TheArizonaForeclosurePreventionFundingCorporation
HelpfortheHardestHitHousingMarkets
(“HFAHardest‐HitFund”)
ProposalforuseofHFAHardest‐HitFund
SECTIONONE
In order for the state ofArizona to receive $125.1 million, its allocated portion of the Help fo r
the Hardest Hit Housing Markets (“HFA Hardest‐Hit Fund”) through the United States
Department of Treasury (Treasury), the Arizona Foreclosure Prevention Funding Corporation
(the Corporation) has been established under state law. The state of Arizona Department of
Housing (ADOH), on behalf of the Corporation, is submitting this proposal to provide a
Programthatwillmeettherequirements oftheHFA Hardest‐HitFund,withtheprimarygoal
ofpreventingforeclosures.
A.PROPOSED PROGRAM.The SaveMyHome AZProgram(alsoreferred to asSave My
HomeAZortheProgram)hasbeencreatedinordertohelp homeownersavoidforeclosureon
their primary residence in the state of Arizona.This will be accomplished by identifying
working families who are facing foreclosure and could afford a mortgage that reflects at least
100 percent of the property’s current value or more. Benefactors of the Program must meet
certainrequirementsincludingel igiblehardship,propertytype,loanbalance,incomeleveland
otherconditions.
TheProgramincludesthreecomponents:
• Permanent Modifications. Applicants must demonstrate personal responsibility. Their
inabilitytopaytheirmortgagemustbetheresultofanapprovedhardship.Modification
efforts could include a principal reduction, a rate decrease, and/or a term extension to
achieve a monthly payment that does not exceed 31 percent of the homeowner’s
monthly income.For a principal reducti on, the principal balance must exceed 120
percent of present market value of the home. The homeowner could qualify for a
maximumcontributionof$50,000,matchedbythelenderandforgivenoveraperiodof
time.
• SecondMortgageSettlements.Assistancetoremovesecondmortgageswhennecessary
tomodifythetermsoftheprimaryloanwillbeprovided.Thevalueofmanyoftheloans
iszero.However,becauseofthecombinedloantovalue(CLTV),thesemortgagescreate
an increased risk of re‐default. As a result, they reduce the primary lender/servicer’s
willingness to modify the primary mortgage. Additionally, and equally as important,
theycontributetoahigherre‐defaultrateforconsumersthatdoreceiveafirstmortgage
loanmodification.
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• TemporaryModifications/MortgagePaymentRelief.Assistancetopre‐payaportionof
mortgageloanpaymentsforapre‐determinedamountoftime(e.g.,upto24months)to
giveunderemployedhomeownersreliefwhiletheyareactivelyseekingtobecomemore
meaningfully employed. In some instances, this will be all the aid that is needed. In
other cases, households may be eligible for a permanent modification if they become
adequatelyemployedwhilereceivingtemporaryreliefassistance.
Theanticipatedbreakdowninfinancingusesbetweenthesethreeareasisoutlined
below:
ProgramComponent
Numberof
Households
Costoraverage
perTransaction
Total
Percentageof
Program
Funding
PermanentModificationAssistance
1,848 $50,000.00 $92,400,000
83
SecondMortgageSettlements
1,500 $5,000.00 $7,500,000
7
3,348
TemporaryModifications/MortgagePaymentRelief 1,000
$12,000.00 $12,000,000
11
TOTALS 4,348 $111,900,000 100
IndesigningtheProgramforthestateofArizona,theArizonaDepartmentofHousing(ADOH)
developed the following guiding principles to ensure that it assists homeowners who have
demonstrated personal responsibility in their home purchase choices heretofore. It is the
Program’sintenttoassistthosewho,throughnofaultoftheirown,arefacingthepotentialloss
oftheirhomeduetothecurrentandunprecedentedeconomicconditions.
• Foreclosuresmustbeimminent.Resourceswouldonlybeutilizedforhouseholdswho
have exhausted all options in remaining current on their mortgage payments. For
instance, households who continue to pay other debt such as credit card debt, while
neglectingtopaytheirprimarymortgagemaynotbeeligibleforassistance.
