Use of TARP FundsOptions for State Housing Finance Agency Use of TARP Funds within the Program
TARP State Housing Support funds can be used several ways within the Program. If a State Housing Finance Agency determined to implement the Mortgage Crisis Solution Program, it would have several choices on how best to use the TARP housing support funds it will receive:
1. The TARP Funds can be used to capitalize a State Insurance Fund that would, thereafter, run on a zero-subsidy basis. This may need specific case-by-case Treasury approval since this use may be outside what is specified in the current Treasury Hardest-Hit Fund Guidelines.
2. The TARP funds can be used to pay some or all of the monthly payment for Homeowners that fit specific criteria, such as being unemployed. For example, a one or two year term Home Certificate could be used to reduce the interest rate that an unemployed Homeowner would pay on the Time--Out Mortgage to below 1% annually. Since TARP Hardest-Hit Fund (HHF) Guidelines specify assistance to the unemployed as a permitted use of the HHF, the HHF can be used to either fully fund or subsidize the interest payment for the unemployed Homeowner. Since default will not occur if HHF monies are used to pay the monthly Home Certificate interest to the Investor, monthly insurance premiums can be waived while the Homeowner is unemployed.
3. The TARP funds can be used to pay a portion of the balance of existing loan during the bidding process. This would reduce the amount the Investor’s principal amount. An example of the way this would work is:
$200,000 existing mortgage
$ 20,000 TARP funds to reduce balance
$180,000 required investor amount to pay off balance of existing loan
Each State that implemented this option 3 would need to determine how to allocate the TARP funds over the Homeowners that would be helped.
4. Any combination of choices 1, 2, or 3 above in appropriate amounts.
The Program is just a financing framework, wrapped by a insurance fund with premiums developed within the Program itself, that permits market forces to be used to create the principal funds to pay off the balance of the existing mortgage loan in full or at the maximum amount that the Servicer believes it will be able to obtain without legal proceedings. To the extent that a Servicer accepts less than the balance of the existing mortgage, Deferred Recapture Amount is determined which will be paid (unless reduced as implemented) upon redemption of the home from the Program.