considered each counseling agency’s ability to:

1) provide NCHFA with a HUD 9902 Form and other data related to counseling, by activity, funder, and/or outcome;

2) access and properly enumerate current capacity building needs (e.g., human capital, technology, training, marketing), as compared to best scenario capacity levels;

3) substantiate and explain specific ways how addressing capacity building needs at best scenario levels will positively affect the provision of counseling services, efficiency, production, sustainability, service delivery area penetration, relationships with mortgage servicers;

4) quantifiably demonstrate how capacity would increase and how capacity building funding would positively affect, improve, or expand the following for each organization: a) counseling services, b) organizational efficiency, c) ability to assist more homeowners effectively with making housing decisions, d) ability to maximize mortgage servicer restitution refunds to homeowners from the Settlement, e) ability to resolve more mortgage delinquency issues with effective outcomes for homeowners (lower interest raters, loan modifications, other options), f) ability to facilitate more effective relationships with mortgage servicers, g) ability to compliment other foreclosure prevention programs, and h) ability to leverage other funding sources (counseling, operations, etc.)

5) track how funding for capacity building will be used

6) provide regular (e.g., semiannual) reports, data analysis, and single tracking of use of funds, linking specific activities, outcomes, and/or achievements to the availability and receipt of this particular funding source

7) meet other program or related requirements, including but not limited to: a) being in operation for at least four years, b) being financially stable as supported and evidenced by audits and other financial documents, c) having staff with at least three years of foreclosure prevention counseling experience, d) having an office that is handicap-accessible and open during appropriate, business operating hours and e) having sufficient insurance and resources to conduct business with the public.

The Agency’s relationship with participating housing counseling agencies is governed by a Funding Agreement, which outlines requirements for program funding, disbursements, reporting and other provisions like conflict of interest, adequate insurance coverage, and fiscal responsibility/recordkeeping. Approved, submitting housing counseling organizations that met program threshold criteria for organizational capacity and program standards remain eligible for multiyear participation as long as funds are available and approved counseling or legal service agency remains in compliance.

The Agency refers to this demonstration as the “Housing Counseling Capacity Building Program”, funded by the 2012 National Mortgage Settlement.

Legal Service Agencies.

The legal services partners (“legal service agencies” and “legal service providers”) participating in this demonstration were not a part of the same selection, application, and proposal review cycle as the housing counseling agencies. The legal services partners were selected by the NC Department of Justice prior to the Agency’s involvement in the program and more specifically before the Agency was asked to administer the funding for housing counseling agencies and act as the fiscal agent for disbursing funding to the legal service partners. While some of the details were clarified with the Agency’s input, the North Carolina Department of Justice in general oversaw eligibility, selection, and funding amount decisions and established most of the program requirements and expectations for legal service agencies funded under the Settlement prior to the Agency’s involvement.

The legal service partners are 1) Legal Aid of North Carolina and two state university-based consumer protection law clinics at 2) North Carolina Central University and 3) the University of North Carolina at Chapel Hill. Their relationships with the Agency will be governed by Memoranda of Understanding, which will outline their scope of funded work, requirements for funding disbursements and reporting, and other program provisions. At the time of submission of this report, the details related to this part of the funding, the program, and the memoranda themselves were still being finalized.

The Agency refers to this demonstration as “Legal Services”, funded by the 2012 National Mortgage Settlement.

Other.

A portion of the funding will be directly governed and administered by the Agency in an effort to oversee and offer training for the housing counseling network statewide. The agency has provided global industry training for counselors across the state in the amount of $340,000.00.

Program Model and Compliance.

In general, the disbursement of these Settlement funds to housing counseling agencies and to the legal service agencies does not follow an outcome-based, fee for service model of funding tied to a specific, loan-related outcome, housing counseling session or legal services activity, or prescribed, unit-level billing method. The Settlement funding’s use in North Carolina is intended to support the breadth of efforts that allow the network of counseling and legal service providers to meet the needs of foreclosure-affected communities.

Further and as far as compliance, any participating agency that receives and expends $500,000.00 or more in federal funds during the fiscal year or who are institutions of higher learning established by the State of North Carolina must comply with OMB A-133 requirements. In addition, agencies that are non-profit organizations will be subject to the administrative requirements of the OMB Circular A-110 as it may be amended and A-122, and will also be required to submit compliance reports required under N.C.G.S. 143C-6-23. Local government awarded agencies must comply with all requirements of the Local Government Commission.

As the National Mortgage Settlement is a fixed Settlement, the one-time funding awarded to the Agency is a time-limited funding resource. There is only one funding and application cycle for this program. The period of performance for this program is from October 1, 2012 through June 30, 2015.

2. Monitoring of Sub-grantees by NCHFA.

The Agencywill receive production/activity and expenditure reports manually submitted (monthly from the housing counseling agencies and annually from the legal service providers). The production/activity content of the report will outline the activities undertaken in the four focus areas(for housing counseling agencies) and by the legal services agencies (Legal Service of North Carolina and the two law clinics) for a specific reporting period. The expenditure-related content of the report will include invoices and specific documentation for program activities undertaken and direct cost expenses incurred. This is what allows the Agency to provide reimbursement to the awarded agencies for program-related activities.

III. COMPLIANCE REQUIREMENTS

1. Activities Allowed or Unallowed

Housing Counseling Agencies.

Program funds may be used by the housing counseling agencies for four purposes only: 1) Human Capital, 2) Training, 3) Technology and 4) Marketing. In general, funding is not allowed for activities that do not meet the Agency’s interpretation of the intent of the Settlement or definition of the best use of funds. Counseling agencies are required to closely carry out funded activities according to their proposal and funding request approved by the Agency, and must also request pre-approval before undertaking expenses across the four focus areas. More detail on this can be found in the Funding Agreement and the “Guidelines for Submitting Proposals and Funding Requests” provided to the housing counseling agencies.

