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Funding Principles

Reduce Home Foreclosures

Funding Principles

Maximize federal funds. Several federal programs are available to homeowners avoid foreclosure.

Making Home Affordable (MHA) is a critical part of the Obama Administration's broad strategy to help homeowners avoid foreclosure, stabilize the country's housing market, and improve the nation's economy. Administered by the U.S. Department of Housing and Urban Development and the U.S. Department of the Treasury, The cornerstone of the MHA programs is the Home Affordable Modification Program, recently extended through 2013. HAMP allows unemployed homeowners to lower their monthly mortgage payments, change the original terms of their mortgages, and resolve their delinquency status with mortgage companies more quickly, avoiding foreclosure and allow these homeowners to stay in their homes. Other MHA programs, including the Home Affordable Refinance Program (HARP), incentivize servicers to reduce principals on homes and provide loan modifications and refinancing to help homeowners avoid foreclosure. MHA programs also offer assistance for unemployed homeowners by granting temporary reductions or suspensions of mortgage payments and requiring servicers to extend the forbearance period for unemployed homeowners to 12 months. State policymakers can use “the bully pulpit” and coordinated messaging campaigns to encourage mortgage servicers to participate in MHA and to connect residents to MHA resources.

The Federal Housing Administration offers a variation on HAMP called FHA-HAMP that allows homeowners to modify their FHA-insured mortgages to reduce monthly mortgage payments and avoid foreclosure. This program is available to homeowners with FHA-insured mortgages who do not qualify for other loss mitigation programs. Similarly, the Veterans’ Administration offers VHA-HAMP to veteran homeowners with VA-insured mortgages. The U.S. Department of Agriculture created a refinance program for its Section 502 Direct and guaranteed loan borrowers called the Single Family Rural Finance Pilot Program, targeting USDA borrowers in persistently poor rural areas. Thirty-five states are eligible for the program, which enables qualified borrowers to refinance their existing mortgage loans into new guaranteed loans.

Created in 2010, the U.S. Department of the Treasury’s Hardest Hit Fund (HHF) provides $7.6 billion to the 18 states, plus the District of Columbia, hardest hit by the foreclosure crisis. States have through 2017 to use these funds to develop locally-tailored programs to assist struggling homeowners in their communities. DHHF programs are designed and administered by each state’s Housing Finance Agency (HFA), and most HHF programs focus on helping unemployed homeowners avoid foreclosure while searching for employment. Michigan used HHF funds to create the Unemployment Mortgage Subsidy Program, which provides mortgage payment assistance to unemployed homeowners; the Morgan Loan Rescue Program and the Modification Plan Program, which enable homeowners delinquent on their mortgages to receive financial assistance and help modifying the terms of their existing mortgages; and the Principal Curtailment Program, which assists struggling homeowners in paying down their mortgage principals. See state-by-state utilization of HHF funds.

The Neighborhood Stabilization Program (NSP), a component of the Community Development Block Grant (CCBG), was established to stabilize communities and benefit low- and moderate-income families through the purchase and redevelopment of abandoned homes. NSP1, the NSP funds authorized under Housing and Economic Recovery Act (HERA) of 2008, provides grants to all states and selected local governments on a formula basis. NSP2, the NSP funds authorized under the American Recovery and Reinvestment Act of 2009, provides grants to states, local governments, nonprofits and a consortium of nonprofit entities on a competitive basis. NSP3, authorized under the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010, provides a third round of neighborhood stabilization grants to all states and select governments on a formula basis. NSP grantees develop their own programs and funding priorities but must use at least 25 percent of their NSP funds to purchase and redevelop homes that will house low-income families. Funds can be used for the purchase and rehabilitation of foreclosed and abandoned homes, establishing financing mechanisms for these activities, or establishing land banks for foreclosed homes. Using NSP1, NSP2, and NSP3 grants, Oregon Housing and Community Services funded a partnership between Housing Works and the cities of Redmond and La Pine. With NSP1 funds, Housing Works purchased five-bank owned homes, repaired them and made energy-efficient upgrades, and sold them to qualifying low-income buyers, using NSP3 funds to provide down payment assistance.

