Housing Finance Agency “Hardest Hit-Fund” or HHF Programs

If you live in Arizona, California, Florida, Michigan, or Nevada, there is a new government-sponsored program available for foreclosure prevention.

The new Innovation Fund for the Hardest-Hit Housing Markets, also known as the Hardest-Hit Fund, will provide funding to local Housing Finance Agencies (HFAs) that are able to help unemployed and low- to moderate-income borrowers stay in their homes. The program will only be available in those states that have seen a decline of 20 percent or more in home values.

The Hardest-Hit fund will be administered through local HFAs to serve the specific needs of each community. As long as they focus on housing market stability and foreclosure prevention, each HFA will design their own program with those needs in mind and will not have to repay the government for any assistance given through the fund.

Under the terms of the program, each HFA was given until April 16, 2010, to submit their proposals for innovative local funding programs. The Treasury Department expected to begin releasing specific funds to specific localities within four to six weeks after receiving each proposal.

In the past, HFAs have had great success with providing mortgage financing assistance for both individuals and rental real estate developers who agree to construct low-income housing. Now the HFAs will branch out into assisting those borrowers with strategies for keeping their properties.

Suggestions for possible solutions through the Hardest-Hit program have been made by the Treasury Department. Local HFAs are free to take these suggestions, build on them, or develop new programs according to their area’s biggest concerns.

  • Principal Reductions: For those borrowers with negative equity, this option would financially encourage lenders to discount the principal due on each mortgage to make it easier for a house to sell.
  • Second Lien Reductions: For those borrowers with multiple liens on their properties, lenders of second mortgages would receive funding to offset losses from writing down the principal on their loans.
  • Assistance for Short Sales/Deeds-in-Lieu: Borrowers who are on the brink of foreclosure would receive financial assistance to reduce the debt incurred from having to sell their home for less than the balance due on the mortgage, making it more likely that the lender will agree to allow these transactions.
  • Mortgage Loan Modifications: Financial incentives to offset losses would be provided to lenders who agree to modify the loan of a borrower who would otherwise be in default on their mortgage.
  • Mortgage Loan Modifications with Principal Forbearance: Lenders may also be given financial incentives to write down the principal on an underwater loan, which would make it easier for them to also modify the terms of those loans.
  • Unemployment Programs: Temporary financial assistance would be provided to unemployed borrowers who wish to keep up with their mortgage payments and stay in their homes.

Regardless of which options are chosen, each HFA must still comply with fair lending laws and maintain certain internal controls for avoiding conflicts of interest, fraud, and financial mismanagement.