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Government Allocates New Funds for Foreclosure-Prevention Programs Aimed at Unemployed Homeowners

Work hard, get ahead and own your own home someday. It's the American Dream, right? Just picture it - the house in the suburbs, the white-picketed fence and even the cheerful neighbors across the street. Or, maybe your dream involves the bright lights of the big city and a great walk-up loft for you to call your very own. Whatever your version of what homeownership looks likes, many people envision finding that perfect home, signing off on a loan and dutifully promising to make monthly mortgage payments. If you've followed a similar path, you're living the America Dream - or are you?

What if after two, five or even 15 years of making timely mortgage payments and building a positive credit history, you unexpectedly lose your job - due to no fault of your own - or you face a sudden illness that forces you to stop working, meaning you no longer have the funds to pay your mortgage.

What happens next is terrifying to any homeowner: your mortgage bills start arriving stamped "past due." Then the angry phone calls start coming from your lender and late fees begin to mount. Finally, after several months of not receiving payments, your lender threatens foreclosure. So much for the American Dream, eh?

This scenario featuring unemployed homeowners is alive and kicking in today's weakened economy. In fact, the U.S. Bureau of Labor Statistics reported that unemployment rates in some parts of the nation reached double digits (the Pacific region topped 11.5%) in August 2010 and the national average currently hovers around 9.6 percent. Additionally, 27 U.S. states registered over-the-month unemployment rate increases in August 2010.

How do these figures impact homeowners' abilities to pay their mortgages? It's not a pretty picture. According to RealtyTrac, an online service that collects and aggregates foreclosure data, and as reported by CNBC.com, one in every 381 households in the country had received a foreclosure filing in August 2010. Furthermore, California and Florida accounted for 37% of the nation's 338,836 properties that received such notices during that period.

Indeed, with unemployment rates at high levels, it's tough for American homeowners to make ends meet. But despite the gloom and doom, there is some light at the end of the tunnel for unemployed homeowners. In fact, the Obama Administration recently announced its plan to shift sizable funds to people in this position through two foreclosure-prevention programs. Let's take a look at each of these programs in more detail.

The Hardest-Hit Fund

First, the HFA Hardest-Hit Fund was announced in February 2010, as part of President Obama's Homeowner Affordability and Stability Plan, geared at improving U.S. housing markets by keeping more homeowners in their homes. The goal of the Hardest-Hit Fund, capitalized at $1.5 billion, is to help correct housing problems in Nevada, California, Florida, Arizona, and Michigan - the five hardest-hit states where unemployment is high and where average house prices dropped more than 20% from their peak. Homeowners residing in these states may qualify for mortgage modifications with or without principal forbearance, short-sale assistance, principal reduction programs for borrowers with severe negative equity, or second liens through the program.

In August 2010, the Administration acknowledged the continued hardships faced by unemployed homeowners and announced that an additional $2 billion of assistance would be available through the Fund. Eligibility, while not open to all 50 states, includes more than the original five. Under the revised plan, states that have experienced unemployment rates at or above the national average over the past 12 months are eligible for funds and have been allocated a proportional share of the additional $2 billion based on their populations. Those states are:

  • Alabama
  • California
  • Florida
  • Georgia
  • Illinois
  • Indiana
  • Kentucky
  • Michigan
  • Mississippi
  • Nevada
  • New Jersey
  • North Carolina
  • Ohio
  • Oregon
  • Rhode Island
  • South Carolina
  • Tennessee
  • Washington, DC

Funds allocated to each state will be directed to specific programs that provide temporary assistance to eligible homeowners while they seek employment or participate in job training. States will identify the unique needs of its residents individually. Contact your lender to see if you qualify.

The Emergency Homeowners Loan Program

Second, the Obama Administration also announced in August a complementary program that creates a $1 billion Emergency Homeowners Loan Program that will be administered by the U.S. Department of Housing and Urban Development (HUD). Qualified, unemployed homeowners at risk of foreclosure may be able to obtain financial assistance through this program for up to 24 months. The objective here is to provide assistance for areas that may not receive financial assistance through the Hardest-Hit Fund. These new funds were approved as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which called for sweeping change to financial regulation in the United States.

Homeowners who meet the following conditions may qualify for zero-percent interest bridge loans under this new loan program in amounts up to $50,000:

  • You are at least three months late on mortgage payments and have a reasonable likelihood of being able to start paying your mortgage yourself again over the next two years.
  • Your mortgaged property is your primary residence and you do not own a second home.
  • You can demonstrate a positive payment history prior to whatever incident caused your current unemployment.

HUD has not released further details about the program, although they are expected in the near term. In the meantime, contact your lender about whether you may qualify for these programs.

Alternatively, HUD funds free or low-cost housing counseling nationwide. Counselors can help you organize your finances, and help you understand your options. Find a HUD-approved housing counselor near you or call (800) 569-4287. The HUD website also features tips for how to avoid foreclosure that can help Americans struggling to make ends meet.

Avoiding Foreclosure

Economic markets continue to remain fragile and the impact of these hardened times can mean the difference between holding on to a job and becoming unemployed, as well as remaining a homeowner or facing foreclosure.

Becoming an informed and educated consumer is your best protection to fighting possible foreclosure. Contact your lender or a HUD counselor. The sooner you pick up the phone or make an email connection, the better your chances are of living out your own American Dream and owning your own home.

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