Behind on Your Mortgage? Hurry Up!

06/04/2012 9:00 am EST

Focus: REAL ESTATE

Terry Savage

Author, The Savage Truth on Money

Billions of dollars set aside to help homeowners get back on track have not yet been claimed, writes MoneyShow personal finance expert Terry Savage.

More than $7 billion of Federal TARP (Troubled Asset Relief Program) funds is sitting around in 18 states and the District of Columbia—just waiting to be given to homeowners who have fallen behind in their mortgage payments!

This is not a fantasy. It is cold, hard cash that was meant to help keep the unemployed from losing their homes. But some states are having a tough time actually putting the money to work. The irony is that this is named the “Hardest Hit” program—but the money isn’t getting to its destination.

There is $300 million sitting at the Illinois Housing Development Authority, just waiting to help homeowners who have fallen behind on their mortgages. And Illinois isn’t alone:

  • Florida also has millions to give away to troubled homeowners. 
  • Michigan still has some of its nearly $500 million in housing money left.
  • And some of Nevada’s Hardest Hit mortgage funding is available here.
  • In Tennessee you can find the program here.

While each state has crafted its own program to distribute the money, the entire concept of the TARP “Hardest Hit” program is aimed directly at helping people before the situation gets out of hand. Those who are a few months behind in paying their mortgage can get a grant—free money—to bring them up to date. And the program will keep helping them pay their mortgage so they can stay in their homes!

This program couldn’t come at a better time, because our nation’s housing crisis just won’t go away. Part of the problem is directly attributable to the unemployment situation. Those who have lost jobs are almost certain to lose their homes to foreclosure. That’s why the Hardest Hit program is authorized to make mortgage payments (with some restrictions) for those who are unemployed or underemployed.

Past Failed Attempts
It’s not as if there haven’t been attempts to stop the foreclosure crisis. Under the Bush administration, a telephone hotline was set up, 888-995-HOPE. It helped few people, and was mired in red tape as financial institutions struggled to deal with delinquencies.

That was followed by the Obama administration’s “Making Home Affordable” program. But it, too, failed to stem the tide of foreclosures, as its HAMP modification plan was viewed as too complex for mortgage servicers to handle.

That was followed last fall by HARP (Home Affordable Refinance Program), designed for people who were current on their payments, but underwater on the value of their home vs. the amount of the mortgage. Both programs remain in effect, but have had minimal impact on foreclosures.

Making a Difference
The federal Hardest Hit program started slowly, and at year-end 2011, only about 30,000 families had been helped.

One cause of the delay in pushing money through the system was the reluctance of mortgage servicers (and Fannie and Freddie!) to accept payments from the program. But in most states, that challenge has been overcome. And although each state has a slightly different program and restrictions, in every instance the first step requires meeting with a HUD-certified housing counseling agency.

In each state, housing advocates are trying to get the word out about this relatively new program. Neighborhood Housing Services Executive Director Ed Jacob says: “This is the best tool in our toolbox now for keeping people in their homes. It recognizes that the cause of foreclosure has moved to loss of income, as opposed to poorly underwritten loans. That’s the real challenge we’re seeing in the neighborhoods.”

The real issue now is getting people into the program before they are too far behind on their mortgage to qualify for these funds.

How it Works
Of course there are restrictions on this helpful mortgage grant deal. Check with your state’s Housing Development Authority to find out if there is Hardest Hit money available—and to get the rules.

The Illinois program is fairly typical:

  • The property must be located in Illinois.
  • The owners much have a documented income reduction of at least 20% through unemployment or underemployment
  • Household income must be below 120% of area median income. (In Chicago, that’s $63,720 for an individual, or $72,840 for a two-person household.)
  • Principal loan balance must not be more than $500,000.
  • Household liquid assets cannot exceed $10,000 (or $12,500) depending on county of residence.
  • Homeowner must reside in the property, and the homeowner cannot own any other residential property in Illinois, or in any state.

Getting Started
Since each program is set up by individual states, there is no one good place to get specific information. But here’s a link to the National Council of State Housing Agencies. It’s a good place to learn more about the overall program, and get an idea of what your state is doing to help those who are unable to stay current on their mortgage.

The news is getting out, and the funds are limited, so don’t delay. It sounds too good to be true, I know. But it’s the real deal. And that’s the Savage Truth.

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