Please see our first article on President Obama’s HFA Hardest Hit Fund.
The Obama Administration released the next steps in the recently-announced Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (“HFA Hardest-Hit Fund”).
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. States where house prices have fallen more than 20% from their peak are eligible for this funding. Those states are Nevada, California, Florida, Arizona and Michigan. The HFA Hardest-Hit Fund will help housing finance agencies (“HFAs”) in these 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 has committed $1.5 billion 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. picture by Alex E. Proimos
The Administration released detailed guidance for eligible HFAs to submit program proposals for funding. 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. Today’s guidance provides instruction to HFAs to ensure that program proposals meet basic guidelines and comply with the purposes of EESA. All programs must protect home values, preserve homeownership, promote jobs and economic growth, and provide accountability to the public.
Funding allocations were also released today based on a formula to provide relief in direct proportion to the scale of each state’s housing challenges. Funds have been allocated based on home price declines, unemployment rates, and mortgage delinquencies.
Eligible HFAs may submit program proposals to the Department of the Treasury up to the April 16th deadline, after which the review period will begin. Treasury will provide additional updates to the public as the program progresses.
What are HFAs and what do they do?
Housing Finance Agencies or HFAs are agencies or authorities created by state law that are charged with helping persons and families of low or moderate income attain affordable housing. Combined, State HFAs typically fund about 100,000 mortgages a year.
What methodology was used to determine allocations?
The HFA Hardest-Hit Fund will be allocated based on home price declines and unemployment. For this simple formula, each state’s allocation was determined by first adding two ratios: (i) the ratio of its unemployment rate to the highest unemployment rate in any state and (ii) the ratio of its price decline to the largest price decline in any state. This sum is used to scale the number of delinquent loans in each state. HFA funds are allocated among the states based on this weighted share of delinquent borrowers.
What will the HFAs do with this funding?
This is not meant to be an exhaustive list of acceptable transactions and other innovative ideas and transaction types (including innovations related to the Making Home Affordable Program) will be evaluated on a case-by-case basis for compliance with EESA.
- Mortgage Modifications – Programs may provide for mortgage modification of loans held by HFAs or other financial institutions or provide incentives for servicers / investors to modify loans.
- Mortgage Modifications with Principal Forbearance – Programs may provide for paying down all or a portion of an overleveraged loan and taking back a note from the borrower for that amount in order to facilitate additional modifications.
- Short Sales / Deeds-In-Lieu of Foreclosure – Programs may provide for assistance with short sales and deeds-in-lieu of foreclosure in order to prevent avoidable foreclosures.
- Principal Reduction Programs for Borrowers with Severe Negative Equity – Programs may provide incentives for financial institutions to write-down a portion of unpaid principal balance for homeowners with severe negative equity.
- Unemployment Programs – Programs may provide for assistance to unemployed borrowers to help them avoid preventable foreclosures.
- Second Lien Reductions – Programs may provide incentives to reduce or modify second liens.
For programs designed to help individual homeowners, programs should be limited to residences with unpaid principal balances equal to or less than the current GSE conforming limit of up to $729,750 (higher limits are allowable for two to four unit dwellings). HFAs may further target low and moderate income borrowers as required by the enabling state legislation for the applicable HFA.
When will HFAs begin to utilize funding?
Proposals are due from HFAs by April 16, 2010. Treasury will then review each proposal for compliance with program objectives and EESA requirements. Treasury expects that HFAs may be in the position to begin drawing down funds within four to six weeks following submission of proposals.
For More Info
Much of this was taken from the HFA Hardest-Hit Fund FAQ.
Tags: government regulation, HFA Hardest-Hit
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