September 14, 2011|By Mary Ellen Podmolik, Tribune reporter
Unemployed and underemployed homeowners in the Chicago area could soon receive up to $25,000 in mortgage help under a $345 million federally funded program that will be announced Thursday by the state of Illinois.
The "hardest hit" fund, which carries a long list of eligibility criteria, may provide the only relief of its kind for as many as 15,000 struggling homeowners who may have been rejected by other assistance programs, officials said. It is aimed at Illinois residents whose incomes have fallen by at least 25 percent, providing a 10-year, forgivable loan to bring them current on delinquent mortgages and then keep them current for up to 18 months.
If all criteria are met, homeowners do not have to repay the loan.
Unlike the Obama administration's loan modification program that has been roundly criticized for not reaching the millions of people it promised hope to, the hardest-hit funds will make a difference by providing "absolute relief" for qualified homeowners, said Mary Kenney, executive director of the Illinois Housing Development Authority. That's because mortgages will be made current without the missed payments and fees tacked onto the end of a mortgage.
"It's a big dent," she said. "The reality is the (foreclosure) problem is bigger than any (one) of us can solve. (The program) can do a lot in the short term."
Eighteen states and Washington, D.C., received mortgage relief funds under the hardest-hit program, an initiative announced by President Barack Obama in February 2010 to help states most affected by the economic downturn. Specifically, states were selected if their unemployment rates were higher than the national average or their home values declined more than 20 percent.
Illinois' unemployment rate remains stubbornly high, at 9.5 percent in July, higher than the national average. Meanwhile, home values in the Chicago area have fallen 31 percent since they peaked in September 2006, according to the S&P;/Case-Shiller home price index.
States were given some latitude in September 2010 in how they administered the funds, and the housing development authority, which is handling the program in Illinois, is the last to get its program off the ground. About $295 million will go directly to consumers in financial assistance, with the rest for program administration.
"We took a very deliberate approach," Kenney said. "It's a program that, frankly, is unlike anything this agency has undertaken. It was an amazing amount of infrastructure. A lot of states launched without carefully setting up that infrastructure."
Like elsewhere, Illinois' program is expected to have mixed results because of a stringent list of eligibility requirements.
The program is tailored to low- and moderate-income households that owe no more than $500,000 on their mortgages and have either a fixed-rate or adjustable-rate loan; annual household income must be at or below 120 percent of the area median income. Homeowners in foreclosure may be eligible for assistance, but lenders may reject the program in cases where the foreclosure is almost completed. Also, homeowners can apply for assistance if they are denied for the federal Home Affordable Modification Program, but they are not allowed to receive a trial loan modification and hardest-hit funds.
The program does not provide assistance for second mortgages. Nor will it assist cases in which the name on the home's title and the mortgage are different. In other words, if the mortgage carries the name of a co-signer who is not on the title and whose primary residence is elsewhere, the application will be rejected, according to the guidelines.
The three largest servicers, JPMorgan Chase, Bank of America and Wells Fargo, all confirmed on Tuesday their participation in the program. While no servicer has refused, state officials continue to negotiate with others. Kenney said she expects most mortgage investors to support a program in which a loan is kept current and regular payments are made.
Earlier this year, the state conducted a pilot of the program, relying on word of mouth from local housing counselors. On July 25, the state quietly went live with a Web portal for applications. As of Monday, 5,200 homeowners had applied for assistance, half of them from Cook County, and 74 percent of homeowners passed the initial prescreening.
Of the 915 cases that have moved to underwriting, 95 have been declined, 24 have been funded and the state is negotiating with servicers in another 150 cases. The rest are somewhere in the approval process, and, as a result, $605,000 has been committed to date, said IHDA chief of staff Bryan Zises.