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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).
-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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