Keep Your Home California Revises Rules

Keep Your Home California program revised rules take effect Monday, November 4th.

Program criticized for not spending more of the $2 billion it got in 2010. As of Sept. 16, it had given out $402 million, about 20 percent.

Loan servicers are not required to participate in the Keep Your Home California program.

The California program provides four types of assistance, including principal reductions on underwater mortgages and payment assistance to the unemployed.

It has relaxed its rules many times since it launched in January 2011. At first, homeowners were excluded if they had taken cash out of their home via refinancing or a home-equity loan. That restriction was later scrapped.

And it originally required loan servicers to match, dollar for dollar, any principal reduction the program awarded to homeowners. It dropped the matching contribution requirement in 2012, which paved the way for principal reductions on loans backed by Fannie Mae and Freddie Mac.

Even so, as of Tuesday the program had provided only $136 million in principal reductions on 2,456 loans.

The program has different, complex rules for each of its four types of assistance. To qualify for any of them, a homeowner's household income cannot exceed a limit for their county ($123,600 in San Francisco), but there is no asset limit. The unpaid principal balance on their first mortgage cannot exceed $729,750.

Here's a look at the two Keep Your Home programs undergoing changes Monday:

Unemployment Program:
For unemployed borrowers, the program pays 100 percent of their mortgage, up to $3,000 per month, for up to 12 months. Homeowners must be receiving unemployment benefits, or have exhausted their benefits within 30 days, when they apply for assistance.

If they later exhaust their jobless benefits, they can finish out their 12 months of mortgage assistance as long as they remain unemployed or underemployed. On Monday, the program will make it clear that if a person is on unemployment but takes a part-time or temporary job, it will not jeopardize mortgage assistance.

Unemployed homeowners need not be underwater to get this help, but the payment on their first mortgage cannot exceed 31 percent of gross monthly household income.

Under current rules, homeowners could not qualify if they had received a notice of default. Starting Nov. 4, they could qualify as long as they apply at least 30 days before a notice of sale is filed.

Principal Reduction Program:
For underwater homeowners who owe more than 105 percent of their home's value, the program will provide up to $100,000 to reduce their loan-to-value ratio to 105 percent.

Under current rules, homeowners must document a financial hardship, such as a layoff, divorce or medical bill, to get this help. The documentation requirement will be scrapped Monday, but only for borrowers with a loan-to-value ratio exceeding 140 percent. "We believe if you are that severely underwater, that is a hardship," says Diane Richardson, the program's director.

The program will reduce a homeowner's first-mortgage balance by up to $100,000 to get the loan-to-value to 105 percent and the payment to less than 38 percent of monthly income.

Under current rules, if $100,000 is not enough to reach those milestones, the homeowner can get a principal reduction only if the servicer modifies the loan in some way - such as forgiving principal or reducing the interest rate - to get the payment below 38 percent.

That has been a problem for some borrowers because they already got a modification and are paying the lowest rate possible, or their loan is a type that cannot be modified (such as Federal Housing Administration or Veterans Affairs mortgages).

For those borrowers, the program will no longer require a loan modification on Monday. It will simply pay up to $100,000 to reduce the balance to as low as 105 percent of value, but the borrower's monthly payment will not change, provided their payment is less than 38 percent of income.

If a borrower receives assistance, the state will place a lien on the property for five years (if it got a principal reduction) or three years (for other assistance). If the home is sold while the lien is in place and there is equity, the assistance must be repaid. No repayment is required after the lien is removed.