2. Outreach and Goal-Setting
3. Case Management / Coaching
4. Increasing Earnings
5. Building Financial Capability
6. FSS Infrastructure
5. Building Financial Capability
This module provides an overview of the FSS escrow account and describes promising practices for communicating with FSS participants about the escrow account and using the escrow account to motivate participants to increase their earnings. It also discusses interim escrow withdrawals and coaching around participants’ plans for using their escrowed funds.
This training does not cover the specific procedures for computing the amount of the FSS escrow credit. For an overview of these procedures as they apply to public housing and Housing Choice Voucher (HCV) FSS programs, see 24 C.F.R. §984.305, the FSS Escrow Account Credit Worksheet, and Chapter 23 of the Housing Choice Voucher Program Guidebook. See also PIH’s Financial Reporting for the Family Self-Sufficiency (FSS) Program Accounting Brief #23 for information on financial reporting. Multifamily owners see HUD Office of Housing Notice H-2016-08.
What is the FSS Escrow Account?
The FSS escrow account is an account maintained by the PHA or owner that grows as the earnings of FSS participants increase. Like other families in the HCV, public housing or project-based Section 8 programs, most FSS participants pay rent based on a percentage of their household income. When their household income rises, the amount they pay toward rent also rises. By enrolling in FSS, participants have the opportunity to convert their increased rent into savings.
For FSS participants, the PHA/owner generally deposits an amount equal to the increase in rent due to the family’s increased earnings into the FSS escrow account. This allows FSS participants to build savings automatically over time. FSS escrow savings don’t count against asset limits for means-tested programs until they are disbursed.
The escrow deposit calculation varies depending on the family’s income level, with different rules for families with incomes below 50 percent and between 50 and 80 percent of the Area Median Income (AMI). In brief, a family whose income is greater than 50 percent of AMI but less than or equal to 80 percent of AMI is treated as if its income is 50 percent of AMI for purposes of calculating the escrow deposit. See 24 CFR §984.305(b)(1)(ii).
In addition, families whose incomes rise above the low-income limit (80 percent of area median) do not receive any additional escrow deposits.
With the exception of interim disbursements, participants can only access their escrow money once they graduate from the FSS program. For an overview of the requirements for graduation, see Chapter 2.
What is the Purpose of the FSS Escrow Account?
The FSS escrow account serves two main purposes. It provides:
Through interim disbursements, the FSS escrow account can also be used to pay for services needed to help participants achieve their goals.
PHAs and owners are required to deposit all escrow funds for all FSS participants into a single, interest-bearing depository account and to account for these funds through a subsidiary ledger that records the balance of each FSS participant’s individual account value (within the single account).
PHAs and owners are required to credit interest to each family’s ledger at least once per year. PHAs and owners are also required to report to the family at least once per year on the family’s escrow account ledger balance, including original balance, changes during the reporting period, deductions made to the account, interest earned, and total account value at the end of the period. See 24 CFR §984.305(a) for more detail. (The next module provides more information on communication with participants about their escrow accounts).
Funds held in the escrow account and escrow funds that are distributed to the participant are not subject to federal taxation.
A family is eligible to receive its full escrow account balance upon graduating successfully from the FSS program. These funds are unrestricted. However, coordinators may work with participants to coach them on how to use their escrowed funds strategically to meet personal and life goals. Click the arrow to expand the content.
Summary of graduation requirements
A family may graduate from the program by meeting one of two tests: (a) by completing all of its obligations under the contract of participation (including having accomplished his or her goals stated in the ITSP) and certifying that no family members had received welfare assistance payments in the previous 12 months; or (for HCV participants only – not Public Housing) (b) when 30% of the family’s adjusted income equals or exceeds the area FMR and the head of the family certifies that no member of the family is currently receiving welfare assistance payments.
Families in this second category must be free of cash welfare assistance, but the 12 month requirement does not apply.
(With respect to test (b), note that HUD interprets that this regulatory provision was not intended to apply to FSS participants in the public housing program.)
FSS © 2017 | U.S. Department of Housing and Urban Development
An FSS program may also allow the FSS participant to receive a portion of the escrow funds before graduation, as an interim disbursement, to help the family accomplish its goals.
FSS programs have the discretion to decide whether – and if so under what circumstances – to allow participants to make interim withdrawals from their escrow accounts prior to program graduation.
To qualify for an interim escrow disbursement, a participant must (24 CFR 984.305 (C)(2)(ii)):
Note: The failure of a participant to graduate from FSS does not result in the participant having to pay back interim disbursements of escrow.
As explained in the video, car repair is a common use of interim disbursements of escrow.
Other common uses of interim disbursements of escrow include:
Aside from the basic requirements, FSS programs have a lot of latitude in how they allow FSS participants to use interim disbursements from the escrow account and what restrictions they place on disbursements. These restrictions and conditions must be outlined in the agency’s FSS Action Plan.
