HFA Hardest Hit Fund General Program Description On February 19, 2010, President Obama announced additional funding for innovative measures to help families in the states that have been hit the hardest by the aftermath of the burst of the housing bubble. The HFA Hardest-Hit Fund will help housing finance agencies ("HFAs") in 10 states further respond to the most pressing problems in their communities. HFAs have an understanding of the most urgent local challenges and an ability to address them expeditiously. For that reason, the Obama Administration originally committed $1.5 billion, with another allocation of $600 million added March 26, 2010, in funding under the Emergency Economic Stabilization Act of 2008 ("EESA") to help HFAs expand their assistance to struggling homeowners and innovate new ways to address housing challenges. The HFA Hardest-Hit Fund is designed to allow the maximum possible flexibility to eligible HFAs in designing programs that are tailored to the needs of their state. All programs must protect home values, preserve homeownership, promote jobs and economic growth, and provide accountability to the public. Treasury Initiatives to Help Homeowners Unemployed borrowers meeting certain eligibility criteria will have an opportunity to have their mortgage payments temporarily reduced to an affordable level for a minimum of 3 months, and possibly up to six months for some borrowers, while they look for a new job. If homeowners don’t find a job before the temporary assistance period is over or if they find a job with a reduced income, they will be evaluated for eligibility for a permanent modification through the Home Affordable Modification Program (HAMP) or may be eligible for HAMP’s alternatives to foreclosure program. HAMP is a part of Making Home Affordable, a plan to stabilize the housing market and help struggling homeowners get relief and avoid foreclosure. HAMP provides eligible homeowners the opportunity to modify their mortgages to make them more affordable. To expand the use of principal write-downs, servicers will be required to consider an alternative modification approach that emphasizes principal relief. This alternative modification approach will include incentive payments for each dollar of principal write-down by servicers and investors. The principal reduction and the incentives will be earned by the borrower and lender based on a pay-for-success structure. Other program enhancements are designed to help more borrowers complete a HAMP modification. Borrower outreach and communications rules will be clarified and strengthened to protect responsible borrowers from unnecessary and costly foreclosure actions and to expand modification opportunities for borrowers in bankruptcy. Servicers will receive increased incentives, allowing them to expand borrower outreach and counseling efforts. With the introduction of FHA-HAMP, the HAMP modifications and incentives will be expanded to include borrowers with FHA loans. For borrowers who continue to struggle and are unable to complete a modification, these program enhancements will help homeowners move to more affordable housing. Relocation assistance payments to borrowers who use the foreclosure alternatives program will be doubled and incentives will be increased for servicers and lenders to raise participation. Unemployed/Underemployed Strategy Florida was one of five initial states chosen for this program due to our high levels of both home price declines and unemployment. Unemployment in Florida has now reached 12.2%. Of the initial $1.5 billion in federal funds allocated, Florida has received $418 million. Treasury just announced that another five states will receive an additional $600 million in funds for the same purpose. Most loss mitigation options on mortgage loans only allow for a limited forbearance 1 when a borrower becomes unemployed. After that point, the loan is sent to foreclosure. In the current economic environment in the hardest hit markets of Florida, four months is not enough time for the borrower to become re-employed at a salary that is sufficient to continue making his mortgage payments. Moreover, loss of income is the leading reason why homeowners are unable to qualify for a modification of their mortgage under the federal HAMP Program 2. Using these funds to help families who were current on their mortgage until suffering a dramatic decrease in their household income due to unemployment provides temporary assistance to the people who need it most. These are families who have been an active part of their communities and who want to stay in their homes but need more time to get back on their feet. This strategy is not designed to help people who are able to continue making their mortgage payments but who choose not to do so because they feel that their home has depreciated too much in value. Florida Housing intends to help homeowners achieve the goal of sustainable homeownership by partnering with banks and credit unions as well as mortgage investors, such as Fannie Mae and Freddie Mac, to extend the time period for homeowners to become re-employed at a salary that is sufficient to either resume making full mortgage payments or qualify for a mortgage modification that will lower the payments and terms of the mortgage to an affordable level. Florida Housing will use these funds to pay up to 6 to 9 months of mortgage payments on behalf of a homeowner in return for the bank, credit union or mortgage investor forgiving or forbearing 6 to 9 months of payments. Initial screening of the homeowner for eligibility would look at factors that may affect the homeowner’s ability to eventually qualify for a mortgage modification, assuming that they are able to become re-employed. Those factors may include the level of consumer debt, current loan- to-value, number of months in arrears, whether they were ever able to afford the house that they purchased and other items to help determine whether sustainable homeownership is a realistic goal for these homeowners. 