The funding is designed to support direct costs associated with and allowable under the Human Capital focus area (i.e., recruiting, hiring, or training counseling staff or other personnel to provide direct housing counseling services, improve intake and appointment setting, improve compliance and reporting, meet demand, or expand services.) Maintaining existing staff capacity to continue current counseling activity that is consistent with the objectives and benefits of the Settlement is also an allowable use of funds. The following items are unallowed under the Human Capital Focus Area:

1) rent/lease, purchase, expansion or retrofit of office space; 2) utilities; 3) membership and subscriptions; 4) postage; 5) insurances and other administrative expenses; 6) office furniture and fixtures; 7) merit increases/raises; 8)program-specific supplies; 9) full funding of counseling staff without reason; 10) accounting, finance, management, or other support, coordinator or operational positions that do not directly result in outreach to Settlement-eligible households or potential counseling beneficiaries and/or focus on oversight of AG-funded activities; 11) expansion to counties the Agency determines are adequately served; 12) legal-related activities.

Secondly, the funding is designed to support direct costs associated with the Training focus area. What this includes is funding for existing or newly hired staff participate in approved in or out-of-state training conducted in person, on site, or online. Allowable training includes but is not limited to the following topics and skills: 1) foreclosure prevention counseling, 2) pre-purchase counseling, 3) working with existing properties, 4) neighborhood revitalization, 5) specific housing counseling skills, 6) using the Microsoft Office Suite, 7) understanding the Hope LoanPort, 8) using Housing Counselor Online, 9) use of CounselorMax, 10) using other housing counseling software,

11) understanding HUD’s Forms or its Notice of Funding Availability process,

12) conducting reverse mortgage counseling, 13) preparing to take the national reverse mortgage counseling exam, 14) understanding mortgage loan servicing procedures and regulations, 15) learning to work more effectively with mortgage servicers,

16) administering NCHFA foreclosure prevention programs, 17) developing better fiscal management, and 18) managing a housing counseling program or nonprofit organization. Funding also can be used to subsidize expenses (i.e., scholarships) for out-of-state training and travel, in-state training and travel, and specific housing certifications. The following items are not allowed as an eligible use of funds under the Training focus area: per diem and training for volunteers, board members, and/or consultants.

Thirdly, the funding is designed to support direct costs associated with Technology. In other words, funding can be used to enhance technological tools and access to help further a housing counseling agency’s staffing, service delivery efficiency, training, reporting and tracking, and marketing capacity, as well as for technological capacity building that supports or in a measureable way assists with reaching or providing services to households eligible for Settlement benefits. Allowable uses include but are not limited to: 1) acquiring (by lease or purchase) software, equipment, and/or related services associated with the agency’s counseling operations (e.g., client services, marketing, compliance, reporting and/or communications with external partners). Examples of allowable expenses include equipment like laptops and monitors, software applications like counseling software or that assist with website development, and information technology maintenance costs. Unallowable expenses include: 1) cell phones, 2)I-pads/tablets, 3) laser pointers, 4) new phone systems (upgrades are allowed), 6) social and electronic media available at no charge; 7) toll-free phone numbers and ongoing service; and 8) excessive requests for ongoing technology expenses (e.g., website maintenance) where sustainability beyond program is not demonstrated.

Finally, the funding is designed to support direct costs associated with counseling agencies employing Marketing strategies that would impact their ability to reach more households eligible for the refunds and benefits offered by the Settlement, as well as other housing counseling services. Allowable marketing activities include: in-person outreach, communications through print, social and electronic media, advertising, and other marketing approaches. Marketing and outreach-related expenses not allowed under the program include: contractual or other work with a professional marketing firm only for general or comprehensive local counseling agency marketing and branding; funding annual outreach, marketing or fundraising events; and annual reports.

Legal Service Agencies.

The program allows the legal service providers to utilize their funds for consumer protection and foreclosure prevention legal services and related activities.

In general, the disbursed program funds are designed to augment organizational capacity and link future disbursements to the ongoing achievement of each agency’s projected program goals. It is expressly understood that the Agency reserves the right to adjust disbursement schedules and award amounts if (i) the awarded agency is providing services at a pace slower than projected (ii) if there is any change in the Agency’s draw schedule or (iii) if the awarded agency, in the sole discretion of the Agency, is not in compliance with any of the terms of the Funding Agreement, including not expending funds at all or expending for ineligible uses. If applicable, some disbursements may only be issued upon the conclusion of a satisfactory audit performed by the Agency. If awarded agency is audited and the audit results are unsatisfactory, disbursement of funds may be suspended until such findings are addressed and corrected.

Finally, program funds cannot be provided directly to lenders, homeowners, or other interested parties.

Suggested Audit Procedure

The counseling agencies must submit a monthly progress and expenditure report to the Agency by the 10th of each month. The progress and expenditure reports are designed to update the Agency (monthly for housing counseling agencies and annually for the legal service agencies) on progress in expending program resources and each of the four focus areas. Each monthly report must consist of the following: 1) Monthly Grantee Program and Expenditure Report and2) Supporting documentation for report, including information as may be required by the Agency in connection with request for funding and/or reimbursement. There will be a review of documentation andawarded agency records of expenses incurred as compared to monthly reports, funding disbursements and requests for pre-approval. The objective is to ensure that program funds were used exclusively for eligible, allowable program activities from the four focus areas.