The Department of Housing and Urban Development released additional details about the Emergency Homeowners Loan Program on Tuesday. As part of the Wall Street Reform Bill, the program will offer $1 billion in declining balance, non-recourse, deferred payment “bridge loans” for up to $50,000 to assist eligible homeowners with a range of payments.
Homeowners can use the loan to pay delinquent taxes and insurance as well as up to 24 months of additional payments on their mortgage principal, interest, mortgage insurance premiums, taxes, and hazard insurance on their principal residences. The program is available to borrowers in Puerto Rico and the 32 states which were not funded by the Treasury’s Innovation Fund for Hardest Hit Housing Markets program.
Borrowers can get access through a dual delivery approach, the first through designated third parties that will perform the programs administrative functions. The second approach will enable state housing finance agencies (HFAs) that operate substantially similar programs to engage in relief efforts on behalf of residents of their state.
In order to be eligible for the program, borrowers must meet certain income thresholds – total pre-event household income equal to, or less than, 120 percent of the Area Median Income (AMI). Borrowers need to have experienced a significant income reduction and must be at least three months delinquent on payments. In addition, they must have received notification of an intention to foreclose.
There was some hope the program could be used to assist borrowers with reverse mortgages that have fallen behind on their taxes and insurance, but the guidelines issued make this unlikely.
In order to qualify, borrowers must have a reasonable likelihood of being able to resume repayment of the mortgage obligations within two years when they regain full employment. Unless borrowers have recently become unemployed, HECM borrowers probably will not qualify.
During a meeting with servicers last month, Vick Bott, Assistant Secretary at HUD told attendees the agency estimates there are 20,000 to 30,000 HECM loans in default. A mortgagee letter is supposed to be forthcoming on how to manage the loans, but our sources say the guidance will likely get pushed back until 2011 in order to think through the whole issue and develop solutions suggested by the industry.
HUD intends to begin taking applications from eligible homeowners by the end of the year.