Obama Administration OKs $1.5bn Hardest-Hit Mortgage Relief Fund Plans
The Obama Administration signed off on state plans to use $1.5bn in foreclosure-prevention funding for states hardest-hit by home price declines. The states may now begin to use the federal funds to facilitate borrower aid programs, according to the Treasury Department. The aid, granted through the Hardest Hit Fund announced in February, supports local initiatives to aid underwater mortgage borrowers in states where average housing prices declined 20% or more from peak levels. The states include Arizona, California, Florida, Michigan and Nevada. "While we've made important progress stabilizing the housing market and keeping responsible families in their homes, the Obama Administration will continue to do everything it can to help those who are struggling the most during this difficult time," said Treasury assistant secretary for financial stability Herbert Allison, Jr., in a statement. "Today marks an important milestone for delivering relief to homeowners through the Hardest Hit Fund program." The Housing Finance Agency (HFA) in each state submitted its proposals to the Treasury on April 16 after gathering public input to determine the unique challenges facing local mortgage borrowers. Treasury then reviewed the proposals to ensure compliance with the Emergency Economic Stabilization Act (EESA). Arizona, which receives $125.1m, will pursue principal and interest rate reduction and term extension programs. The state will also aid the elimination of second liens where they prevent modification of first liens. The Arizona HFA will also grant financial aid to under-employed borrowers while they seek new employment. California, which receives $699.6m, will pursue principal reductions with earned principal forgiveness programs. It will also use funds to address delinquent loan arrearages and, for unemployed borrowers, grant payment subsidies. The state HFA will also help borrowers who received a short sale or deed-in-lieu transition to stable housing. Florida, which receives $418m, will pursue principal reduction or second lien extinguishment programs. It will also grant mortgage payment aid to un- and under-employed borrowers while they seek re-employment. Michigan, which receives $154.5m, will pursue earned principal forgiveness for underwater borrowers. It will also aid with loan arrearages for borrowers who can sustain homeownership and who have undergone financial hardship. The state HFA will also subsidize mortgage payments for unemployed borrowers while they search for new employment. Nevada, which receives $102.8m, will create a modification program using a combination of principal forgiveness and forbearance with the goal of reducing principal to a less than 115% loan-to-value ratio, and lowering payments to within 31% of a borrower's debt-to-income ratio. The state will also offer aid to reduce or eliminate second liens with earned forgiveness over a three-year term. Nevada will grant aid for appraisal and transaction fees and moving fees, as well as a legal allowance for up to three months, for borrowers and servicers that pursue short sales. In March, the Administration announced a second round of Hardest Hit Fund aid totaling $600m for five additional states with high areas of concentrated unemployment: North Carolina, Ohio, Oregon, Rhode Island and South Carolina. These states already submitted proposals, which are currently being reviewed, Treasury said. Write to Diana Golobay.