Washington State Emergency Home Loan Program

Weitz - below is the my summary of the Department of Housing and Urban Development (HUD) Emergency Homeowner Loan Program. My initial thoughts are 1) that it is arguable a huge waste of taxpayer dollars that favors the banks more than anyone; and 2) for the right client, its a great opportunity to get some easy government money - I will explain in more detail below.

I found the picture to the right assuming for this topic - while amusing, its not too far from the truth.

Click here for actual report.

The Dodd-Frank Wall Street Reform and Consumer Protection Act provided $1 billion to HUD to implement the Emergency Homeowners Loan Program (EHLP) Program. The program will offer a declining balance, deferred payment “bridge loan” (non-recourse, subordinate loan with zero interest) for up to $50,000 to assist eligible homeowners with payments of arrearages, including delinquent taxes and insurance plus up to 24 months of monthly payments on their mortgage principal, interest, mortgage insurance premiums, taxes, and hazard insurance.

Weitz: Let me paraphrase for the government: “Come get your free money!” We will pay up to $50,000 of your arrearages and assist with future payments with a loan that is 1) secured by your property; but 2) NON-RECOURSE (this means that if you stop paying, they can not pursue you for the debt).

While I hate the ideology of the program because I truly think it simply 'kicks the can down the road' for many and there are considerable issues with ‘fairness’ in who qualifies and who does not, I would always encourage clients to take a $50,000 INTEREST FREE, NON-RECOURSE loan.

Looking big picture, I also hate the idea because the parties that benefits the most are the banks as they will be paid with taxpayer money IN FULL.

Below are the details of the program, its qualification, and other important issues.

Qualifications:

Income Thresholds: The homeowner a total pre-event household income equal to, or less than, 120 percent of the Area Median Income (AMI), which includes wage, salary, and self-employed earnings and income.

Significant Income Reduction: The homeowner has a current gross income that is at least 15 percent lower than the pre-event income.

“Pre-event income” is defined as the income prior to the onset of unemployment, underemployment, or medical emergency, while “current income” is the income at the time of program application, as well as income during the period that the homeowner continues to receive assistance from the fund.

Employment type: Both wage and salary workers and self-employed individuals are eligible.

Delinquency and Likelihood of Foreclosure: the homeowners must be at least 3 months delinquent on payments and have received notification of an intention to foreclose. This requirement can be documented by any written communication from the mortgagee to the homeowner indicating at least three months of missed payments and the mortgagee’s intent to foreclose. In addition, the homeowner can self-certify that there is a likelihood of initiation of foreclosure on the part of their mortgagee due to the homeowner being at least three months delinquent in their monthly payment.

Ability to Resume Repayment: Has a reasonable likelihood of being able to resume repayment of the first mortgage obligations within 2 years, and meet other housing expenses and debt obligations when the household regains full employment, as determined by: The homeowner must have a back-end ratio or DTI below 55% (principal, interest, taxes, insurance, revolving and fixed installment debt divided by total gross monthly income). For this calculation, gross income will be measured at the pre-event level.


Principal Residence: the homeowner must reside in the mortgaged property as principal residence. The mortgaged property must also be a single family residence (1 to 4 unit structure or condominium unit).

Termination of Monthly Assistance: Assistance is terminated and the homeowner resumes full responsibility for meeting the first lien mortgage payments in the event of any of the following circumstances:

1. The maximum loan ($50,000) amount has been reached;
2. The homeowner fails to report changes in unemployment status or income;
3. The homeowner’s income regains 85% or more of its pre-event level;
4. The homeowner no longer resides in, sells, or refinances the debt on the mortgaged property; or
5. The homeowner defaults on their portion of the current first lien mortgage loan payments.

Income re-evaluation: After initial income verification at application intake, the homeowner shall be required to notify the fiscal agent of any changes in the household income and/or employment status at any point throughout the entire period of assistance.

Forms of Assistance

Use of Funds for Arrearages: On behalf of the homeowner, the fiscal agent shall use loan funds to pay 100% of arrears (mortgage principal, interest, mortgage insurance premiums, taxes, hazard insurance, and ground rent, if any).

Homeowner Payments: Homeowner contribution to monthly payment on first mortgage will be set at 31 percent of gross income at the time of application, but in no instance will it be less than $25 per month.

Use of Funds for Continuing Mortgage Assistance: The fiscal agent will make monthly mortgage payments to the servicer of the first lien mortgage in excess of the payments made by the homeowner.

Duration of Assistance: If at any time the household’s gross income increases to 85% or more of its pre-event level, assistance will be phased out by the fiscal agent over a two month period. In any event, assistance with monthly payments may not continue beyond 24 months.

Repayment Terms

Transition Counseling: The designated counseling agent shall contact each homeowner that is approaching the last months of program eligibility and remains un/underemployed (3-6 months before the assistance ends) and require the homeowner to meet with a HUD approved counseling agent to explore other loss mitigation options, including loan modification, short sales, deeds-in-lieu of foreclosure, or traditional sale of home.

Repayment of HUD Note: Following the last payment on behalf of the homeowner, the fiscal agent will process the homeowner’s “HUD Note” and record a mortgage with a specific loan balance. The note and mortgage will be in the form of a five year declining

Repayment Terms

Transition Counseling: The designated counseling agent shall contact each homeowner that is approaching the last months of program eligibility and remains un/underemployed (3-6 months before the assistance ends) and require the homeowner to meet with a HUD approved counseling agent to explore other loss mitigation options, including loan modification, short sales, deeds-in-lieu of foreclosure, or traditional sale of home.

Repayment of HUD Note: Following the last payment on behalf of the homeowner, the fiscal agent will process the homeowner’s “HUD Note” and record a mortgage with a specific loan balance. The note and mortgage will be in the form of a five year declining 5 balance, zero interest, nonrecourse loan, and the mortgage shall be in the form of a secured junior lien on the property.

Terms for Declining Balance Feature: No payment is due on the note during the 5 year term so long as the assisted household maintains the property as principal residence and remains current in his or her monthly payments on the first mortgage loan. If the homeowner meets these two conditions, the balance due shall decline by twenty percent (20%) annually, until the note is extinguished and the junior loan is terminated.

Weitz – NO PAYMENT IS DUE FOR 5 years! In fact, it may never actually have to be paid back!

Events Triggering Note Repayment: The homeowner will be responsible for repayment of the applicable balance of the HUD note to the fiscal agent or its successor, if, at any time during the five year repayment period, any of the following events occur:

1. The homeowner rents out the property to a 3rd party;
2. The homeowner defaults on its portion of the current mortgage; or
3. The homeowner receives net proceeds from selling or refinancing debt on the home.

Net proceeds - after paying outstanding applicable brokers fees, first balances (and second lien balances, as applicable), and an allowance of $2,000 to the homeowner for relocation expenses when the home is sold -- will go towards paying down the HUD note. In the event that proceeds of a sale or loan refinance are not sufficient to repay the entire HUD note, the remaining applicable balance of the HUD note shall be considered to have been met, and the lien against the property shall be released.

Provisions for Underwater Homeowners: At all stages of the program, “underwater” homeowners2 will be encouraged to explore participation in short sale or short refinancing programs offered by their servicer and/or the federal government (i.e. Home Affordable Foreclosure Alternatives)3, which will not trigger repayment of the HUD note.

Note: Washington State received $56 Million dollars for this program!

For more information on your rights in Foreclosure or other alternatives, I would encourage you to discuss with a Seattle Foreclosure Attorney, or a Seattle Bankrutpcy Attorney.

Our Firm:
Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

425.889.9300

www.weitzlawfirm.com