• Modest primary residences. Resources would only be utilized for primary residences
and to assist households with incomes at or below 120 percent of the area median
income. Additionally, households would have to demonstrate that their incomes had
beenreducedsincethehomewaslastfinanced.
• Personal responsibility. Resources would not be used to assist households who face
foreclosure due to “self‐inflicted” wounds (e.g., refinancing to take out equity,
mortgagesbasedonundocumentedincome,riskyloanprograms,etc.)
• Statewide availability. Resources would be made available statewide. However,
geographic set‐asides would be devised to assure distribution commensurate with the
foreclosurerates.
• Hardships. Applicants must demonstrate an approvable hardship. Those include:
reducedincomeduetounderemployment,medicalcondition,divorceordeath.
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As described above, 89 percent of the overall award, or $111,900,000, is being budgeted for
direct program assistance. The remaining 11 percent of the award is budgeted for various
support, delivery and administrative costs of the program, which are outlined in detail in
Section2,ParagraphE.
TwootherkeyissuessurroundingtheProgramdesignare:
• For Permanent Modifications including principal reductions, lenders must participate
financiallyatanamountequaltoorgreaterthanthestate’sfinancialassistance.
• Loans to homeowners will be soft‐second loans, intended to be forgiven over time, to
incentivize peopleto remain in their homes andto assure nowindfalls tohomeowners
asappreciationvaluesreturn.Loans wouldbefashioned assilent‐secondloans,due on
sale if adequate equity exists. Should the assisted homeowner continue to occupy the
propertyastheirprimaryresidencetheirloanisforgivenattheendofthe10yearterm.
Any loan proceeds that are returned to the Program would be reutilized to assist
additionalhomeowners.
B.STRATEGYFORARIZONA’SMARKET.Arizona’sforeclosurerateiscurrentlysecondin
the nation. While many early foreclosures were a result of over‐speculation of single ‐family
homes by investors and resets on adjustable rate mortgages, many Arizona households now
face foreclosures due to job loss or reduced incomes as a result of an ailing economy.
Additionally, because many homeowners owe far more than the current value of their home,
theyarechoosingforeclosureratherthanremainintheirhome.
Arizona’s strategy addresses both of these two major issues which are contributing to the
current level of foreclosures. Given the number of households significantly underwater with
theirmortgagesandanunemploymentratehoveringat10percent,$125.1millionisnotnearly
enoughmoneytostabilizetheArizonahousingmarket.Atbest,thesefundswillassistjustover
4,000householdsorover11,000individualstoremainintheirhomes.Toputthisinperspective,
inMarch2010,5,556homeswereforeclosedoninthePhoenixareaalone.Arizonaisexpecting
asmanyas50,000foreclosuresin2010.
Our greatest hope is that this pilot program will produce a more open dialogue between the
housing advocacy community, the lending community, and the U.S. Department of Treasury
that will lead to further opportunities for principal reduction programs until such time as
significant negative equity is no longer a leading cause for Arizona’s high foreclosure rate.
Withoutsignificantprincipalwritedownsbythelendingcommunity,theforeclosureissuewill
continuetodestabilizeArizona’shousingmarketfortheforeseeablefuture.
C.ONEPROGRAM.Whilethe ArizonaProgram includes several levelsof participation,we
areconsideringitalloneprogramundertheumbrellaofSaveMyHomeAZ.Aidforalllevels
ofparticipationwillbemadethroughoneconsolidatedapplicationprocess.
Page 4 of 43
SECTIONTWO
A. OVERVIEWOFPROGRAM
Under the Emergency Economic Stabilization Act of 2008 and the HFA Hardest‐Hit
Guidance, the funds may be used to facilitate “mortgage modifications, principal
forbearance, short sale, mortgage payment relief, and second lien reductions,” to assist
consumersatriskofforeclosure.
