The Department of Housing and Urban Development (HUD) will launch another round of funding through the Neighborhood Stabilization Program (NSP).

HUD has already awarded $6bn through the first two rounds of funding to help state and local governments combat rising foreclosures and falling home values. HUD rolled out the first $4bn round of NSP funding in September 2008. The $2bn of in the second round of NSP funding arrived in January 2010.

There is no word yet on the amount of funding through this third round. But the Obama Administration also announced plans to redirect funds through the first wave of NSP funding to harder hit areas. HUD initially sent $19.6m to each state through the first round of funding as a “base allocation,” but HUD soon realized some areas needed money quicker than others. The reallocation to specific projects in order drive more funding to the hardest hit areas.

The initial recipients of the funds had 18 months to provide a plan for funding, otherwise it would go back to HUD, and back out to city and county governments with “very high foreclosure and/or vacancy rates.” HUD estimates that 70% of the first wave of funding will be planned and obligated by the deadline, meaning more than $1bn will go back to HUD.

“Through HUD's recapture process, the Administration is working to use the resources we have already received and build on the success and lessons from NSP1 and NSP2, ideally with additional funding for a third round, to really target the recovery in hard hit areas directly,” Donovan said. “The recapture process would provide additional resources to areas based on their foreclosure and delinquency rates, vacancy problems and unemployment. We also want to go a step further by providing funds to help homeowners avoid foreclosure.”

Some programs using the money are creating “land banks” to gather and dispose foreclosed homes. HUD expects these programs will acquire, demolish or sell 63,000 homes through the first round of NSP funding. Ohio Governor Ted Strickland signed a bill in April that allows 41 counties in the state to establish land banks in an effort to restore vacant and abandoned properties.

California has already committed $47.5m of NSP funding to different programs. Los Angeles County received $16.8m and will put more than 60% of it to a down-payment assistance program for first-time homebuyers.

Donovan said the third-round will expand efforts to clear these blighted areas such as Detroit. There, the mayor began the demolition of 10,000 vacant homes, which should take three years.

Write to Jon Prior.

As of the end of April 2010, servicers participating in the Home Affordable Modification Program (HAMP) had canceled 277,640 three-month trials since the program launched in March 2009, according to the Treasury Department.

It’s an 80% increase from the 155,173 total in the previous month.

Participating servicers have converted almost 300,000 trial modifications into permanent status since the Treasury launched HAMP in March 2009. Borrowers must make three monthly payments and submit all documentation during the trial period to receive a permanent modification.

According to the Treasury, servicers have started 1.2m trials since the program launched. The Obama Administration initially targeted 3m to 4m homeowners with assistance through HAMP by the end of 2012.

There are two reasons a servicer has for canceling a borrower’s trial modification under HAMP. Either the homeowner misses a monthly payment or the servicer determines ineligibility once all documents are submitted. Beginning June 1, servicers cannot start a trial modification until all documentation has been received.

Canceled permanent modifications are up too. Through April, servicers canceled 3,744 permanent modifications since HAMP started, up from 2,879 the month before. A spokesperson for the Treasury said servicers cancel permanent modifications only when the borrower misses a payment, since the documentation is already in for the conversion from a trial period.

For the first time, the Treasury broke down what status the loans was in when the homeowner entered a trial modification. More than 77% were in default at the start of the trial, while nearly 23% were at a risk of default.

Every homeowner that made it to a permanent modification received an interest rate reduction, and 53.4% received a term extension. Almost 29% of all borrowers received principal forbearance to get the borrower’s monthly debt-to-income ratio down to 31% after a modification.

Write to Jon Prior.