Details on HUD Emergency Homeowners Loan Program

October 14, 2010


On October 5, 2010, HUD released details about the $1 Billion Emergency Homeowners Loan Program (EHLP) authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

EHLP will offer declining balance, deferred payment “bridge loan” (non-recourse, subordinate loans with 0% interest rate) for up to $50,000 to assist eligible homeowners with payments of arrearages, including delinquent taxes and insurance plus up to 24 months of monthly payments on their mortgage principal, interest, mortgage insurance premiums, taxes, and hazard insurance.

Borrowers living in the following jurisdictions are eligible to receive funds through the EHLP:

TX Texas $ 135,418,959
NY New York $ 111,649,112
PA Pennsylvania $ 105,804,905
MA Massachusetts $  61,036,001
WA Washington $  56,272,599
MN Minnesota $  55,848,137
WI Wisconsin $   51,540,638
MO Missouri $   49,001,729
VA Virginia $   46,627,889
CO Colorado $   41,286,747
MD Maryland $   39,962,270
CT Connecticut $   32,946,864
KS Kansas $   17,748,782
AR Arkansas $   17,736,991
IA Iowa $   17,379,343
LA Louisiana $   16,691,558
UT Utah $   16,577,582
OK Oklahoma $   15,575,381
PR Puerto Rico $   14,714,668
ID Idaho $   13,284,075
NH New Hampshire $   12,655,243
NM New Mexico $   10,725,515
ME Maine $   10,379,657
WV West Virginia $     8,339,884
NE Nebraska $     8,304,512
HI Hawaii $     6,292,250
DE Delaware $     6,048,577
MT Montana $     5,710,580
VT Vermont $     4,830,215
AK Alaska $     3,890,898
WY Wyoming $     2,346,329
SD South Dakota $     2,051,563
ND North Dakota $     1,320,547
Total: $ 1,000,000,000

Program Administration

Delegated Approach: Borrowers who are listed in one of the above 32 states or Puerto Rico will meet with non-profit housing counselors who are part of the National Foreclosure Mitigation Counseling Program administered by NeighborWorks® America to receive funding.

The non-profit housing counselors will provide intake and outreach services including:

  • (i) developing and disseminating program marketing materials, (ii) providing an overview of the program and eligibility requirements, (iii) conducting initial eligibility screening (including verifying income), (iv) counseling  potential applicants, providing information concerning available employment and training resources,  (v) collecting and assembling homeowner documentation, (vi) submitting homeowner application, and (vii) providing transition counseling to explore with the homeowner other loss mitigation options, including loan modification, short sale, deed-in-lieu of foreclosure, or traditional sale of home.
  • The counselors shall also be encouraged to conduct outreach to entities in local communities to provide information on assistance available to unemployed homeowners through this program and shall publicize the list of entities approved to assist potential applicants with applying to the program

State Law Approach: Borrowers or state HFAs that operate loan assistance programs that are determined by HUD to be substantially similar to the EHRF program will receive allocations to fund emergency loans for borrowers in the states below:

Alabama $60,672,471
California $476,257,070
Florida $238,864,755
Georgia $126,650,987
Illinois $166,352,726
Indiana $82,762,859
Kentucky $55,588,050
Michigan $128,461,559
Mississippi $38,036,950
Nevada $34,056,581
New Jersey $112,200,638
North Carolina $120,874,221
Ohio $148,728,864
Oregon $49,294,215
Rhode Island $13,570,770
South Carolina $58,772,347
Tennessee $81,128,260
Washington, DC $7,726,678

Allocation of Program Funds

Recipient Geography: HUD will assist borrowers living in Puerto Rico and the 32 states otherwise not funded by Treasury’s Innovation Fund for Hardest Hit Housing Markets (Hardest Hit Fund) program.

Allocation Amount: The total amount reserved will be based on the state’s approximate share of unemployed homeowners with a mortgage relative to all unemployed homeowners with a mortgage

Targeting Funds to Local Geographies: HUD will provide information that identifies pockets within each of the designated states that have suffered the most from recent spikes in unemployment and/or mortgage delinquencies.  HUD will encourage the use of program dollars in these hardest-hit areas.

