What is the FHA Hardest-Hit Program?

March 26, 2010

In February of 2010, the President announced additional help for homeowners living in areas deemed "hardest hit" by the fallout of the housing crisis. A new $1.5 billion funding initiative called the FHA Hardest-Hit Fund provides money for housing finance agencies or FHAs in Nevada, Michigan, California, Florida and Arizona.

The Hardest-Hit Fund was created to offer what the Obama Administration calls "relief in direct proportion to the scale of each state's housing challenges." In plain English, that means housing finance agencies in the affected states will get government money based on the scale of declining home values, unemployment figures and the number of delinquent mortgages.

What does all this mean for someone with an FHA loan who is in danger of default and foreclosure? If you live in one of the affected states, when you go to your lender to negotiate forbearance, an altered payment schedule or other options designed to prevent foreclosure, the bank has more financial incentive from the government to help the borrower. The FHA Hardest-Hit program gives lenders in these five states more flexibility to create programs designed to prevent a mortgage from going into default or foreclosure including:

• Loan modification
• Mortgage forbearance
• Principal reduction for borrowers who are over-leveraged
• Loan principal reduction for borrowers with "severe negative equity"
It's very important to note that the Treasury Department has not mandated an across-the-board set of measures that must be taken with this funding; all programs a lender initiates with Hardest-Hit funds must be evaluated to insure it's in compliance with rules put in place through the Emergency Economic Stabilization Act. Your lender may choose to design an anti-foreclosure program not offered in other areas, or one that has features similar programs lack-as long as the program is in compliance with federal law.

One such type of relief suggested by the creators of the FHA Hardest-Hit program as an "acceptable transaction" is the unemployment program concept. This could be offered in the form of some assistance to qualified FHA borrowers who are currently unemployed and in danger of foreclosure on their FHA home loan. Another type of relief considered an acceptable transaction is second lien reduction where the second lien is either modified or reduced. Is your FHA loan eligible? At press time there doesn't seem to be specific guidance that includes or excludes FHA mortgage holders--check with your lender to see if there are plans to create a relief program with FHA Hardest-Hit funds that could include your FHA home loan.

Under the new Hardest-Hit guidelines, lenders who create programs to help individual homeowners must target residences with unpaid principal equal to or less than the Fannie Mae or Freddie Mac conforming limit (up to $729,750 for single-unit homes, more for multi-unit buildings).

If you are in danger of default or foreclosure in Nevada, Michigan, California, Florida and Arizona, ask your loan officer if your FHA home loan could benefit through the Hardest-Hit program. If your lender is still putting together a program to help individual homeowners, you may be able to work out an arrangement in the meantime to put off foreclosure or default until the lender's relief program is approved. Don't wait until the last moment to act-if you are struggling financially you may be able to save your home in the meantime simply by asking your lender for help.