The Federal Housing Counseling Program enables anyone who wants to (or already does) rent or own housing—whether through a HUD program, a Veterans Affairs program, other federal programs, a state or local program or the private market—to get the counseling they need to make their rent or mortgage payments and to be a responsible tenant or owner in other ways. The counseling is provided by HUD-approved housing counseling agencies, such as Neighbor to Neighbor, non-profit organization and program grantee that provides housing counseling services to residents.

Leverage Private Funds – Utilize Public Private Partnerships.

Policymakers can partner with private foundation that invest in foreclosure prevention activities including mortgage refinancing, land acquisition, foreclosure prevention counseling, advocacy campaigns against predatory lending, legal services, and policy research about foreclosure trends. Minnesota state officials, along with local governments, community organizations, and banks, partner with The McKnight Foundation to collaboratively fund the efforts of the Foreclosure Partners Council, formed in 2007. By 2011, the Council had prevented 25,430 foreclosures, assisted 1,956 additional families with down payments or new mortgages, and acquired or rehabilitated for resale 2,191 properties. In Michigan, the Ford Foundation funds the work of the Michigan Foreclosure Prevention Project – a partnership of Michigan State Bar Foundation, Institute for Foreclosure Legal Assistance (IFLA), Equal Justice Works AmeriCorps Legal Fellowship Program, and the Michigan State Housing Development Authority – which includes direct legal representation to homeowners facing foreclosure, support to housing counseling organizations, providing training and technical support to foreclosure prevention groups.

Public-private partnerships allow policymakers to leverage public, non-profit, and private dollars to increase the pool of funds available to help families facing foreclosure as well as purchase and redevelop homes to resell to low-income families. The city of Menlo Park, California, allocated $1 million to fund the Foreclosure Prevention Program, an innovative public-private partnership between the nonprofit Northern California Urban Development (NCUD) and The EARN Group. A homeowner applies to the program through the city’s housing department and is contacted by mortgage specialists from NCUD. After vetting, EARN helps homeowners approach lenders. If the homeowner can qualified for a lower mortgage payment on approximately 70 percent of the current fair market value of the home, Foreclosure Prevention Program funds will cover the balance of the financing with an EARN Equity Certificate. The homeowner then shares a portion of the home’s future appreciated value with the city and may be to reduce his/her mortgage by up to $100,000.

Policymakers can use public-private partnerships to provide financial counseling and legal assistance to low-income families facing foreclosure. The Indiana Foreclosure Prevention Network is a public-private partnership, headed by the Lieutenant Governor, that provides mortgage payment assistance of up to $18,000 to qualifying applicants and foreclosure prevention counseling to any Indiana homeowner who needs it. Iowa Mortgage Help – a public-private partnership including Iowa Legal Aid, the Iowa Office of the Attorney General, the Iowa Finance Authority, Iowa Mediation Service, and Strategic America – provides foreclosure assistance and counseling through the Iowa Mortgage Help Hotline and operates a coordinated publicity campaign to raise awareness of foreclosure resources. In 2007, the Chief Justice of the Ohio Supreme Court spearheaded a partnership between the Ohio Foreclosure Prevention Task Force and public and private legal groups to provide the legal assistance to homeowners facing foreclosure.

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Protections against predatory mortgage lending require very little new funding because states already have systems in place to monitor and enforce compliance with lending laws.

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The Seattle Foreclosure Prevention Program is a public-private partnership between the city of Seattle, the Urban League of Metropolitan Washington, and Solid Ground designed to help homeowners delay or avoid foreclosure. It offers financial and mortgage counseling, assists homeowners in negotiating repayment plans with lenders, and provides stabilization loans of up to $5000.