TheSaveMyHomeAZProgram(alsoreferredtoasSaveMyHomeAZortheProgram)
has been created in order to help homeowners avoid foreclosure on their primary
residence in the state of Arizona.This will be accomplished by identifying working
familieswhoarefacingforeclosureandcouldaffordamortgage thatreflectsatleast100
percentoftheproperty’scurrentvalueormore.Benefactorsofthisprogrammustmeet
certain requirements including eligible hardship, property type, loan balance, income
levelandotherconditions.Everyassistedhouseholdmustexhibitanabilitytoreturnto
selfsufficiencywithinareasonabletimeperiod.
The Program will be administered by the Arizona Department of Housing (ADOH),
withkeypartnershipswith HUDcertified Counselingagencieswhowillprovidemuch
oftheface‐to‐faceinteractionwithclients.
PermanentModificationComponent
SaveMyHomeAZwillprovideup‐front,softsecondloanstoeligibleconsumersforup
to $50,000 depending upon individual circumstances.Notes on the soft second loans
willbefora termof10years.Aforgivenessclause willreducetheloanamount dueby
20percentayearforevery yeartheconsumerstaysinthehomeafterfiveyears.Atthe
end of the 10 years the note will be considered satisfied and ADOH will release the
secondlienconnectedwiththenote.Thesesoftsecondloanswillbeutilizedtoreducea
portionoftheprincipalon theloan,theamountofwhichwillberequiredtobematched
bytheprimarylender.Duringtheperiodoftheloanitwillbeconsidered“dueonsale.”
Anyremainingamountnotpreviously“forgiven”willbedue,ifthehomehasincreased
in equity. If the home has not increased in equity to the degree necessary to repay the
note,allora portionofthenotemaybeforgivensoasnottocreateadditionalhardships
ontheselleratthetimeofclosing.AnyloanproceedsthatarereturnedtotheProgram
wouldbereutilizedtoassistadditionalhomeowners.
Theassistancequalificationsareasfollows:
1. Assistanceofupto$50,000
2. Affordability/ProfitabilityTest(APT)Pass(MaximumPrincipalandInterest(P&I)is
equaltoorgreaterthan100percentofNetReturnonRealEstateOwned(NROREO)
minimumP&I.)
3. Subjectpropertymustbetheapplicant’sprimaryresidenceandmustbeowner‐
occupied.
Page 5 of 43
4. Mortgagebalance(s)mustbegreaterthan120percentofsubjectproperty’sfair
marketvalue.
5. Afterassistance,themortgage’snewprincipalbalanceshouldbereducedtoa
minimumof110percentofthecurrentmarketvalue.
SecondMortgageSettlements
Assistance will be provided to remove second mortgages when necessary to modify
terms of primary loans or when the second is burdensome in and of itself. This
assistancecanbeupto$5,000toincentivizelenderstosettlesecondmortgagesinorder
to assist an applicant when 31 percent of their current monthly income can support a
payment that is reflective of the market to market value of their home.
Theassistancequalificationsareasfollows:
1. Assistanceofupto$5,000
2. Affordability/ProfitabilityTest(APT)Pass(MaximumPrincipalandInterest(P&I)is
equaltoorgreaterthan70percentofNetReturnonRealEstateOwned(NROREO)
minimumP&I.)
3. Subjectpropertymustbetheapplicant’sprimaryresidenceandmustbeowner‐
occupied.
4. Mortgagebalance(s)mustbegreaterthan120percentofsubjectproperty’sfair
marketvalue.
5. Afterassistance,themortgage’snewprincipalbalanceshouldbereducedtoa
minimumof110percentofthecurrentmarketvalue.
TemporaryModificationAssistance
Assistance is designed to give underemployed homeowners mortgage relief for a
reasonable period of time while they are actively seeking to become sufficiently
employed. This assistance can be up to $12,000 to remove second mortgages as
necessary to modify the terms of the primary loan and to pre‐pay all or a portion of
mortgageloanpaymentsforaspecificperiodoftime(e.g.,upto24months).
Theassistancequalificationsareasfollows:
1. Assistanceofupto$12,000
2. APTPass(MaximumP&Iislessthan100percentandgreaterthan70percentof
NROREOminimumP&I.)
3. Subjectpropertymustbetheapplicant’sprimaryresidenceandmustbeowner‐
occupied.
4. Mortgagebalance(s)mustbegreaterthan120percentofsubjectproperty’sfair
marketvalue.
