Topic:
FORECLOSURE; MORTGAGE LOANS; STATE AID;
Location:
FORECLOSURE; MORTGAGES;

OLR Research Report


February 21, 2008

 

2008-R-0121

PENNSYLVANIA HOMEOWNERS' EMERGENCY MORTGAGE ASSISTANCE PROGRAM

By: Soncia Coleman, Associate Legislative Analyst

You asked for information on Pennsylvania's Homeowners' Emergency Assistance Program.

SUMMARY

The Pennsylvania Homeowners' Emergency Mortgage Assistance Program (HEMAP) was created by statute in 1983 (Act 91, codified at Penn. Code 12 31.201 et seq.) and is run by the Pennsylvania Housing Finance Authority (PHFA). It is a loan program designed to protect Pennsylvanians who, through no fault of their own, are financially unable to make their residential mortgage payments and are in danger of losing their homes to foreclosure. (FHA Title II mortgages are ineligible for the program.) Since the program's beginning, 160,000 applications have been received and about 40,000 have been approved. Total disbursements equal $414.8 million and total repayments equal $233 million.

REQUIREMENTS

Pennsylvania requires lenders to send borrowers in danger of default an “Act 91 Notice” which informs them of HEMAP. Under the Act, borrowers are entitled to a 30 day temporary stay of foreclosure from the date of the notice. During that time the borrower must arrange and attend a “face-to-face” meeting with one of the consumer credit counseling agencies listed in the notice. According to the notice, once that meeting takes place, the lender may not take action against the borrower for 30 days. Lenders do not have to send this notice if:

1. the amount required to reinstate the mortgage exceeds $60,000,

2. the mortgage is more than 24 months delinquent, or

3. the property is not (a) used primarily for residential purposes, (b) located within Pennsylvania, (c) the principal residence of the mortgagor, or (d) a one- or two-family owner-occupied dwelling.

In order to qualify for HEMAP, the homeowner must be suffering financial hardship due to circumstances beyond his or her control (e.g. layoff or medical problem) and must have had a favorable credit rating before the delinquency. The person must have a reasonable prospect of resuming the full mortgage payments within 24 months. PHFA contracts with “counseling agencies” that provide counseling and education, and also help applicants prepare the HEMAP loan application.

If PHFA approves the application, a loan, secured by the property in question, is created to bring the payments up to date. If a homeowner qualifies for a non–continuing mortgage assistance loan, his or her mortgage is brought current to a specified date and the homeowner is responsible for making subsequent monthly mortgage payments to their lender along with a monthly payment to HEMAP. The homeowner may also be required to make a cash contribution toward the mortgage delinquency at the time the HEMAP loan closes. If a homeowner qualifies for a continuing mortgage assistance loan, his or her mortgage is brought current to a specified date and then HEMAP subsidizes the monthly mortgage payment to his or her lender.

All HEMAP loans are limited to a maximum of 24 months from the date of the mortgage delinquency, or to a maximum of $60,000, whichever comes first. HEMAP loan recipients are required to pay up to 40 percent of their net monthly income towards their total housing expense (with a minimum monthly payment/contribution of $25 per month per mortgage). The interest rate is nine percent. Additional information on the program can be found at http://www.phfa.org/consumers/homeowners/hemap.aspx.

FUNDING

According to Daryl Roth, the program's director, HEMAP is funded by state appropriation and loan repayments. The HEMAP legislation requires that the program not be funded from general PHFA reserves and is dependent on sufficient current fund balances for continued program operation. If sufficient funding is not available, PHFA is required to publish an announcement of program suspension and shut down the program until adequate funding is restored. Annual appropriations were largest in the first three years of the program's operation (about $25 million each year for FY 85 through FY 87). Later, that amount was reduced and between 1998 and 2004, the program received no state funding. In FY 2007-08, the program received $11 million and it has requested $13 million for FY 2008-09.

The program generally receives about $15 million in repayments annually. However, according to Roth, the mortgage crisis has impacted repayments recently, reducing that amount by about $3 million dollars. Annually, the program generally approves 2,300-2,500 new loans. (The program received 10,600 applications in 2007 up from 9,950 in 2006). It makes annual disbursements of $22 to 23 million. HEMAP costs $4 million to run on annual basis, with $1.2 million going to the counseling agencies that take the applications.

SC:ts