As it races to spend nearly $2 billion in federal funding before it expires, the state’s main program to help struggling homeowners is loosening its rules to allow those who simply owe far more than their homes are worth to have their mortgages slashed by up to $100,000.
Previously, homeowners who applied for Keep Your Home California’s Principal Reduction Program had to prove a hardship such as a death in the family or job loss. Now, just owing at least 40 percent more than a home’s value can qualify as an economic hardship.
“We never before recognized negative equity in and of itself as a hardship,” said Diane Richardson, head of Keep Your Home California. “We are now recognizing that if your loan-to-value ratio exceeds 140 percent, that is your hardship. It’s going to require lot less documentation from homeowners.”
Richardson said the agency does not have a solid estimate of how many homeowners might be helped by the changes. With home prices rising across the state, many properties have been lifted into positive equity. But in parts of the Central Valley and elsewhere, many people still remain badly upside-down on their mortgages.
Premium content for only $0.99
For the most comprehensive local coverage, subscribe today.
The latest change is another in a series of ongoing efforts to broaden Keep Your Home California’s programs and speed the distribution of $2 billion in federal dollars allocated to the state. The funds were part of a federal program meant to help residents of the states hardest hit by the mortgage meltdown.
In the nearly three years since its founding, Keep Your Home California has been criticized for its slow distribution of the funds, which could revert to the federal government if not spent by 2017. But the agency has also been working to eliminate barriers.
Getting lenders on board with its principal reduction program, including Fannie Mae and Freddie Mac, has been a major hurdle. Now that those mortgage giants and many banks are participating, officials say they are hopeful the money will flow faster.
So far, about $450 million has been distributed to help 32,000 homeowners, Richardson said.
State lawmakers say they are keeping a close eye on the situation in case further legislative changes are needed.
Assemblyman Roger Dickinson, a Sacramento Democrat who is chairman of the Assembly Banking and Finance Committee, said he and other lawmakers are “dedicated to making sure all of that $2 billion goes to help California homeowners.”
Dickinson led a joint hearing last month with the Assembly Committee on Housing and Community Development to hear from officials with the California Housing Finance Agency, which oversees the Keep Your Home California.
He said housing officials expressed “100 percent” confidence that the funds would be spent by 2017, but added that “the proof is in the pudding.”
“The distribution of funds has been very slow,” he said. “We’ve had $2 billion and three years to the get money out, and less than $500 million has been put out in the market to help distressed homeowners.”
In addition to principal reduction, Keep Your Home California also offers programs to help those who are receiving unemployment benefits and homeowners who have fallen behind on payments. For more information go to keepyourhomecalifornia.org or call (888) 954-KEEP.