The $100,000 mortgage discount for California homeowners

Finance
#1

Hi folks ,

Might as well make my first post a big one! I’ve been helping friends and family take advantage of the Keep Your Home California $100,000 principal reduction program .

It works by applying up to $100,000 of state Hardest Hit Fund money toward your mortgage , your loan servicer then recasts your mortgage based on the new reduced principal amount , so that you end up with a much lower payment .

Qualification is fairly simple and you can qualify even if you’re not underwater and not in default ! but it takes some legwork - you cannot apply online and need to work with a loan counselor . You must fit the program criteria , meaning your first mortgage , taxes and insurance must be greater than 38% of your income to demonstrate your financial hardship .

The $100,000 is structured as a silent zero interest lien on the property that has a portion forgiven at set intervals , until it’s completely forgiven . If you sell before its forgiven , you’ll need to repay the lien

If anyone has questions or had already benefitted from this program feel free to post . Remember the first step is making sure your income figures qualify then contacting a housing counselor that can be found from the KHY official website

http://keepyourhomecalifornia.org

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#2

Here are the terms. Looks like you can get up to $100k over 10 years, 1/3 half way and 2/3 at the end, if you follow the rules.

Seems like a good deal if you can meet the income rules. Any asset tests I missed?

(Side note - a hot deal, but with the consequence of propping up home values in CA. Aren’t the locals often complaining about how overpriced things are? Stuff like this feels good, especially if you are the one getting a free $100k, but it’s inflationary)

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#3

Great deal SIS, had not heard of this.

xerty, I completely agree that this has problems as policy. You point out it props up housing prices…it also discourages honest income reporting, earning raises, or getting second / side jobs.

Our apartment developments have similar incentive problems. In return for substantial property tax breaks, some of our units are “income restricted”, I’m not objecting to the general formula of “tax breaks for affordable housing”…but it shouldn’t encourage people to park within a narrow income band to either stay in their home, or suffer a sizable rent increase.

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Living comfortably with "unaffordable" housing costs
#4

It looks like I could qualify, but only if I have had a financial hardship. This may require some creative thinking. Any suggestions? I haven’t had too many medical bills, just orthodontist and a root canal a few weeks ago. My pay is pretty consistent, working 40 hours a week.

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#5

It looks like treasury.gov has a link to a few states… I haven’t checked them out for accuracy: https://www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/Pages/Program-Documents.aspx

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#6

There are a lot of ways to claim hardship - decrease in income , increase in expenses , death or divorce in family , caring for a newborn or elderly relative in the home , I’m really surprised if every person out there doesn’t have some type of "hardship " in their living situation . That’s probably the easiest criteria to meet out of all the criteria (main one being that your Piti in your first mortgage exceeds 38% of your monthly income )

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#7

So long term, if many people do this, home valuations will effectively take a $100k boost roughly no?

If that’s the case and incomes do not follow, it then becomes increasingly common to spend more than 38% income on housing, thus perpetuating the cycle until every borrower gets a $100k subsidy. How is this sustainable as the program scale up? I mean someone has to foot the bill for the forgiven debt eventually.

I’d definitely use this if I could but kinda worried about what happens if/when the system goes bankrupt.

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#8

CA has a lot bigger bills to worry about in their pension obligations than giving out what might be at most $10k/distressed homeowner/year. Sure it’s bad policy, but there’s plenty of that to go around (federal education lending and forgiveness anyone?). In the meanwhile, apparently the CA politicians want you to work for a personal corp that retains your profits and only pays out enough to qualify for things like Obamacare and mortgage modifications… who are we to question their wisdom?

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#9

As of right now, and for the past several years , there have only been about 150-200 approved applications each month for this $100,000 principal reduction program (I expect that number to increase dramatically now that I’m publicizing it to a group of people who will actually do the legwork to apply )

It’s not going to change the housing price landscape because so few people are taking advantage of it

Because it’s not a simple online application and you need to apply through a housing counselor and provide substantial documentation , most average people just don’t have the motivation and discipline to follow through , that’s why I’ve been helping my friends and family through the process

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#10

SIS, do you know offhand what penalties apply if an app is deemed frivolous or fraudulent, and whether the agencies screen aggressively for such apps?

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#11

This is interesting, i know where this is heading

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#12

Thanks for posting this SIS - never heard of the program. Forwarded it to my parents to check out - they are in a low income bracket, but unfortunately, my name is also tied to the mortgage in addition to theirs and I’m in a high(er) income bracket. It’s technically their home, but I’ve been helping out with the mortgage payments as they are unable to do so. I have a feeling this would disqualify us (me being on the mortgage) but we may make an appointment with a counselor to see what they say.

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#13

Dave , if they think your application or hardship doesn’t qualify they simply deny you . I don’t think they verify your stated hardship , that would be too invasive

They do verify your income and assets though. you need to provide substantial documentation (tax returns , complete bank statements , etc ) . I imagine the penalties for falsifying those documents would be the same as any other loan fraud case, since you are esentially applying for a zero interest loan that gets forgiven after a period of years . You are required to sign a promissory note and deed of trust , just like with any other loan transaction .

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#14

It’s not clear to me what happens if your income increases after being approved. If you fit the initial criteria and get a job promotion, are you kicked out if you start making too much money?

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#15

No , once you qualify for the assistance , it is applied to your first mortgage balance , and a deed of trust is recorded against the property for the amount of the assistance . It works Just like any other second lien.

the money is "clawed back " only if you sell the home or it ceases to be your primary residence or you lied on the application .

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#16

Wow, thank you. I think this may actually help me.

Does this apply to new home buyers? I am currently looking.

I think I might qualify. My income tax last year was 90k. I didn’t work most of this year… so my income will be 40k on this year’s tax returns. I am currently making about 10k per month.

Thank you so much for posting this.

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#17

No this does not apply for new home purchases , it is for people who have faced a hardship keeping up with their existing mortgage , such as a decrease in income or increase in expenses .

Also they will require current pay stubs , not just last years taxes. So if you bought a home now and applied for help sometime in the future they would look at your current 10k a month income, not just what was on the tax return

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#18

does owning secondary homes automatically disqualify the applicant?
logic says no but I just want to know.

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#19

No it doesn’t disqualify you

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#20

It’s not clear what assets they look at. I know retirement accounts don’t count, but what about a 529 plans or an HSA?

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