5. Afterassistance,themortgage’snewprincipalbalanceshouldbereducedtoa
minimumof110percentofthecurrentmarketvalue.
Page 6 of 43
Interested consumers will be encouraged to access the Program website at
www.savemyhomeaz.gov to begin the application process.Various tools will be
available on the website to assist prospective consumers in determining if they are
eligiblefortheprogram.Priortoaccessingaprogramapplic ation,afilterwillbeapplied
that will notify potential participants whether or not they appear to be eligible for the
program. Interested individuals who do not qualify will still be given a referral to a
nonprofit counseling agency, but will not proceed to the application portion of the
website. Those who appear to initially qualify will need to complete the online
application and follow the application submission instructions. Program information
will also be available through a toll‐free hotline that can connect interested consumers
witha participating Counselingagency. Individuals withoutaccess to theinternet may
workwiththeCounselingagenciestocompletetheirapplicationson‐line.
The Program will be available statewide. Funding priority will be given to qualified
applicantswhoselenderreadilyagreestotheprogramconditions.However,goalsbased
on the incidence of foreclosures in geographic areas will also be adopted. ADOH will
monitorthegeographic distributionof loansunderthe program,and reserves theright
tolimitavailability to certain areas if necessary in order toensure that areas of highest
foreclosureneedarebeingserved.TheProgramwilloperateuntilallHFAHardest‐Hit
FundsavailablefortheProgram(includinganyloanrepaymentsandadditionalawards
receivedbytheState)havebeendisbursed.
Thegoalof theProgram istoachieve a90 percentsuccess rateonitsloanmodification
requests.This will require a precise understanding of the lender’s objectives and the
applicant’sabilitiesinadditiontoADOH’sabilitytoimpactthedesiredoutcome(which
isapermanentmodification).Itisprojectedthat83percentoftheprogramfundswillbe
used to facilitate permanent loan modifications which may include second mortgage
settlements.Itis furtherprojected that 7 percent of the program funds will be used to
facilitate stand alone second mortgage settlements.The remaining 11 percent will be
utilized to provide mortgage payment relief assistance which may include second
mortgagesettlements.
Themajormeasureofsuccessfortheprogramwillbedeterminedlargelybythelevelof
lendercooperationandparticipationwiththeprogram.Primarilythiswillbeevaluated
bythelendersacceptanceofmodification/settlementrequests.Secondarily,thiswillbe
evaluatedandappropriatelyalteredaccordingtothelendersreasoningfortherejection
ofmodification/settlementrequests.
Theminormeasureofsuccessfortheprogram istoensureapplicantsseekingassistance
receive acomprehensive explanationwith supporting documentationwhen theyfailto
qualifyforassistance.
Page 7 of 43
ComplianceandMonitoring
Progressfortheprogramwillbemonitoredfrequentlythroughvariousmethodsas
outlinedbelow.
ForeclosureCounselingAgencyReporting
In addition to its transmittals for individual applicants and assistance, the foreclosure
counseling agency shall submit monthly reports to ADOH updating program activity,
using the Save My Home AZ Program report.ADOH may request additional
information from the foreclosure counseling agencies as needed to meet its monitoring
orreportingobligationstothefederalandstategovernments.
ForeclosureCounselingAgencyRecordMaintenance
Theforeclosurecounselingagencyshallestablishassistancedocumentationfilesforeach
applicantoriginatedthroughtheforeclosurecounselingagencyandretain thosefilesfor
thetermoftheprogramassistanceloanplusthreeyears(e.g.,13yearsifthetermofthe
loanwas10years).
FederalReporting
ADOHwill bethe responsible partyfor anyfederalreportin g requirements.A detailed
database of borrowers receiving assistance will be developed and updated monthly
progress reports and beneficiary packages delivered to ADOH by the foreclosure
counseling agencies. The database will enable ADOH to provide all required data for
federalreportingthroughwhatevermethodTreasurydetermines.
ADOHLoanServicing
ADOH will service the Program loans. Any monies recaptured through loan proceeds
willbeplacedinanaccountmaintainedbytheCorporation.
