After the housing crisis that began in 2007, jobs went away, household incomes went down, property values went down, and many homeowners became financially unable to stay in their homes. As homeowners became unable to pay back their mortgages, they often owed more on their mortgage than their home was worth. They were “underwater.”
Banks started taking homes to foreclosure at an unprecedented rate.
In 2010, the U.S Department of Treasury created the Hardest Hit Fund in response to the housing crisis.
Homeowners in some states were more affected by the financial crisis than others. The states with the largest number of affected homeowners received a portion of the federal Hardest Hit Fund. States were instructed to create programs using the Hardest Hit money to help homeowners facing foreclosure.
Hardest Hit money was divided up between 18 states and Washington D.C. States then developed programs using Hardest Hit money to try to reduce the number of borrowers facing foreclosure.
Arizona is one of the states that receives Hardest Hit money. They developed the Save Our Home AZ (SOHAZ) program to help Arizonans avoid foreclosure and/or reduce negative equity (the amount owed on a mortgage that is greater than the current market value of the property).
As of February 15th, 2016, over 4,200 homeowners in AZ had received assistance through SOHAZ.Types of assistance offered by SOHAZ Principal reduction assistance
The program is designed to encourage permanent loan modifications or refinancing. If you are close to qualifying for a permanent modification, the program may step in with a lump sum payment to help you qualify. The lump sum is usually used to pay down some of the principal owed so you can make a reduced payment.
If you’re approved for HARP 2.0 (a federal program) or other similar refinance options, SOHAZ may provide as much as $100,000 to help reduce the principal on your loan. The mortgage balance must be greater than 120% of the property’s Fair Market Value before modification or refinance. If it is under 120%, the home must have at least $20,000 negative equity.
The math sounds more complicated than it really is. Say you owe $150,000 on your first mortgage and $50,000 on your second mortgage. The combined balance owed would be $200,000. If the Fair Market Value of your home is $100,000, the combined balance owed is 200% of the property’s value. Since it only has to be 120%, you would qualify.Unemployment/Under-employment (Reinstatement) Mortgage Assistance (UMA)
SOHAZ recognizes that losing your job can cause a temporary period where you’re unable to pay your mortgage. They also know that many homeowners work on an hourly or contract basis. Hourly/contract jobs are often subject to temporary reductions in income. This assistance is designed to help homeowners who are going through a temporary time of unemployment or underemployment.
Homeowners who have some income may receive a monthly allotment from the program to help cover mortgage payments. The maximum you could receive is $2,000 per month for 24 months. If you are approved for UMA, you have to contribute 31% of your monthly income toward your mortgage payment.
For example, if you receive $3,000 in income per month, and you are approved for UMA, you will still have to pay 31% of your $3,000 toward your mortgage payment. You would pay $930 per month toward your mortgage payment. Assuming your mortgage was more than $930/month, the program would then cover the difference up to $2,000.
The UMA program does not consider unemployment income as income that should be relied on when determining whether you have to pay 31% toward your mortgage payment.
Part of the UMA program could also include reinstatement of your mortgage loan. Reinstatement means that the program would help pay past due payments including accrued interest, late fees, and legal fees to help the loan get current. They would reinstate by paying your past payments in a large lump sum.
You can qualify for both reinstatement and the monthly UMA mortgage assistance. However, if you qualify for reinstatement and the continued UMA monthly support, the cap on months of support is 12 months not 24 months and the reinstatement amount counts against the 12 months. That means if you are qualified for reinstatement as well as UMA monthly support, you can only receive 12 months’ worth of help. If the program pays six months of past due payments, you can only receive the monthly UMA support for six more months.
Notes: The maximum assistance you can receive from all SOHAZ programs is $100,000. If you receive $100,000 before the 24-month period is over, you won’t receive any more money.
Because of these limits, the UMA program is not designed to help people stay in their homes long-term. It doesn’t modify the original payments, it simply supplements them. If your hardship situation is temporary, this may be a good option. But if you can’t afford your mortgage for the rest of the life of the loan without the assistance of the program, it may be better to try to modify your loan first to see if you can get more affordable terms.Second mortgage settlements and extinguishments
If you have a second mortgage or Home Equity Line of Credit (HELOC), you may get up to $60,000 in assistance to get rid of that debt so you only have to pay your first mortgage in the future.
To qualify, your combined mortgage balance of the first and second lien must be greater than 120% of the home’s Fair Market Value—or, if the combined balance is under 120% of the Fair Market Value of the home, you must have a minimum of $20,000 negative equity. We can connect you with a real estate agent if you’re wondering what the Fair Market Value of your home is.
Example 1: If you owe $150,000 on your first mortgage and $50,000 on your second mortgage. The combined balance owed is $200,000. If the Fair Market Value of your home is $100,000, the combined balance owed is 200% greater than the property’s value. Since it only has to be 120% greater, you would qualify.
Example 2: Say you owe $275,000 on your first mortgage and $75,000 on your second, so the combined balance is $350,000. If your home is worth $300,000, the combined balance owed is only 117%, so you wouldn’t qualify using that measure. However, you’d still have $50,000 in negative equity (that is, the amount owed over the Fair Market Value) and could qualify because of that amount.