Here are examples of restrictions that some FSS programs have placed on interim withdrawals:
Restriction: Allows participants to take interim disbursements of escrow but restrict how much can be disbursed or how often participants can receive disbursements.
Reasoning: These approaches allow participants to access their escrow funds to get or stay on track toward FSS goals, but keep them from seeing the escrow account as a checking account for short-term needs and protect the total balance.
Restriction: Places restrictions on the acceptable reasons for or uses of an interim disbursement. For example, some may allow disbursements for car repair or to purchase a vehicle to get to work or equipment to start a business but not to pay down debt and improve credit.
Reasoning: Programs differ in how they view interim disbursements to pay down debt. Some permit it for participants seeking to increase their credit score or become a homeowner. Others worry it may lead participants to spend more than they budget. (Some address this by only allowing disbursements to repay debts incurred before FSS enrollment).
Restriction: Many programs try to exhaust all other possibilities for funding a need before accessing the escrow, seeing the escrow as a last resort. Some programs also require that participants provide some out-of-pocket payment toward the expense the disbursement is designed to cover (e.g., in one program, participants who want a disbursement for car repair must cover at least 5% of the expense from other sources).
Reasoning: This approach may help limit requests for interim disbursements to what the participant sees as truly necessary.
Restriction: Some PHAs may consult with a knowledgeable, disinterested third party before allowing an interim withdrawal. For example, if a participant is requesting money for car repair, the PHA may consult with someone who has expertise in car repair to ensure the repairs and vendor price are appropriate.
Reasoning: This approach may help ensure that the decision to allow the interim withdrawal is objective and fair.
Restriction: Some programs keep formal restrictions on disbursements minimal and determine disbursements on a case-by-case basis in conjunction with coaching and discussion with the participant.
Reasoning: They may believe that participants know their own needs best, so relaxed restrictions are appropriate if the expenditure is goal-oriented.
Overall, many FSS programs see the option of interim disbursements from the FSS account as an important resource to help participants invest in their own financial health and long-term goals.
This video clip discusses the importance of allowing interim disbursements to help families achieve their goals.
Many FSS participants (and prospective participants) are confused by the escrow account at first. The mechanism can be confusing and many participants are not familiar with the word “escrow”–or may associate it with punitive actions. It is important for FSS coordinators to provide clear and simple explanations when recruiting participants and discussing the account.
An initial explanation may include the idea that, as participants earn more money, the PHA or owner deposits deposits the additional money they pay in rent in a “managed savings account” for them. Another way of summarizing this is to say that the more a family earns through work, the more money they get in the account. One FSS coordinator has borrowed a phrase from a participant: the FSS program lets you “save your raise”.
Several FSS programs now avoid using the word “escrow” whenever possible and refer to the account as a “savings account” or “managed savings account.” In addition to increasing clarity for some participants, this terminology can help participants feel ownership of the money saved in the escrow account, pride and encouragement in growth (or determination to grow the account), and an ability to connect the account to their own savings and employment goals.
This video describes how a housing authority changed what they call the escrow account and how they talk about it with participants.
The escrow account is most effective as an incentive when participants receive information on their balance frequently and programs communicate about it clearly. This lets participants see the account growing as they continue to generate increased earnings.
PHAs and owners are required to share the escrow balances with participants at least once per year (24 CFR §984.305(a)(3)). However, it is good practice to share the balance more frequently and many FSS programs do so. Some FSS programs communicate the balance to participants quarterly, or semi-annually. Some even provide the balance monthly. Mediums for providing balance updates may include letters or in-person communication during regular appointments with participants as well as email or phone communication, or even the option to log-on to a website. Some FSS programs now provide a balance statement designed to remind participants of a bank statement.
Providing the escrow balance in-person at a check-in or coaching meeting has the benefit of allowing the FSS provider to discuss the participant’s progress at the same time as providing the balance.
In this video an FSS practitioner describes how his FSS program communicates about the escrow with their participants.
Upon graduation, many participants will suddenly receive access to more money at once than they ever have before. While FSS graduates may use their final escrow disbursement in any way they choose, it’s generally a good idea for FSS programs to talk with participants about how to make effective use of the funds.
Some FSS programs are reluctant to coach FSS participants in how they should use their final escrow checks, because “it’s their money.” Other programs see discussions around the eventual use of the escrow as a critical part of the FSS coordinator’s job, arguing that helping participants to identify a specific savings goal for their FSS escrow accounts helps to motivate them while also increasing the likelihood that graduates will spend or save the money in a way that advances their long-term goals.
FSS coordinators can use case management or coaching to help participants identify the ultimate financial, life, and career goals they want to advance through their FSS escrow accounts. Some FSS programs work with participants from the very beginning to help them set goals for the use of the escrow funds to help motivate the participants to succeed in the program. Most programs that help participants identify savings goals early in the program discuss participants’ plans for the escrow funds as graduation approaches.
In this video clip, another FSS practitioner describes how her FSS program discusses escrow balances and goals for the escrow account with program participants.
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