Arizona Plans to Assist 4,000 Households With Hardest Hit Funding

The Arizona Department of Housing (ADOH), one of five state housing finance agencies (HFAs) slated to receive federal funding through the administration’s Hardest Hit Fund, has submitted a proposal to the U.S. Treasury Department detailing how it plans to use its expected allocation.

According to RealtyTrac, a real estate data firm, Arizona’s foreclosure rate is currently second in the nation. In 2009, the greater Phoenix area experienced approximately 52,000 foreclosures, and through the first quarter of 2010, this area is on track to experience an additional 52,000 foreclosures.

While many early foreclosures were a result of over-speculation of single-family homes by investors and resets on adjustable-rate mortgages, numerous Arizona households are now facing foreclosure due to job loss or reduced income as a result of an ailing economy. In addition, many households are choosing foreclosure rather than remaining in homes where the amount owed far outweighs the current value of the property.

Taking into consideration the causes of foreclosure across the state, ADOH created a detailed plan of how it will use the financial aid made available through the Hardest Hit Fund. According to the proposal, the funding has the potential to assist approximately 4,000 Arizona households and will be used for permanent mortgage
modifications, second mortgage settlement, temporary mortgage assistance, and homeowner advocacy through HUD counselors.

ADOH plans to use the bulk of its funding — $90 million of its $125.1 million allotment — to reduce loan balances for heavily underwater borrowers, the Wall Street Journal said. For a principal reduction, the principal balance must exceed 120 percent of present market value of the home. The homeowner could then qualify for a maximum contribution of $50,000 that is matched by the lender and forgiven over a period of time.

According to the Wall Street Journal, the HFA also plans to use around $7.5 million to help extinguish second mortgages, another $12 million to help subsidize monthly mortgage payments for unemployed borrowers, and $10 million towards housing counselors.

In designing this proposal, ADOH developed a set of guiding principles to ensure that it assists homeowners who have demonstrated “personal responsibility” in their home purchase choices. It is the state’s intent to assist those who, through no fault of their own, are facing the potential loss of their home due to the current and unprecedented economic conditions.

Under these guidelines, a foreclosure must be imminent, meaning resources will only be utilized for households who have exhausted all options in remaining current on their mortgage payments. In addition, resources will only be utilized for primary residencies, and households must prove that their income is at or below 120 percent of the area median income.

Applicants must also demonstrate an approvable hardship, such as reduced income due to underemployment, a medical condition, divorce, or death. Homeowners who have “self-inflicted” wounds, such as refinancing to take out equity, will not be approved.

Resources will be made available statewide. However, geographic set-asides will be devised to assure distribution commensurate with foreclosure rates.