ADOHcurrentlyexpectstoserviceloansasfollow:
Sale of the Property.If the property is sold during first five years of the term of the
loan,thefullamountoftheloanisrepayabletotheextentthatequityexiststorepaythe
loan. If the property is sold during years 6 through 10 of the term of the loan, the
amount of required repayment is reduced at a rate of 20 percent per annum and the
reducedamount becomesrepayable tothe extentthatequity existsto repaytheloan at
thetimeofsale.ADOHwillissueademanduponrequestfromthetitlecompany.The
loanbalancemaybeforgiveninitsentiretyorinpart,ifadequateequitydoesnotexist
fromwhichtorepaytheloanthroughsalesproceeds.
Refinancing.Assistedapplicantsmayrefinanceonlywhentherefinancingwillresultin
a lower monthly housing payment for the assisted family.First mortgage refinancing
thatlowerstheoveralldebtoftheassistedfamilywithoutloweringthemonthlyhousing
Page 8 of 43
payment will not be eligible. Refinancing which results in increased debt to the
householdwillalsonotbeallowed.
When first mortgages are refinanced, the Save My Home AZ documents must be
recorded in second position to the refinanced first mortgage.All recording costs and
relatedclosingcostsaretheresponsibilityoftheborrower.
Forrefinancedfirstmortgages,theSaveMyHomeAZProgrammaychargeadocument
preparationfeeof$50.00tocoverassociatedadministrativecosts.
End of Loan Term.At the completion of the 10 year loan term ADOH will cancel the
noteandre‐conveyitsdeedoftrustontheproperty.
LoanMonitoring
ADOHwill monitorongoing ownershipand occupancyof the properties.Intheevent
that the applicant has sold or ceased to occupy the property as his or her primary
residence,ADOHwillrequirerepaymentoftheprogramassistanceloan.
FederalandStateAudits
ADOH will be responsible for responding to monitoring and auditing requirements of
thefederalandstategovernments.
Lendersandforeclosure counselingagencieswillberequiredtocooperatewithrequests
from ADOH or federal or state agencies for information relating to the program and
programassistanceloans.
B. POPULATIONSERVEDANDALLOCATIONMETHOD
It is anticipated that Save My Home AZ will assist a minimum of 4,348 households in
avoiding imminent foreclosures. Given the average of 2.77 individuals per Ar izona
household, over 12,000 individuals should be assisted. Based on the geographical
makeup of our market place we suspect approximately 75 percent of these households
will be in Maricopa County, which includes the Phoenix metropolitan area.It is
estimatedthatoftheremaining25percentofhouseholdstobeassistedisestimatedtobe
9 percent will be in Pinal County and 8 percent will be in Pima County with the
remaining8percentspreadthroughoutotherruralcountiesinthestate.
Program Set-asides:
Percentage Permanent Mods Second Mortgages Temp Mod Totals
Maricopa County
75% $ 69,300,000.00 $ 5,625,000 $ 9,000,000.00
$ 83,925,000.00
Pima County
8% $ 7,392,000 $ 600,000 $ 960,000.00
$ 8,952,000.00
Pinal County
9% $ 8,316,000 $ 675,000 $ 1,080,000.00
$ 10,071,000.00
Balance of state
8% $ 7,392,000 $ 600,000 $ 960,000
$ 8,952,000.00
Totals
100%
$ 92,400,000.00 $ 7,500,000.00 $ 12,000,000.00 $ 111,900,000.00
Page 9 of 43
Eligible households will be analyzed based on two primary factors which are
affordability and profitability.Ea ch household will be evaluated to determine an
affordable and sustainable monthly mortgage payment according to its gross monthly
income.Thiscalculatedmonthlymortgagepaymentwillbeconvertedintoa netpresent
value (NPV) in dollars.The current fair market value of this particular home will be
evaluated based on a mark to market methodology in order to determine its current
NPV.ThiscurrentNPVwillbeadjustedforforeclosureanddispositioncostsassociated
with the subject property in order to determine the NPV if this particular property
becamerealestateowned(REO)intheeventthelenderdecidedtoforeclose.TheNPV
ofthehousehold’smonthlymortgagepaymentwillthenbecomparedtotheNPVofthe
lender’s REO in order to assess the feasibility of a loan modification, from the lender’s
pointofview.
