Building on the first Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (the “HFA Hardest Hit Fund”), the Administration recently announced an expansion of the initiative to target five additional states with high shares of their populations living in local areas of concentrated economic distress. This second HFA Hardest Hit Fund will include up to $600 million in funding for innovative measures to help families stay in their homes or otherwise avoid foreclosure in states that have been hit hard by concentrated economic distress.
Responsible families across the country have found themselves unable to pay their mortgages due to unemployment or underemployment. While the first HFA Hardest Hit Fund targeted five states with home price declines greater than 20%, the second HFA Hardest Hit Fund will target five states with high concentrations of people living in economically distressed areas, defined as counties in which the unemployment rate exceeded 12% in 2009. Less than 15% of the U.S. population lives in such high unemployment rate counties. The five states that will receive allocations based on this criterion are: North Carolina, Ohio, Oregon, Rhode Island and South Carolina.
President Obama announced the first HFA Hardest Hit Fund on February 19, 2010, with up to $1.5 billion in funding for innovative measures to help families. States that were allocated funds under the first HFA Hardest Hit Fund are not eligible for the second HFA Hardest Hit Fund. HFAs in states qualifying for the second Hardest Hit Fund will be required to submit plans to Treasury for review before becoming eligible for funding. Once HFAs have submitted plans to Treasury for review, and Treasury determines that the plans satisfy the requirements under the Emergency Economic Stabilization Act of 2008 (“EESA”), the plans will become eligible for funding up to a predetermined allocation cap
Expansion of Help for the Hardest Hit Housing Markets
1. $600 Million to Help State Housing Agencies Further Address the Challenges Facing Housing Markets with the Most Concentrated Areas of Economic Distress
-Funding will go to states with the highest share of their population living in counties in which the unemployment rate exceeded 12% in 2009 (excluding states already eligible for Help for the Hardest Hit Housing Markets funds).
2.
-HFAs must submit program designs to Treasury. Approaches that respond to problems caused by concentrated economic distress will be particularly welcomed.
-To receive funding, HFAs’ plans must satisfy the requirements for funding under EESA.
-Funding will help support innovative foreclosure prevention efforts and help for unemployed homeowners.
2. Accountability and Transparency
-All funded program designs will be posted online.
-To create accountability for results, program effectiveness measures and results will be published online.
-Program activity will be subject to effective oversight under EESA.
3. Allocation Caps
-Allocation caps have been determined in proportion to the number of people in these five states living in counties with high unemployment, resulting in the following allocation caps:
State Allocation Camp (millions)
North Carolina $159
Ohio $172
Oregon $88
Rhode Island $43
South Carolina $138
Illustrations of the Types of Programs that May be Funded in the States
The HFA Hardest Hit Fund is designed to allow the maximum possible flexibility to HFAs in designing programs that are tailored to the needs of each participating state. To be eligible for Troubled Asset Relief Program (“TARP”) funds, all programs must promote the purposes of EESA and be consistent with its requirements. Section 2 of EESA provides that the purposes of EESA are to restore liquidity and stability to the financial system and to use TARP funds in a manner that, among other things: Protects home values; Preserves homeownership and promotes jobs and economic growth; and Provides public accountability.
The objective of the HFA Hardest Hit Fund is to allow HFAs to develop creative, effective approaches that consider local conditions. To provide guidance to HFAs in designing programs, Treasury has outlined some of the possible types of transactions that would meet the requirements of EESA. States are encouraged to submit proposals that provide targeted relief to areas or localities with high concentrations of economic distress, but each state should respond to local conditions:
Unemployment Programs – Programs may provide for assistance to unemployed borrowers to help them avoid preventable foreclosures.
Mortgage Modifications – Programs may provide for modification of mortgage 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.
Second Lien Reductions – Programs may provide incentives to reduce or modify second liens.
This is not meant to be an exhaustive list of acceptable transactions. 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. Treasury may publicly announce additional types of transactions that would meet the requirements of EESA.
For programs designed to help individual homeowners, the target population should be limited to residences with unpaid principal balances equal to or less than the current government sponsored enterprise (GSE) conforming limit of up to $729,750. HFAs may target low and moderate income borrowers at their discretion consistent with that HFA’s state enabling legislation.
For more information, visit www.financialstability.gov.
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