$1 Billion for Delinquent Borrowers

The Emergency Homeowners Loan Program was implemented through the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The program provides a declining balance, deferred payment bridge loan for qualified borrowers, a summary of the program released Monday by the U.S. Department of Housing and Urban Development said. Up to $50,000 can be used to pay upcoming and past-due mortgage payments, taxes and insurance (hazard and mortgage insurance). The non-recourse, subordinate loan has a zero interest rate.

The housing agency hopes to begin accepting applications for the program by the end of this year.

The borrower must contribute the greater of 31 percent of gross income or $25 to the monthly first mortgage payment. No payment is due on HUD’s note during the five-year term as long as income doesn’t change.

The funds are intended for areas not already being funded through the U.S. Department of the Treasury’s Innovation Fund for Hardest Hit Housing Markets program. States will receive allocations based on their “approximate share of unemployed homeowners with a mortgage relative to all unemployed homeowners with a mortgage.” Local geographies will be tartgeted if they have “suffered the most.”

Qualified borrowers cannot have earned more than 120 percent of the area’s median income before their incomes were reduced by at least 15 percent. The owner-occupied loans need to be three months past due, and a notice of foreclosure must have been filed — though borrowers facing imminent foreclosure might qualify.

The borrower must demonstrate an ability to resume payments within two years on the first mortgage. The maximum back-end debt-to-income ratio based on pre-event income is 55 percent.

The monthly assistance will be terminated if the borrower fails to notify HUD of a change in income or employment or if the borrower regains 85 percent of pre-event income. Moving out of the house or defaulting on their portion of the first-lien payment will also cause termination of payments.

As long as the borrower occupies the property as a primary residence and the first mortgage remains current, HUD will reduce the principal balance by 20 percent a year until the junior note is extinguished.

But if the borrower moves out, defaults on the borrower’s portion of the first-mortgage payment or receives any proceeds from a refinance or sale — the balance of the note becomes due and payable. The balance will be extinguished, however, if a short-sale occurs.

Of the program’s $1 billion in funding, $135 million is targeted for Texas, $112 million is headed for New York and $106 million will be provided to Pennsylvania. Another $61 million is going to Massachusetts, while Washington and Minnesota will each see around $56 million.