Obama Administration Preps $3bn in Aid for Unemployed Borrowers

Finance and housing regulators are preparing a combined $3bn of financial assistance to aid mortgage borrowers in states most affected by unemployment levels. The Obama Administration is launching a new $2bn assistance program for unemployed borrowers. The aid, provided through the Treasury Department-implemented Hardest Hit Fund, will go to state Housing Finance Agencies (HFAs) with programs for borrowers struggling to make payments due to unemployment. “We remain committed to helping struggling homeowners, and this program will provide additional assistance to states hit hardest by unemployment,” said Treasury assistant secretary for financial stability Herb Allison. “This is part of the Administration’s comprehensive housing policy that has helped to stabilize a fragile housing market and allows responsible homeowners the chance to reduce their monthly mortgage payments to affordable levels.” The states eligible to receive funds through the additional assistance are broken out as follows: The HFAs in states without existing Hardest Hit Fund unemployment programs must submit proposals to the Treasury by Sept. 1, 2010. Additionally, the US Department of Housing and Urban Development (HUD) is planning to launch a complementary $1bn Emergency Homeowners Loan Program to provide up to 24 months of assistance to borrowers at risk of foreclosure. The aid will apply to borrowers that have experienced a “substantial” reduction in income due to involuntary unemployment, underemployment or a medical condition. “HUD’s new Emergency Homeowner Loan Program will build on Treasury’s Hardest Hit initiative by targeting assistance to struggling unemployed homeowners in other hard hit areas to help them avoid preventable foreclosures,” said HUD senior advisor for mortgage finance Bill Apgar. “Together, these initiatives represent a combined $3bn investment that will ultimately impact a broad group of struggling borrowers across the country and in doing so further contribute to the Administration’s efforts to stabilize housing markets and communities across the country.” The HUD program will work through a variety of state and non-profit entities and will offer a declining balance, deferred payment “bridge loan” — zero percent interest, non-recourse subordinate loan — for up to $50,000 to assist eligible borrowers with payments on their mortgage principal, interest, mortgage insurance, tax and hazard insurance for up to 24 months. These additional funds were allocated through the Dodd-Frank act that recently passed. Borrowers must be at lest three months delinquent and have a reasonable likelihood of resuming repayment and related housing expenses within two years in order to be eligible for the HUD loan. Borrowers must occupy the mortgaged property as a principal residence and must not own a second home. Borrowers must also demonstrate a good payment record prior to the income hardship. Write to Diana Golobay.