Staff reports

Second HFA Hardest Hit Fund to help address urgent problems facing families in states with concentrated areas of economic distress,

Building on the first Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (the “HFA Hardest Hit Fund”), the Obama Administration announced an expansion of the initiative to target five additional states with high shares of their populations living in local areas of concentrated economic distress. This second HFA Hardest Hit Fund will include up to $600 million in funding for innovative measures to help families stay in their homes or otherwise avoid foreclosure in states that have been hit hard by concentrated economic distress.

Responsible families across the country have found themselves unable to pay their mortgages as a result of unemployment or underemployment. While the first HFA Hardest Hit Fund targeted five states with home price declines greater than 20 percent, the second HFA Hardest Hit Fund will target five states with high concentrations of people living in economically distressed areas, defined as counties in which the unemployment rate exceeded 12 percent in 2009. Less than 15 percent of the U.S. population lives in such high-unemployment counties. The five states that will receive allocations based on this criterion are North Carolina, Ohio, Oregon, Rhode Island, and South Carolina.

President Obama announced the first HFA Hardest Hit Fund on February 19, 2010, with up to $1.5 billion in funding for innovative measures to help families. States that were allocated funds under the first HFA Hardest Hit Fund are not eligible for the second fund. HFAs in states qualifying for the second Hardest Hit Fund will be required to submit plans to the Treasury Department for review before becoming eligible for funding. Once Treasury determines that the plans satisfy the requirements under the Emergency Economic Stabilization Act of 2008 (“EESA”), the plans will become eligible for funding up to a predetermined allocation cap. 

Expansion of help for the hardest hit housing markets
1.    $600 million to help state housing agencies further address the challenges facing housing markets with the most concentrated areas of economic distress

•    Funding will go to states with the highest share of their population living in counties in which the unemployment rate exceeded 12 percent in 2009 (excluding states already eligible for Help for the Hardest Hit Housing Markets funds).

•    HFAs must submit program designs to Treasury. Approaches that respond to problems caused by concentrated economic distress will be particularly welcomed.

•    To receive funding, HFAs’ plans must satisfy the requirements for funding under EESA.

•    Funding will help support innovative foreclosure prevention efforts and help for unemployed homeowners.

2.    Accountability and transparency 

•    All funded program designs will be posted online.

•    To create accountability for results, program effectiveness measures and results will be published online.

•    Program activity will be subject to effective oversight under EESA.

3.   Allocation caps have been determined in proportion to the number of people in these five states living in counties with high unemployment, resulting in the following allocation caps:

State    Allocation cap (millions)
N. C.        $159
Ohio        $172
Oregon        $  88
R. I.        $  43
S. C.        $138
Total        $600

Types of programs that may be funded
The Fund is designed to allow HFAs flexibility in designing programs tailored to the needs of each participating state. To be eligible for Troubled Asset Relief Program (“TARP”) funds, all programs must promote the purposes of EESA and be consistent with its requirements. Section 2 of EESA provides that the purposes of EESA are to restore liquidity and stability to the financial system and to use TARP funds in a manner that, among other things:

•    Protects home values

•    Preserves homeownership and promotes jobs and economic growth, and

•    Provides public accountability

States are encouraged to submit proposals that provide targeted relief to areas or localities with high concentrations of economic distress, but each state should respond to local conditions. To provide guidance to HFAs in designing programs, Treasury has outlined some of the possible types of transactions that would meet the requirements of EESA.

•    Unemployment Programs – assistance to unemployed borrowers to help them avoid preventable foreclosures

•    Mortgage Modifications – modification of mortgage loans held by HFAs or other financial institutions, or incentives for servicers/investors to modify loans

•    Mortgage Modifications with Principal Forbearance – paying down all or a portion of a loan and taking back a note from the borrower for that amount to facilitate additional modifications

•    Short Sales/Deeds-In-Lieu of Foreclosure – assistance with short sales and deeds-in-lieu of foreclosure to prevent avoidable foreclosures

•    Principal Reduction Programs– incentives for financial institutions to write down a portion of unpaid principal balance for homeowners with severe negative equity

•    Second Lien Reductions – incentives to reduce or modify second liens

Other ideas and transaction types (including innovations related to the Making Home Affordable Program) will be evaluated on a case-by-case basis for compliance with EESA. Treasury may announce additional types of transactions that would meet the requirements of EESA.

For programs designed to help individual homeowners, the target population should be limited to residences with unpaid principal balances equal to or less than $729,750. HFAs may target low- and moderate-income borrowers at their discretion.

Timeline for HFA Proposals
Treasury will announce rules governing the submission of program designs by HFAs within two weeks and will provide a period thereafter for HFAs to submit their program designs in order to receive funding. These rules will be substantially similar to the rules for the first HFA Hardest Hit Fund, and will include a proposal submission timeline.

Reporting
HFAs will be required to develop and maintain operational and performance metrics, have a detailed financial reporting system, and track homeowners helped through its programs. Treasury may request that the HFA modify the proposed performance measures or seek additional metrics as necessary. All program designs will be posted online, along with metrics measuring the performance of each HFA’s programs.

Allocation Methodology
The allocation method for the second HFA Hardest Hit Fund identifies states that have high shares of their population living in areas of concentrated economic distress. Specifically, states were ranked by the share of their state population living in counties in which the unemployment rate exceeded 12 percent, on average, during 2009. A total of $600 million in funds is being allocated to these five selected states. This is equivalent on a per person basis to the $1.5 billion awarded in the first HFA Hardest Hit Fund.