Homeowner Eligibility and Program Operation

Income Thresholds: Has a total pre-event household income equal to, or less than, 120% of the Area Median Income (AMI), which includes wage, salary, and self-employed earnings and income.

Significant Income Reduction: Has a current gross income (income before taxes) that is at least 15% lower than the pre-event income.

  • “Pre-event income”: the income prior to the onset of unemployment, underemployment, or medical emergency
  • “Current income”: the income at the time of program application, as well as income during the period that the homeowner continues to receive assistance from the fund

Employment type: Both wage and salary workers and self-employed individuals are eligible.

Delinquency and Likelihood of Foreclosure: Must be at least 3 months delinquent on payments and have received notification of an intention to foreclose.  This requirement can be documented by any written communication from the mortgagee to the homeowner indicating at least 3 months of missed payments and the mortgagee’s intent to foreclose.  In addition, the homeowner can self-certify that there is a likelihood of initiation of foreclosure on the part of their mortgagee due to the homeowner being at least 3 months delinquent in their monthly payment.

Ability to Resume Repayment: Has a reasonable likelihood of being able to resume repayment of the first mortgage obligations within 2 years, and meet other housing expenses and debt obligations when the household regains full employment, as determined by:

Back-end DTI ratio:

Total Monthly Debt Expenses ÷ Total Gross Monthly Income

  • Total monthly debt expenses = mortgage principal, interest, taxes, insurance, & revolving and fixed installment debt

***Note: For this calculation, gross income will be measured at the “pre-event” level***

Principal Residence: Must reside in the mortgaged property and be your  principal residence.  The mortgaged property must also be a single family residence (1 – 4 unit structure or condominium unit).

Creation of HUD Note:  After the first assistance payment is made on behalf of the homeowner, the fiscal agent will create an open-ended “HUD note” and a mortgage to be  in the name of the Secretary HUD of sufficient size to accommodate the expected amount of assistance to be provided to homeowner.

Ongoing Qualification of Homeowner

Termination of Monthly Assistance: Assistance is terminated and the homeowner resumes full responsibility for meeting the first lien mortgage payments in the event of any of the following circumstances:

  • The maximum loan ($50,000) amount has been reached;
  • The homeowner fails to report changes in unemployment status or income;
  • The homeowner’s income regains 85% or more of its pre-event level;
  • The homeowner no longer resides in, sells, or refinances the debt on the mortgaged property; or
  • The homeowner defaults on their portion of the current first lien mortgage loan payments

Income re-evaluation: After initial income verification at application intake, the homeowner shall be required to notify the fiscal agent of any changes in the household income and/or employment status at any point throughout the entire period of assistance

Forms of Assistance

Use of Funds for Arrearages: On behalf of the homeowner, the fiscal agent shall use loan funds to pay 100% of arrears (mortgage principal, interest, mortgage insurance premiums, taxes, hazard insurance, and ground rent, if any)

Homeowner Payments: Homeowner contribution to monthly payment on first mortgage will be set at 31% of gross income at the time of application, but in no instance will it be less than $25 per month

Use of Funds for Continuing Mortgage Assistance: The fiscal agent will make monthly mortgage payments to the servicer of the first lien mortgage in excess of the payments made by the homeowner

Duration of Assistance: If at any time the household’s gross income increases to 85% or more of its pre-event level, assistance will be phased out by the fiscal agent over a 2 month period.  In any event, assistance with monthly payments may not continue beyond 24 months

Repayment Terms

Transition Counseling:   The designated counseling agent shall contact each homeowner that is approaching the last months of program eligibility and remains un/underemployed (3-6 months before the assistance ends) and require the homeowner  to meet with a HUD approved counseling agent to explore other loss mitigation options, including loan modification, short sales, deed-in-lieu of foreclosure, or traditional sale of home

Repayment of HUD Note: Following the last payment on behalf of the homeowner, the fiscal agent will process the homeowner’s “HUD Note” and record a mortgage with a specific loan balance.  The note and mortgage will be in the form of a 5 year declining balance, 0% interest, non-recourse loan, and the mortgage shall be in the form of a secured junior lien on the property