1 According to US Bank Home Mortgage MRBP Division, which services loans under Florida Housing’s First Time Homebuyer Program, Fannie Mae and Freddie Mac currently allow only a four month forbearance for unemployment. 2 Based upon data provided by both US Bank and Bank of America. Targeting Methodology To ensure that funds are allocated to the hardest hit areas in Florida, a draft allocation methodology has been developed to allocate Florida’s funding. The methodology uses three elements to evaluate “hardest hit”: housing price decline, unemployment and the proportion of a county’s active loans that are seriously delinquent (90+ days due or in foreclosure). The proposed methodology includes notes that further describe the data and detail of the methodology. As the program details are finalized, the funding amounts will be allocated based on the proposed methodology. Homeowner Eligibility • The home must be the homeowner’s primary residence. • The home may not be held in a condominium form of ownership. • The mortgage loan must be from a regulated financial institution. Discussion Points • For the program to be most effective, what is the maximum underwater amount the HFA Hardest Hit Fund should assist with mortgage payments? • How many month-for-month match payments will banks, credit unions or mortgage investors be willing to provide to gain access to HFA Hardest Hit Fund mortgage payments? • If the program is to assist arrearage payments, what should be the maximum number of months of arrearage payments the HFA Hardest Hit Fund should make? • Should there be a cap on the actual amount of assistance received through this unemployed/underemployed strategy? • What is the maximum Area Median Income (AMI) and original mortgage amount that should be allowed? • What other Homeowner Eligibility criteria should be considered for entry into the program? Delivery Model Florida Housing is considering two separate delivery models. Homeowners would apply for this assistance through participating local governments or local housing counseling agencies and be screened based upon specific eligibility criteria and the likelihood that, given more time to find a job, the homeowner would be able to achieve the goal of sustainable homeownership. This method of providing assistance would have at least two important program benefits: 1) Borrowers would have knowledgeable advocates assisting them through the negotiation process with the servicers of their loans; and 2) unemployed borrowers are likely to have other short term credit issues as a result of their employment situation that counselors can assist them in resolving/managing. Florida Housing would also work directly with community banks, credit unions and servicers of Federal First Time Homebuyer loans from both state and local Housing Finance Agencies in Florida to identify unemployed or underemployed borrowers who meet the specific eligibility criteria and who have the best chance to achieve a sustainable homeownership outcome. These lenders typically hold many loans in their own portfolios and, therefore, should be very interested and capable of working directly with this program in a timely way. The benefit of this assistance method would be its efficiency. Discussion Points • Florida Housing would like there to be dedicated staff for each delivery model from the partners participating in the program. Would this be possible? Terms of Assistance Payments made on behalf of a homeowner will be in the form of a forgivable loan. Earned forgiveness will be 20% per year as long as the homeowner remains in the home and s current on their mortgage payments. This will be subject to US Treasury approval. Discussion Points • Should other terms of assistance be considered? Principal Reductions Once a homeowner becomes re-employed, the goal of this strategy is that they will be able to resume making their mortgage payments or qualify for a loan modification. The HAMP loan modification process follows a progression of steps in attempting to bring the borrower’s monthly payments down to no more than 31% of their monthly income. The first step is to reduce the interest rate to as low as 2%. Then, if more assistance is needed, the term of the loan may be extended to up to 40 years. Next, the lender may forbear arrearages owed to the end of the loan. Finally, reduction of the principal owed by the borrower may be considered, but is not required of the lender. However, if principal reduction is still necessary in order to achieve a modification, Florida Housing proposes using some of these funds for that purpose as long as the credit union, bank or mortgage investor agrees to match the amount paid by Florida Housing on a one-to-one basis. Discussion Points • For the program to be most effective, what is the maximum underwater amount the HFA Hardest Hit Fund should assist with a Principal Reduction? • Should there be a cap on the actual amount of assistance received through this Principal Reduction strategy? Subordinate Lien Reductions There are instances where a loan modification is not achievable because subordinate mortgage holders will not agree to modify or accept a partial payment of their loan. Florida Housing proposes using some of these funds to help negotiate a settlement with the subordinate lien holder that will result in a successful modification of the first mortgage loan. Discussion Points • Should this payment be similar to what the subordinate mortgage holder would receive under current short sale guidelines (3% or $3,000, whichever is lower)? If not, what would be the appropriate amount needed to extinguish the debt?
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