CARSON CITY, Nev. (AP) — A pilot program launched Friday in Nevada aims to help struggling homeowners reduce loan amounts and refinance if they are current on their mortgage payments but owe more than their homes are worth.
Under the program announced by Gov. Brian Sandoval, the state will use federal housing money to provide up to $50,000 to qualified borrowers who then refinance at lower interest rates under the federal Home Affordable Refinance Program.
"Principal reduction combined with mortgage refinancing will mean hundreds of dollars returning to the pockets of homeowners," said Terry Johnson, director of the Nevada Department of Business and Industry. "This effort represents our continued focus on combating the worst housing crisis seen in a generation and in the state hit hardest by it."
The program comes after months of negotiations with federal mortgage giants Fannie Mae and Freddie Mac, the U.S. Treasury Department and the Federal Housing Finance Agency.
Previous discussions in Nevada to include loan reductions fell flat because they required a dollar-for-dollar match by lenders, said Lon DeWeese, chief financial officer for the Nevada Housing Division.
So state officials proposed using some of the $194 million Nevada received two years ago as part of the federal Hardest Hit Fund — money to help states hardest hit by the Great Recession — to write down loan balances.
DeWeese said about $75 million was set aside for principal reduction, but the state could seek permission to use more of the total fund down the road.
He projected the number of people eligible "will be far in excess of what we will be able to fund."
The program is being launched in Clark County, ground zero for Nevada's housing meltdown, where a once red-hot building boom went bust and thousands of construction workers lost their jobs in the Great Recession. Regulators estimate 67 percent of homeowners there owe more on their homes than they are currently worth.
The program is limited to owner-occupied homes with mortgages that originated before May 31, 2009 and are backed by Fannie Mae or Freddie Mac.
A homeowner's mortgage balance must be at least 115 percent of the value of their home and cannot exceed $729,750. Additionally, family income cannot exceed 150 percent of median income for the area. In Clark County that income threshold is $99,000 for a family of four.
Homeowners who meet those criteria will receive an information packet and application from the state.
"We are looking for underwater borrowers who have some sort of stress maintaining their current mortgage," DeWeese said. "This is not aimed at people who have a second or a third home that they're trying to keep up with while they're having problems keeping up on their own home mortgage."
DeWeese said according to CoreLogic, a company that analyzes mortgage data, the average homeowner in Clark County is about $50,000 upside down on their mortgage.
Those people, he said, would substantially benefit from the new program.
"What we will not do is create equity for somebody," DeWeese said, "but we will help them get closer to parity."
Associated Press writer Sandra Chereb can be reached on Twitter at http://twitter.com/sandrachereb