Lots of people will want to get in on this one: California is going to use federal money to pay down the mortgages of struggling homeowners.
The California Housing Finance Agency announced Wednesday that it will spend $420 million to trim individual mortgages by up to $50,000. Lenders will be asked to match the amount, a deal that could make thousands of mortgages newly affordable across the Sacramento area.
The program, launching Nov. 1, will be run on a first-come, first-served basis, said Evan Gerberding, marketing manager for the CalHFA's "Keep Your Home" initiative.
"Unfortunately, there will likely be more demand than funding," she said.
Specifics on the selection process are still in the works. But CalHFA will exclusively fund applicants from low- to moderate-income households. In Sacramento, that's expected to mean people earning less than $68,000 a year. Borrowers will have to be delinquent or in imminent danger of defaulting, but have adequate income to continue paying after getting the help.
Gerberding advised people to keep checking the Keep Your Home website for applicant criteria to be posted later. She said people struggling to make payments shouldn't wait for the program to start, but should contact lenders and loan counselors now.
Thousands of Californians who meet the income guidelines will want in, but one fact will block many.
"This is to help people with purchase loans," Gerberding said Wednesday.
That rules out borrowers whose troubles began with cash-out refinances when their homes were worth more than now. Gerberding said exceptions may be made for people who refinanced to get lower interest rates. The program also requires that homeowners live in the house they mortgaged.
For years, federal and state governments have rolled out programs to stimulate loan modifications, and most have proved disappointing. California's new program is one of the first large-scale attempts at wholesale "principal writedowns," where loans are shrunk to more closely match today's home values.
"We think it's encouraging that they took on principal reduction in the way that they did, devoting most of the resources to it," said Kevin Stein, associate director of the California Reinvestment Coalition.
The low-income advocacy group has campaigned for principal reductions since 2007.
"That's the real need in California, to address the negative equity of borrowers being underwater," Stein said.
CalHFA, the state's affordable housing bank, estimates it will help 40,000 or more households avoid foreclosure with principal writedowns and other plans unveiled Wednesday. In all, the agency received $700 million for the relief programs, part of a $1.5 billion federal initiative to curb foreclosures in the hardest-hit housing crash states.
"We anticipate offering this over the next three years," Gerberding said.
The agency will also spend $129 million providing up to $15,000 to help people catch up with late payments.
An additional $64 million will provide the unemployed up to $1,500 a month to pay the mortgage for six months.
Finally, homeowners will receive up to $5,000 to move when they cannot afford the mortgage under any circumstances.
In all, the program will steer a maximum of $50,000 to qualifying households to avert foreclosures.
The CalHFA manager said there is no geographical quota. But help will roll first to hardest-hit counties, including much of the Central Valley.
"There are thousands who could benefit," said Pam Canada, executive director of Sacramento nonprofit loan counselor NeighborWorks Homeownership Center.
Gov. Arnold Schwarzenegger pledged Wednesday to work with CalHFA "to ensure that these programs are implemented in a way that assists the greatest number of Californians."
CalHFA hopes banks will match the $700 million.
"We're asking lenders to come to the table with us on this," Gerberding said. "We can't force them to do that. But many of them have indicated they are happy to do that," she said.
Gerberding said CalHFA will add fewer than 10 new staff members to run the program. Administrative costs are estimated at about $52 million – 7.5 percent of the funding.
More information is available at the Keep Your Home website: www.keepyourhomecalifornia. com; or call (916) 373-2585.