by J. Craig Anderson The Arizona Republic Jun. 24, 2010 12:00 AM
A small number of Arizona homeowners facing foreclosure could receive significant aid - reducing what they owe by $100,000 or more - under a state-run program approved Wednesday.
The Arizona Department of Housing got a green light from Washington, D.C., for a plan to use $125 million, its portion of federal funds allocated in February to help the nation’s hardest-hit housing markets.
Arizona’s program could slash mortgage balances for 1,850 households, three-fourths of them in Maricopa County.
The approach is far too small in scale to stabilize the state’s housing market, officials said. But they hope it will spur further action from government and lenders on cutting mortgage principal to keep homeowners in their homes. The plan would go much further than existing government efforts in its attempt to make mortgages affordable.
The state will issue borrowers loans of up to $50,000 to apply to their mortgage balances. Their lenders will be expected to match or exceed that amount.
These “soft” loans would not likely have to be repaid, at least not in full, under the terms of the plan.
Homeowners would have to repay portions of the loans if the home appreciated or was sold during a 10-year period.
The program also would:
• Give lenders incentives of up to $5,000 to settle second mortgages for up to 1,500 homeowners.
Those loans have complicated many borrowers’ attempts to modify their mortgage payments or complete short sales, in which they sell for less than what they owe but avoid foreclosure.
• Give up to $12,000 in temporary aid to as many as 1,000 households that have suffered reduced incomes.
The plan, dubbed “Save My Home AZ,” is expected to launch in September.
As a trial run for potentially broader mortgage-relief programs, state officials said, it will blaze into largely uncharted loan-modification territory.
“What we’re hoping is that, if it’s successful, Treasury would provide more funding for it,” said Carol Ditmore, the Housing Department’s assistant deputy director of operations.
But with as many as 50,000 foreclosures expected to occur in Arizona this year, Save My Home AZ’s direct impact would be minimal, officials said.
It also shares some of the drawbacks that have plagued other government-run housing-relief efforts. It imposes strict eligibility requirements, meaning many homeowners at risk of foreclosure won’t qualify for help.
And its biggest hurdle is that it relies on the optional participation of lenders to match the cuts in principal.
Big mortgage lenders including Bank of America, which holds a significant portion of Arizona’s troubled mortgages, have largely refused to reduce principal for borrowers seeking loan modifications.
MaryJane Rogers, spokeswoman for Chase Home Lending, a JPMorgan Chase & Co. subsidiary, said the company had not yet decided whether to participate in the Arizona program.
“We are committed to helping customers avoid foreclosure and are currently reviewing the details of the Arizona plan,” Rogers said.
Ditmore said the Housing Department has engaged in several discussions with BofA, the country’s largest mortgage lender, adding that bank officials have expressed their willingness to reduce loan principal for eligible participants.
BofA did not respond to phone and e-mail messages seeking comment Wednesday.
The program comes relatively late in the foreclosure crisis.
It is scheduled to conclude in June 2013, according to a proposal the state Housing Department submitted to Treasury officials earlier this year.
That’s around the time many housing experts expect foreclosure activity to return to a historically normal level.
The $125.1 million in funding is part of $1.5 billion in Treasury Department funds.
Shared with California, Nevada, Florida and Michigan, the funding is known as the State Housing Finance Agencies “Hardest Hit Fund.”
Treasury officials plan to distribute an additional $600 million to North Carolina, South Carolina, Ohio, Oregon and Rhode Island to help states with unemployment rates exceeding 12 percent.