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Republicans Attempt to Kill Assistance for Unemployed Homeowners

March 7, 2011 - by Donny Shaw

One of the foreclosure relief programs that House Republicans are looking to shut down this week has been a widely-recognized failure. It was supposed to provide incentives for mortgage lenders to voluntarily renegotiate loans for underwater homeowners, but it never caught on. The other program, however, hasn’t gone into effect yet, but because it doesn’t require the cooperation of lenders it’s expected to be more successful when it does. The program, which is called Emergency Mortgage Relief, would provide government bridge loans to help unemployed homeowners avoid foreclosures. Since we can’t evaluate it in action, here’s a closer look at how’s it’s supposed to work once it starts up.

The program was created back in 1975, but it has been without funding for decades. Last year, Congress authorized $1 billion to be spent on renewing the program as part of the Dodd-Frank financial reform bill. The Department of Housing and Urban Development, which will run the program, is currently planing on launching it officially on April 1.

In order to qualify for a loan under the Emergency Mortgage Relief Program homeowners would have to meet a series of guidelines that have been designed to ensure that participants have reasonable mortgages to begin with and are likely to be able to repay the loan when they reenter the workforce. According to a notice from HUD published recently in the Federal Registry, the eligibility requirements include:

  • They must have experienced a “substantial reduction in come due to involuntary but temporary unemployment or underemployment due to adverse economic conditions or medical conditions.”
  • Their income must have been reduced by at least 15% because of the unemployment or medical situation.
  • Their income before the reduction must not have been more than 120% of the median income in their area.
  • Their debt-to-income ratio before becoming unemployed or suffering from their medical condition must be 55% or less.
  • Foreclosure must be probable. Specifically, the homeowner must be at least three months behind on their mortgage payments.
  • The mortgaged property must be their primary residence.

If that all matches up and an application is approved, HUD would provide the homeowner with a zero-interest loan that can be applied to back payments and fees, plus up to 24 months (or up to $50,000) of mortgage payments. HUD will contribute 100% towards back payments, but the homeowner is required to contribute 31% of their monthly income (or at least $25 per month; whatever’s higher) towards future payments. If during the loan period the homeowner sells the house, fails to pay their monthly contributiont, or their income moves above 85% of its pre-unemployment/medical crisis level, the HUD loan will be phased out.

Once the loan is up, repayment can be deferred by up to five years and can be paid off over a period of up to 7 years. The Congressional Budget Office has estimated that 50%, or $500 million, of the $1 billion lending authority will ultimately be repaid.

 

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