Housing Finance Authorities in five states where home prices have fallen by 20 percent or more have a green light from the Obama administration to put $1.5 billion in TARP funds to work on foreclosure prevention plans.

HFAs in Arizona, California, Florida, Michigan and Nevada are the first to benefit from a "Hardest Hit Fund" program announced in February to funnel $2.1 billion from the Troubled Asset Relief Program (TARP) into foreclosure prevention programs (see story).

A second round of $600 million in funding has been earmarked for five additional states with areas of high concentrations of unemployment: North Carolina, Ohio, Oregon, Rhode Island and South Carolina. The Treasury Department, which administers the TARP program, is currently reviewing proposals submitted by HFAs in those states.

Treasury today said it had signed off on programs submitted for approval on April 16 by HFAs in Arizona, California, Florida, Michigan and Nevada — the five states with the highest foreclosure rates in the nation, according to RealtyTrac.

The programs were designed at the state level with public input "to meet the unique challenges facing struggling homeowners in their respective housing markets," Treasury said in a press release.

"These states have identified a number of innovative programs that will make a real difference in the lives of many homeowners facing foreclosure," said Treasury Assistant Secretary for Financial Stability Herbert Allison.

The plans take several different approaches to helping borrowers, including loan modifications, earned principal reductions, subsidizing mortgage payments for the unemployed, and assistance for reducing or eliminating second loans:

  • California will receive $699.6 million to implement a plan that includes earned principal forgiveness, funds to address delinquent loan arrearages, mortgage payment subsidies to unemployed families, and funds to help families find housing after executing a short sale or deed-in-lieu of foreclosure.
  • Florida is slated to receive $418 million to execute a plan that offers mortgage payment assistance to the unemployed and under-employed, and principal reduction or second lien extinguishment where required to achieve mortgage modifications.
  • In Michigan, $154.5 million has been earmarked for a program that will subsidize unemployed borrowers’ mortgage payments, provide earned principal forgiveness for "underwater" homeowners, and help pay loan arrearages for those who can sustain homeownership and have undergone a financial hardship.
  • Arizona will get $125.1 million to carry out a plan that will provide principal reductions, interest-rate reductions, and term extension programs to allow borrowers to qualify for a permanent modification program. In circumstances where a second lien is prohibiting modification of a first lien, the state will provide assistance toward elimination of the second lien. Under-employed workers will also get assistance they can use to pay monthly mortgage payments or remove second mortgages when second liens are prohibiting the modification of a first lien.
  • Nevada’s $102.8 million plan will provide allowances for appraisal and transaction fees, moving fees, a legal allowance for up to three months, and a combination of incentives for borrowers and servicers to facilitate short sales. Nevada will also use its federal funding to reduce or eliminate second liens with earned forgiveness over a three-year term, and to create a mortgage modification program aimed at reducing principal to less than 115 percent of LTV (loan-to-value) and lowering payments to 31 percent of DTI (debt-to-income).

The Treasury Department is also assisting state HFAs through a $23.5 billion temporary financing program that helps them issue new bonds to fund mortgage lending and refinance existing bonds to lower their expenses. That program is geared at helping state and local housing finance agencies finance more than 200,000 mortgages (see story).


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