The Obama Administration has authorized the release of $1.5 billion for foreclosure prevention efforts in the five states hardest hit by the housing crisis, beginning almost immediately.
The funds will be divided among programs in Arizona, California, Florida, Michigan and Nevada that were specifically developed for the purpose. Uses will include mortgage payment assistance, loan principal reduction and subsidies for loan modifications, among others.
The five states have known they would be receiving the funds since February, when the Obama administration announced the creation of the "Hardest Hit Fund," as the program is called. Today's announcement of the release of the funds marks the administration's approval of the plans the five states developed for using the money.
Targets states with worst foreclosure rates
The five states were chosen because each has experienced a decline of 20 percent or more in housing prices since the beginning of the housing crisis. An additional $600 million has been designated, but not yet released, for programs being developed in five other states with high unemployment levels - North Carolina, Ohio, Oregon, Rhode Island, and South Carolina.
"When homeowners can't make their mortgage payments it can be devastating," said Michigan Gov. Jennifer Granholm, welcoming the announcement. "These funds will help unemployed Michigan homeowners, and those who have fallen behind due to unforeseen circumstances such as a medical emergency, work out arrangements with their mortgage lenders so they can remain in their homes."
"The new funding announced today will play a vital role in aiding the state's neediest homeowners," said California Gov. Arnold Schwarzenegger. "California was one of the states hardest hit by the housing crisis, and while my administration took decisive action that has helped many Californians to stay in their homes, this funding will further those efforts and help stabilize neighborhoods and communities."
Will it have an impact?
Nevada Gov. Jim Gibbons, for his part, tempered his remarks by comparing the funds being provided to the estimated $44 billion by which home mortgages are estimated to be underwater in the Las Vegas area.
"While we applaud the U.S. Treasury's initiative to help bring elements of its Hardest Hit Funding program to Nevada and we certainly welcome the $102 million, no one should expect that this amount of federal funding will resolve the mortgage crisis Nevada faces now and into the immediate future," he said.
Michigan expects to begin distributing funds by July 12; timetables for the other four states are not yet available. Amounts received and details of how each state plans to use its share of the funds are as follows:
California - $699.9 million
California will receive the largest allotment, part of which will be used to reduce the principal on mortgages through earned principal forgiveness. It will also target funds to address delinquent mortgage arrearages, provide a mortgage subsidy to unemployed families and provide funds to help families transition to new housing after a short sale or deed-in-lieu transaction.
Florida - $418 million
Florida will use part of its funds to provide mortgage payment assistance to the unemployed and under-employed. It will also provide support for loan modifications through principal reduction and the elimination of second liens.
Michigan - $154.5 million
Michigan will subsidize mortgage payments for unemployed persons seeking work. The state will also assist homeowners who are delinquent on their mortgages due to temporary financial hardship and assist with principal reductions for those who are underwater on their mortgages.
Arizona - $125.1 million
Arizona will use part of its funds to support principal reductions, interest rate reductions and term extensions needed to allow homeowners to obtain permanent loan modifications. The state will also provide assistance in eliminating second liens that are preventing loan modifications on primary mortgages, as well as provide mortgage assistance to underemployed persons.
Nevada - $102.8 million
Nevada will create a mortgage modification program aimed at reducing principal owed to less than 115 percent of current property value. It will also offer assistance in eliminating second liens with a three-year earned forgiveness program, as well as incentives for borrowers and lenders to facilitate short sales.