New Foreclosure-Prevention Programs Available in 18 States and D.C.

Foreclosed home for saleRecent movements in Congress to deactivate some of the federal foreclosure-prevention programs are getting a lot of press, despite the fact that these programs are probably safe for the time being. What gets much less publicity are the billions of dollars that are still available to help distressed owners keep their homes.

But one such program, the U.S. Treasury Department's Hardest Hit Fund, is slowly but surely evolving from a political proposal to over $7.6 billion in desperately needed help for people struggling to keep their homes. Homeowners in states where home prices have dropped more than 20% from their peak and states where unemployment has hit more than 12% during the recession will be eligible to receive some of the Hardest Hit Fund money (see the list of states, along with their Hardest Hit Fund websites, below). A total of 18 states plus the District of Columbia each have their own version of the program.After months of planning how to get the most foreclosure-preventing bang out of these federal bucks, which were allocated in 2010, these states are now rolling out fully activated assistance programs in the following areas (not all programs will be available in all states or for all lenders):
  • Principal Reduction: For deeply underwater homes (where the mortgage balance is much higher than the home's current fair market value) owned by low-income and moderate-income homeowners, the states will pony up some funds to reduce the principal balance outstanding on the mortgage, on the condition that the mortgage lender matches the amount the state puts up, doubling the principal reduction for the homeowner. Last week, Bank of America began notifying Arizona homeowners who may qualify for these write-downs, though the lender has made clear that they will require homeowners to prove that they've experienced a financial hardship before granting a principal reduction.
  • Unemployment Mortgage Assistance: Homeowners who have had an interruption in income due to unemployment, underemployment or a medical condition and can prove they are in danger of falling behind on their mortgages may qualify for up to $3,000 per month in mortgage payment assistance in California. It's not clear what the maximum monthly assistance will be in other states) for up to 36 months.
  • Loan Modification/Reinstatement: Up to $15,000 will be available to homeowners who fell behind on their home loans during a temporary economic hardship, to help bring their mortgages current.
  • Second-Lien Reduction: Uncooperative second-lien-holders (like the lenders and servicers of second mortgages and home equity loans and lines of credit) are often the deal-killers that prevent short sales or other loan workouts from happening. Some states will offer funds to reduce the balances on these second liens.
  • Transition Assistance: Homeowners who can't afford to keep their homes and agree to a short sale or deed-in-lieu-of-foreclosures may qualify for assistance with moving expenses and the costs associated with securing new housing.
Generally speaking, all the programs require that the homeowner prove their economic hardship, not have taken cash out of their home via a refinance or second mortgage/line of credit, that they actually live in the home (i.e., these programs don't work for income properties) and that they meet income guidelines (primarily designed to keep the program limited to low-income and moderate-income homeowners).

For many, these programs will be too late, if not too little -- given that unemployment numbers recently hit a 3-year-low, many will wonder where this assistance was when the need for them was at its peak. Nevertheless, a huge number of homeowners still stand to benefit and potentially keep homes they would otherwise have lost. Michigan projects it will help 17,000 homeowners with these funds; Arizona estimates that these programs will help over 8,000 homeowners. As we know, though, federal foreclosure-prevention programs have a history of overestimating how helpful they will be, due mostly to the banks' failure to play ball when their participation is required (as with the principal reduction programs).

Fortunately, with these programs, there are plenty of scenarios in which the mortgage lenders and servicers don't have to agree to do anything for the homeowner to receive the state funds. If you live in one of these states and are upside-down on your home, unemployed or otherwise in need of help, visit the following official website for your state's Hardest Hit Fund for more information and to apply for this assistance:

Borrower beware: There are copycat sites out there, which seek to take advantage of struggling homeowners and divert them to for-fee "foreclosure assistance" services. The above-listed sites are the official state sites, and do not charge a fee to help homeowners apply for these programs.

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