Settlement assistance for second mortgages can provide up to 40% of the outstanding loan balance, up to $8,500. This program is available in combination with Short Sale Assistance.
Short sale assistance
If you decide it’s best to leave your home, this program offers short sale assistance. Short sales are designed for underwater properties. Selling a home short helps homeowners settle their full mortgage from the proceeds of the sale.
Say you find a buyer to make a purchase offer on your home. If they offer $100,000, this program may agree to pay the buyer 3% of $100,000 to help them pay for some of their closing costs. The buyer would receive $3,000 at the close of the transaction to assist with their fees. The theory behind this assistance is that buyers may be more likely to stay with the transaction if they are going to get some money at closing. SOHAZ may also provide a maximum of $4,500 in relocation costs to the seller.
Note: There is an assistance cap of $25,000 for short sales.
Potential issues: It is unclear who actually negotiates the short sale when you work with SOHAZ. Lenders must approve a short sale, meaning that they agree to your purchase price, your buyer and all fees associated with the loan. The short sale negotiation process can be tricky. The offer has to be in line with the property’s Fair Market Value. Second mortgages and any junior liens all have to be negotiated simultaneously during the short sale negotiation. Having this financial assistance is a great first step, but it only matters if the short sale can be approved and closed. Oftentimes, the negotiation process itself is where you truly need assistance.How to qualify for SOHAZ programs
You need to fit a set of requirements to qualify for help from SOHAZ.
Your home must be and owner-occupied primary residence in Arizona. Only single family residences, one to four unit dwellings, condos or townhomes qualify. The program does not apply to second homes or investment properties.
If approved for assistance, you will receive a loan that will be forgiven after the successful completion of the program. In other words, you won’t have to pay the money back as long as you make it through the program.
There is an overall assistance limit of $100,000 per household.
There are five main eligibility requirements. (Please note that there may be other eligibility requirements that aren’t made public. The housing counselor from SOHAZ will go over additional requirements in detail with you after you submit your application.)
- You are no less than 30 days away from a foreclosure sale date. Applying for the program takes time. You likely won’t pass the application process if you’ve left yourself less than 30 days before your foreclosure sale date. Be proactive. Apply as soon as possible.
- You are either two payments past due or at risk for “imminent default.” If you are two or more payments past due, you will likely be eligible. You may also be eligible if you can prove that you are about to experience a true financial hardship. Examples include being laid off effective on a certain day, retiring, medical bills coming due, etc.
- Your current mortgage payment is more than 31% of your monthly income. The federal government says that stable households should have 70% of their monthly income left over for other expenses after the mortgage is paid. If your mortgage payment is more than 31% of your monthly paycheck, you likely qualify for assistance.
- This means if you make $3000 per month, your mortgage payment should be $930 or less for you to be able to pay your additional expenses. If it is more than that, you would likely qualify for SOHAZ.
- You are able to document a financial hardship that affects more than 10% of your income. You will need to present information that shows you have undergone a true financial hardship. Common hardships are reduction in employment, divorce, death of a spouse or illness. Directly connect your hardship to your financial situation. Use numbers to demonstrate how the hardship has reduced your ability to earn.
- For example, you would say, “My wife contributed $1,500/month to our household income. We are now divorced and my household income has been reduced by $1,500.”
- Your household income is no more than 150% of the median income for your county. The program has to be sure that you aren’t taking advantage of a program meant for people who truly are struggling to make ends meet. You have to show that you make around the average income—or less—for people in your area. If you make much more than that, you may not qualify.
How to apply for SOHAZ programs
To apply for the programs listed above, you will be required to fill out this intake sheet. A housing counselor will respond to you within seven days to help determine whether you’re eligible.What else you should know about SOHAZ
While this program is generally good for homeowners and looks quite generous, it still leaves a large percentage of homeowners facing foreclosure.
The most recent quarterly report issued by SOHAZ shows that a total of 422 homeowners were denied assistance under the program. Only 154 homeowners were admitted for the entire quarter.
Since the program’s inception in 2010, they have denied 11,789 homeowners from the program out of 16,008 applicants.
This likely means all the requirements for participation in SOHAZ aren’t public, since only about one in every four applicants have been allowed into the program. It doesn’t appear SOHAZ used all of their allotted federal funding, so we are left to wonder why the denial numbers are so high.
In light of the high denial rate, we recommend that you be prepared for a grueling application process. We also encourage you to have conversations about your options with other support networks and attorneys, in the event SOHAZ doesn’t accept you into their program.
It is also unclear what type of support the program offers for negotiating with lenders.
Oftentimes, communicating with your lender is the most difficult part of dealing with mortgage issues. If you choose to participate in SOHAZ, make sure that your housing counselor is going to provide you 100% support for all lender communication.
The program also allows lenders to opt out. Being accepted into the program does not mean your lender will work with you or SOHAZ. Make sure the housing counselors working for you are capable of presenting the strongest argument to your lender so they accept your proposal.
Right now, applying through SOHAZ is the only way for Arizonans to receive Hardest Hit Fund money, and it appears the program can only be accessed through Arizona’s housing counselors.
We hope that the government will consider opening the program up to allow for direct applications.
The information presented here isn’t tailored legal advice. We would be happy to help you with your specific situation. Please call 1-800-603-3525 right now, or fill out this form for a free consultation with one of our attorneys.