$1 billion in new help to flailing homeowners

This post comes from Marilyn Lewis at MSN Money.

The word (OK, two words) for today is: Get moving.

Homeowners have until July 22 to get pre-screened for a new, interest-free government loan intended to help delinquent homeowners stave off foreclosure. In fact, for those who play by the rules, the loan isn't really a loan -- it's a gift.

No reason is offered for the short deadline, only that the next four weeks are for "pre-screening" applicants. After that, presumably, selected homeowners will be allowed to apply.

The $1 billion in aid -- money provided in the Dodd-Frank Wall Street Reform and Consumer Protection Act (.pdf file) -- was announced this week.

"The program, known as the Emergency Homeowners' Loan Program, is expected to help up to 30,000 distressed borrowers, according to HUD," says The Washington Post.

That's about $34,000 apiece, on average. Sounds great, but of course there are plenty of caveats and qualifications.

Who's eligible?

Apply if:

• You're (involuntarily) unemployed or underemployed after losing a job or because of a serious medical condition.
• You're at least 90 days delinquent on your mortgage payments on your primary home.
• You've received a notice of foreclosure.
• Your income has dropped by at least 15%.
• You're likely to be able to resume home payments within two years.
• You meet the income eligibility criteria. Roughly, that's if your household income in 2009 was at or below $75,000 a year or 120% of the area median income for a household size of four.

These loans can become gifts

These "bridge loans" of up to $50,000 are "forgivable," says HUD. They appear to be carefully constructed to reduce the incentive for underwater homeowners to walk away from their homes.

Here's how the program works:

• Lucky approved homeowners will get one-time help to become current on overdue mortgage costs and make monthly (first lien) mortgage payments (including principal, interest, taxes, and insurance) for a maximum of two years or $50,000.
• The loan becomes a junior lien against the borrower's home. No payments on the loan are due for five years if the borrower stays current on mortgage payments and meets other requirements. After that, the loan balance is reduced by 20% a year until nothing is owed and the junior lien is eliminated.

The loans are available only in 32 states and Puerto Rico. Participating states: Alaska, Arkansas, Colorado, Connecticut, Delaware, Hawaii, Idaho, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Mexico, New York, North Dakota, Oklahoma, Pennsylvania, South Dakota, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.

Tips:

• You can fill out the pre-screening questionnaire beginning in the middle of this page.
• Look here to find eligibility requirements and application details for most states.
• Check here for help in Connecticut, Delaware, Idaho, Maryland and Pennsylvania.
• Here's a checklist of documents (.pdf file) you'll need to apply.
• To get help applying from an agency or counselor, go to the bottom of this page and choose a participating state. (It won't work if you select a state that's not in the list above).
• Call toll-free (855) 346-3345 or email ehlp@nw.org with questions.
• Or get help from a HUD-approved housing counseling agency.

Watch for fraud

Beware of fraudsters, who are bound to crop up like toadstools after a rain. ConsumerAffairs.com says that legitimate agencies won't phone you. You'll have to call them.

The rules require that you personally apply for the loan. In other words, if someone calls you, asks for advance payment and promises to apply on your behalf, you've hooked a con artist and you'd be a dope to participate.

On the other hand, ConsumerAffairs says, the actual, legitimate government program itself can sound a little fishy:

It may sound like a classic foreclosure rescue scam: a limited-time offer for a free government loan to save your home. But this time the offer is legitimate.

The rest of the states

You may be wondering: Why only some states?

The answer: Homeowners in the other states already are getting billions of dollars in help from the Hardest Hit Fund. Post continues after this video about Florida's Hardest Hit Fund.

Starting on Feb. 19, 2010, with $1.5 billion, that fund helps distressed homeowners in states with unusually high unemployment rates or home-price drops of more than 20%. Several more infusions of cash have plumped up the fund, for a total by last November of $7.6 billion.

These "hardest-hit" states are: Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee and Washington, D.C.

The Hardest Hit program has been useful for some homeowners -- here's the story of one Tennessee woman for whom it was a lifeline. Others find they're too far behind on their mortgage payments to qualify for help. (Hardest-Hit program rules and available money vary by state. Here's where to find the details for your state.)

More on MSN Money:

• 'Savvy' borrowers abandoning homes
• Find the lowest mortgage rates
• Are you foolish to pay your mortgage?
• Calculator:How much house can you afford?
• There's life after bailing on a mortgage
• Should you rent or buy?