Select state Housing Finance Agencies (HFAs) can submit proposals for using $1.5bn from the HFA Hardest-Hit Fund to prevent foreclosures and stabilize local housing markets, according to the US Treasury Department. Eligible HFAs can apply for clearance to fund principal-forgiveness, unemployment and second-lien reduction programs. Unemployment held at 9.7% in February, according to the US Labor Department. President Barack Obama announced a plan in the middle of February to direct $1.5bn of Troubled Asset Relief Program (TARP) funds to help homeowners in states where house prices have fallen more than 20% from the peak. The prices are based on the Federal Housing Finance Agency’s (FHFA) Purchase Only seasonally adjusted price index. HFAs in California, Florida, Arizona, Michigan and Nevada can submit proposals for programs that will target unemployed or underwater borrowers and second-lien relief. These are issues that are not addressed by the Home Affordable Modification Program (HAMP) or the Home Affordable Foreclosure Alternatives (HAFA) programs. In December, Laurie Goodman, senior managing director at Amherst Securities, pointed toward the key role negative equity plays in predicting default behavior. Because HAMP does not address the negative equity issue, HAMP is “destined to fail,” Goodman said in opening remarks to the House Financial Services Committee. She added at the time that federal mortgage programs must include principal reduction and must address the loss allocation among first lien investors and second lien investors to have lasting effect. All programs must meet the requirement for funding under the Emergency Economic Stabilization Act of 2008 (EESA). Programs can also provide funding for mortgage modifications that include principal forbearance, short sales and deeds-in-lieu of foreclosure. The deadline for the HFA proposals is April 16, 2010. After the program was announced in February, Herb Allison, the assistant secretary in the Treasury, said creative local solutions require more focus even though “the housing crisis is national.” HFAs must submit an overview of the program, the population served, any staffing and business partners, an overview of the risk management and fraud prevention, and an estimate of administrative expenses. Write to Jon Prior.