Today, the White House issued a press release and posted a blog entry announcing a program in which $1.5 billion of federal funding, originally set aside under the Emergency Economic Stabilization Act of 2008 (EESA), will be provided to state and local housing finance agencies (HFAs) and similar organizations in states where average home prices have declined over 20% since the peak of the housing boom. The progra, as outlined by President Obama in his speech at a town hall meeting in Nevada, will authorize HFAs with programs approved by the Treasury to spend the funding to:
- Aid unemployed homeowners;
- Assist homeowners with mortgages in excess of the values of their homes or who are struggling with second mortgages; and
- Otherwise encourage sustainable and affordable homeownership.
The program is intended to provide the HFAs with the flexibility necessary to resolve local problems with local solutions, while retaining accountability for their decisions. The funding will be allocated among the eligible states based on the degree of home price declines and unemployment. To be eligible, the design must meet the following requirements:
- The recipient of funds must be an eligible financial institution and may not act as a special purpose vehicle for the purpose of transferring the funds to a non-qualifying entity;
- The funds must be used to pay for mortgage modifications or for other permitted uses under EESA;
- The design must meet the program goals of providing meaningful support for housing in the hardest-hit markets; and
- The design, as well as certain measurements of performance, must be posted online.
The White House described methods to distribute the funding, but emphasized that HFAs are encouraged to innovatively formulate solutions to local problems and are not limited to the methods provided. For example, An HFA may choose to provide financial aid to unemployed homeowners until employment is secured. HFAs may also provide financial assistance or incentives to encourage lenders to write down mortgages that exceed the value of the home. In addition, in a frequently recurring situation, where a property is subject to both a first and second mortgage and the holder of the first mortgage is willing to reduce the principal amount of the loan, HFAs may facilitate the loan modification process by providing financial incentives to the holder of the second mortgage to also forgive principal.
In two weeks, the White House will announce maximum state level allocations and rules governing the submission of program designs by HFAs, including the period in which HFAs may submit their designs for approval.