Terms for Declining Balance Feature:  No payment is due on the note during the 5 year term so long as the assisted household maintains the property as principal residence and remains current in his or her monthly payments on the first mortgage loan.  If the homeowner meets these two conditions, the balance due shall decline by 20% annually, until the note is extinguished and the junior loan is terminated

Events Triggering Note Repayment: The homeowner will be responsible for repayment of the applicable balance of the HUD note to the fiscal agent or its successor,  if, at any time during the 5 year repayment period, any of the following events occur:

  • The homeowner no longer resides in the mortgaged property as a principal residence, but maintains ownership;
  • The homeowner defaults on its portion of  the current mortgage; or
  • The homeowner receives net proceeds from selling or refinancing debt on the home.

***Note: Net proceeds — after paying outstanding applicable brokers fees, first balances (and second lien balances, as applicable), and an allowance of $2,000 to the homeowner for relocation expenses when the home is sold — will go towards paying down the HUD note.  In the event that proceeds of a sale or loan refinance are not sufficient to repay the entire HUD note, the remaining applicable balance of the HUD note shall be considered to have been met, and the lien against the property shall be released***

Provisions for Underwater Homeowners: At all stages of the program, “underwater” homeowners will be encouraged to explore participation in short sale or short refinancing programs offered by their servicer and/or the federal government (i.e. Home Affordable Foreclosure Alternatives), which will not trigger repayment of the HUD note

  • Underwater homeowners = homeowners with mortgage debt in excess of the market value of their home

Program Start Date

HUD intends for EHLP to begin taking applications by the end of 2010


Fannie Mae Launches Distressed Borrower Education Site

August 9, 2010

 

Fannie Mae launches a borrower-facing outreach site designed to educate distressed homeowners on potential retention strategies and foreclosure alternatives.

The online education resource — available in both English and Spanish — offers calculators to demonstrate to borrowers the mechanics of refinance, repayment, forbearance, and modification options if the borrowers would like to keep their home. In addition, it covers information on Fannie’s Deed-For-Lease program, which allows borrowers to become renters in the same property after pursing deed-in-lieu of foreclosure.

For borrowers who would like to leave their home, the online education resource offers possible options such as, a short sale and deed-in-lieu of foreclosure when you can no longer stay in your home but want to avoid foreclosure.

For borrowers who aren’t sure what the best option is for them, the Options Finder can assist you. By answering some questions, the Options Finder determines which option may be right based on your current situation.

When you need additional assistance, the Resources section offers the following and much more:

Fannie Mae Resources

Review what Fannie Mae is doing to assist homeowners and how they can help you.

Contact your Mortgage Company

Find and contact your mortgage company to discuss your situation.

Helpful Forms

Download forms to help you prepare for (and keep track of) working with your mortgage company or a housing counselor.

Calculators

Use the calculators to determine which scenario fits your needs.

Frequently Asked Questions

Search for helpful answers to some of the most common questions regarding your options.

Take Action – What You Should Do Next

Once you ‘ve learned about options that may be available for your situation, it’s time to take action.

Step 1: Research

Be sure to bookmark the page and print the information on the option(s) that applies best to your situation. You will want to refer to this information when speaking with your mortgage company.

Step 2: Gather

Gather the information shown below. You’ll need this information handy so you can refer to it during your discussion with your mortgage company. Use the Financial Checklist to help get organized and prepared.

  • Your mortgage(s): Loan number, past due notices, monthly statement, etc. for your first mortgage and second mortgage or other liens (if applicable).
  • Your other debts: Copies of bills and monthly statements for all other debts such as credit cards, personal loans, auto loans, utilities, etc.
  • Your income: Paystubs, unemployment benefits letter, alimony, child support, etc. for all borrowers on the mortgage.
  • Your hardship: Explain your situation and any hardship that has affected your income or ability to make your payments, etc.

Step 3: Contact

Contact your mortgage company and ask them about the options that are available for your specific situation. Also ask for the name and/or employee number of the mortgage specialist who is helping you and be sure to give them your up-to-date contact information. Use the Contact Log to keep track of your conversations and follow-up items.

