Posted on Tuesday, May 4, 2010
Happily we’re seeing more and more efforts to help folks from the state level where problems can be clearly identified and solutions crafted more appropriately for the local issues.
The White House, allocated $1.5 billion for Arizona, California, Florida, Michigan, and Nevada state housing finance agencies (HFAs) through the administration’s Hardest Hit Fund. Arizona, Florida, and Michigan have proposed using federal funds to pay down loan balances for struggling borrowers and to subsidize mortgage payments for those who remain out of work. The Treasury Department is the reviewing proposals, which are anticipated to be finalized next month.
ARIZONA: One example of state level solutions is Arizona’s Department of Housing (ADOH), proposal. Arizona’s foreclosure rate is currently second in the nation. Early foreclosures were a result of over-speculation by investors, but Arizona households are now facing foreclosure due to job loss or reduced income many other under water households are choosing foreclosure. The ADOH proposal, 4,000 households with permanent mortgage modifications, second mortgage settlement, temporary mortgage assistance, and homeowner advocacy through HUD counselors. ADOH plans to use $90 million of its $125.1 million allotment to reduce loan balances for heavily underwater borrowers. The principal balance must exceed 120% market value. The homeowner could then qualify for a maximum contribution of $50,000 that is matched by the lender and forgiven over a period of time. HFA plans to use around $7.5 million to help extinguish second mortgages, another $12 million to help subsidize monthly mortgage payments for unemployed borrowers, and $10 million towards housing counselors. In designing this proposal, ADOH developed a set of guiding principles to ensure that it assists homeowners who have demonstrated “personal responsibility” in their home purchase choices. It is the state’s intent to assist those who, through no fault of their own, are facing the potential loss of their home due to the current and unprecedented economic conditions. Under these guidelines, a foreclosure must be imminent, meaning resources will only be utilized for households who have exhausted all options in remaining current on their mortgage payments. In addition, resources will only be utilized for primary residencies, and households must prove that their income is at or below 120% of the area median income. Applicants must also demonstrate an approvable hardship, such as reduced income due to underemployment, a medical condition, divorce, or death. Homeowners who have “self-inflicted” wounds, such as refinancing to take out equity, will not be approved. Resources will be made available statewide. However, geographic set-asides will be devised to assure distribution commensurate with foreclosure rates.
CALIFORNIA: Another example is California. In a proposal submitted to the Treasury Department, the California Housing Finance Agency (CalHFA) detailed how it plans to use $699.1 million in federal aid made available through the administration’s Hardest Hit Fund. According to the proposal, CalHFA will use the funds to implement four distinct programs, three designed to help California homeowners remain in their homes and one intended to help underwater homeowners transition out of their homes into more affordable housing. Qualified households will be eligible to receive a maximum benefit of $50,000, which may be used on one individual program or in conjunction with others. Through its Unemployment Mortgage Assistance Program, CalHFA will provide temporary financial assistance in the form of a mortgage payment subsidy of varying size and term to unemployed homeowners at risk of foreclosure. These funds will provide up to six months of benefits, with a monthly benefit of up to $1,500 or 50 percent of the existing total monthly mortgage payment, whichever is less. The program benefit cap will be $9,000 per household. CalHFA will use around $427 million – the bulk of its hardest hit funding – for this program. The Mortgage Reinstatement Program was designed to provide financial assistance to reinstate delinquent mortgage loans that are in arrears to prevent foreclosures. Funds available through this program will provide benefits of up to $15,000 per household or 50 percent of the past mortgage due arrearage amount, with a required dollar-for-dollar contribution match from the lender, servicer, insurer, and/or borrower. A third program, the Principal Reduction Program, will provide capital on a matching basis with participating financial institutions to reduce outstanding principal balances of qualifying borrowers with negative equity to market levels needed to prevent avoidable foreclosures and promote sustainable homeownership. Funds will be available up to the benefit cap of $50,000 per household, and all dollars associated with the program must be matched dollar-for-dollar by the participating lender. The final program will provide eligible homeowner with transition assistance when it is determined that they can no longer afford their home. The Transition Assistance Program will be used in conjunction with short sale and deed-in-lieu of foreclosure programs to help borrowers transition to affordable housing. TAP funds will be available on a one-time only basis of up to $5,000 per household. In addition to these four programs, CalHFA proposed allocating $20 million to a local innovation fund. The agency said this separate fund will encourage a variety of “alternative and innovative” solutions for mitigating the foreclosure crisis.