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Michigan to Use Hardest Hit Funding to Help Unemployed Homeowners

In February, the ""Michigan State Housing Development Authority"":http://www.michigan.gov/mshda (MSHDA) was selected as one of five state housing finance agencies (HFAs) to receive ""financial aid through the administration's HFA Hardest Hit Fund."":http://dsnews.comarticles/obama-pledges-15b-for-unemployed-and-underwater-homeowners-2010-02-19 But before these funds can be used, each HFA must submit a program design to be approved by the ""U.S. Department of Treasury."":http://www.treasury.gov/


MSHDA has done just that. The agency recently submitted its ""plan"":http://www.michigan.gov/documents/mshda/Hardest-Hit_Fund_Proposal_317762_7.pdf to the Treasury, detailing its intentions to use the majority of its $154.5 million allocation to help unemployed borrowers. Through a nonprofit corporation set up specifically for the purpose of being an ""eligible entity"" under the Hardest Hit Fund, MSHDA plans to administer three programs, including the Unemployment Mortgage Subsidy Program, the Principal Curtailment Program, and the Loan Rescue Program.

These three programs are projected to help more than 16,000 borrowers avoid the devastating personal effects of foreclosure, while reducing the secondary but destructive impact foreclosures have on neighbors, neighborhoods, local government budgets, and the social services network.

Almost 65 percent of the state's total allotment will be directed to the Unemployment Mortgage Subsidy Program, which will subsidize up to half of the required monthly mortgage payment for borrowers who are unemployed while they seek new employment. Homeowners who have lost their job through no fault of their own and qualify to receive unemployment benefits will apply for assistance through their lender, who will in turn transmit the application to MSHDA for approval.

Under this program, unemployed homeowners will be eligible to receive monthly subsidies, paid directly to the lender/servicer, of up to $750 or 50 percent of the required monthly principal, interest, taxes, and insurance mortgage payment. Assistance will be provided for two months after the homeowner returns to work, with the maximum length of assistance set at 12 months.


MSHDA anticipates using 20 percent of the funding for the Principal Curtailment Program. This program will provide one-time matching funding of up to $10,000 to homeowners seeking to modify their loans. The lender or servicer must agree to provide matching forgiveness of principal overhand and to modify the reduced loan balance consistent with program requirements.

As with other programs, the Principal Curtailment Program will prevent avoidable foreclosures by helping homeowners who currently cannot refinance or modify their mortgages due to negative equity positions, MSHDA said. Homeowners will benefit from both a restructured loan payment and the reduction in principal balance that must be serviced, reducing monthly payment and increasing sustainability. The agency expects this program to be of particular benefit to recently unemployed borrowers who are back to work at lower salaries.

Another 10 percent of the state's Hardest-Hit Fund allocation will be used for the Loan Rescue Program. MSHDA said many Michigan families have encountered some significant obstacle in their lives that resulted in mortgage delinquency, and this program will provide up to $5,000 in assistance to household who can now sustain homeownership, catch up on delinquent payments, and avoid foreclosure. In many cases, the Loan Rescue Program will be coordinated with existing mortgage modification programs to help borrowers restructure their mortgage to sustain homeownership.

MSHDA said it consulted with several outside partners during the initial development of this plan, including the Michigan Bankers Association, the Michigan Credit Union League, the Michigan Association of Community Bankers, the Michigan Association of Realtors, the Michigan Foreclosure Task Force, and MSHDA's statewide homeownership counseling network. In addition, servicing staff from a selection of community, regional, and national loan servicers participated in sessions intended to begin aligning the application process, data requirements, and the like with existing lender/servicer systems and infrastructure.

The agency said most of the local, regional, and national loan servicers it consulted have agreed to integrate the Hardest Hit Fund programs into their current loss mitigation waterfall process. The Treasury will review and approve MSHDA's plan by early June, and funds should be available to Michigan homeowners by early July.

About Author: Brittany Dunn


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