Step 4: Discuss

Make sure you are ready to discuss everything about your current situation—the more the mortgage company understands and the more accurate the information, the more they can help you find the right option.

Step 5: Confirm

Ask them to confirm your current situation to be certain there are no other issues. Make sure you understand the next steps involved and if there is anything you will need to complete for the specific option.


Fannie Mae Relaxes Waiting Period for Buying a New Home After a Short Sale

May 3, 2010

 

In Announcement SEL-2010-05, Fannie Mae updated several policies regarding the future eligibility of borrowers to obtain a new mortgage loan after experiencing a preforeclosure event (preforeclosure sale, short sale, or deed-in-lieu of foreclosure).

The “waiting period” – the amount of time that must elapse after the preforeclosure event – is changing and may be dependent on the loan-to-value (LTV) ratio for the transaction and whether extenuating circumstances contributed to the borrower’s financial hardship (for example, loss of employment). In addition, Fannie Mae is updating the requirements for determining that borrowers have re-established their credit after a significant derogatory credit event.

***Note:  The terms “short sale” and “preforeclosure sale” both referenced in the Announcement have the same meaning – the sale of a property in lieu of a foreclosure, resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer.***

Waiting Period After a Preforeclosure Sale, Short Sale, or Deed-in-Lieu of Foreclosure

Fannie Mae is changing the required waiting period for a borrower to be eligible for a mortgage loan after a preforeclosure event. The waiting period commences on the completion date of the preforeclosure event, and may vary based on the maximum allowable LTV ratios.

Preforeclosure Event Current Waiting Period Requirements New Waiting Period Requirements(1)
 Deed-in-Lieu of Foreclosure 4 years  2 years – 80% maximum LTV ratios,  4 years – 90% maximum LTV ratios,  7 years – LTV ratios per the Eligibility Matrix
 Short Sale  2 years

 

Exceptions to Waiting Period for Extenuating Circumstances
Preforeclosure Event Current Waiting Period Requirements New Waiting Period Requirements (1)
 Deed-in-Lieu of Foreclosure 2 years      Additional requirements apply after 2 years up to 7 years  2 years – 90% maximum LTV ratios
 Short Sale  No exceptions are permitted to the 2-year waiting period

 (1) The maximum LTV ratios permitted are the lesser of the LTV ratios in this table or the maximum LTV ratios for the transaction per the Eligibility Matrix.

Bankruptcies

The multiple bankruptcy policy is being clarified to state that 2 or more borrowers with individual bankruptcies are not cumulative. For example, if the borrower has one bankruptcy and the co-borrower has one bankruptcy, this is not considered a multiple bankruptcy. The current waiting periods for bankruptcies remain unchanged.

Effective Date

This policy is effective for beginning July 1, 2010.

Requirements for Re-Establishing Credit

The requirements for borrowers to re-establish their credit after a significant derogatory event are also being updated. Fannie Mae is replacing the requirements related to the number of credit references and applicable payment histories with the waiting periods and other criteria.

After a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or preforeclosure or short sale, the borrower’s credit will be considered re-established if all of the following are met:

  • The waiting period and the related requirements are met.
  • The loan meets the minimum credit score requirements based on the parameters of the loan and the established eligibility requirements.

The “Catch”?

Now to qualify after that 2 year period, the new regulations state that a minimum 20% down payment will be required; 10% for a down payment, the wait will revert to the 4 year minimum; less than 10% for a down payment, the wait could be even longer — UNLESS there are “extenuating circumstances” such as job loss, health problems, divorce, etc…

But doesn’t pretty much any short sale by default involve “extenuating circumstances”? Just show them the hardship letter you submitted with your short sale docs. Case closed.

Why This Matters?

So why does this matter, and how should you, as distressed homeowners, USE this information?

Well for starters, if you couple this with the Obama administration’s new short sale assistance program (where mortgage servicing companies are paid $1,000 to handle successful short sales and mortgage holders get $1,500 for signing over their property), you’ve now got more compelling reasons than ever to pursue a short sale rather than just throwing up your hands and “letting things go”.


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