Additionally,asmentionedintheintroduction,Arizonahasadoptedguidingprinciples
whichwilldictate,inpart,whichsegmentsofthehomeownerpopulationwillbeserved
through the Program. An overriding goal of the Program is to ensure that it assists
homeowners who have demonstrated personal responsibility in their home purchase
choicesheretofore.ItistheProgram’sintenttoassistthosewho,throughnofaultoftheir
own, are facing the potential loss of their home due to the current and unprecedented
economicconditions.
• Foreclosures must be imminent. Resources would only be utilized for households
who have exhausted all options in remaining current on their mortgage payments.
For instance, households who continue to pay other debt such as credit card debt,
whileneglectingtopaytheirprimarymortgagemaynotbeeligibleforassistance.
• Modest primary residences. Resources would only be utilized for primary
residences that are owner‐occupied, and to assist households with incomes at or
below120percentoftheareamedianincome.Additionally,householdswouldhave
to demonstrate that their incomes had been reduced sin ce the home was last
financed.
• Personalresponsibility.Resourceswouldnotbeusedtoassisthouseholdswhoface
foreclosure due to “self‐inflicted” wounds (e.g., refinancing to take out equity,
mortgagesbasedonundocumentedincome,riskyloanprograms,etc.)
• Statewide availability. Resources would be made available statewide. However,
geographic set‐asides would be devised to assure distribution commensurate with
theforeclosurerates.
• Hardships. Applicants must demonstrate an approvable hardship. Those include:
reducedincomeduetounderemployment,medicalcondition,divorceordeath.
OurProgramprojectionsindicate itwillrequireapproximately threeyears toutilizeall
funds.Thistimelinetakesintoconsiderationtheestablishmentofandmarketingofthe
programaswellasthescreeningofconsumersandevaluationoftheeligibleapplicants.
Additionally,thistimelineaccountsforthelender/servicercooperationandparticipation
inreachingthedesiredresults.
Page 10 of 43
While we are initial ly estimating that it will take up to three years to utilize all of the
Program funding, these goals may be adjusted after the Program has been in existence
for several months, if the actual monthly level of activity indicates something different
frompreliminaryestimates.
FY2011 FY2012 FY2013
7/1/2010-6/30/2011 7/1/2011-6/30/2012 7/1/2012-6/30/2013 Total
Program
$ 33,570,000.00 $ 44,760,000.00 $ 33,570,000.00
$ 111,900,000.00
Annual Program Activity 30% 40% 30% 100%
The major anticipated obstacle to the effective implementation and execution of this
programisthelender/servicercooperation.Thiscooperationisdefinedbythefollowing
threeessentialfactors:
1. Theremustbeaclearandconsistentmeansbywhichourforeclosurecounselors
candeliverourmodificationrequeststothelender/servicerforevaluation.
2. Theremustbetimelyandcleardecis ionscommunicatedbythelender/servicerto
ourforeclosurecounselingpartnersregardingourmodificationrequests.
3. There must be effective delivery of modification documentation to the
foreclosure counseling agency on the part of the lender/service r once an
agreementisreached.
Provided these three things can be accomplished on the part of the lender/servicer the
successoftheProgramisexponentiallyincreased.ADOHisalreadyworkingdiligently
withthelendercommunity,andwillcontinuetodosooverthenextseveralmonths,in
ordertoensurethatArizona’sprogramisworkable withinthepoliciesandprocessesof
thelenders.
Inordertoleveragethefunds,ADOHexpectsthelender/servicertomatch anyprincipal
reductionprovidedthrough the Program.Itis expectedthat this match willbe noless
than one to one. For example, if ADOH provides $30,000 in assistance for a principal
reduction we expect the lender/servicer to provide an equal if not greater principal
reduction in order to assist in the process of obtaining an affordable and sustainable
monthly mortgage payment for the household.In some instances the lender/servicer
will need to contribute a larger amount based upon the affordabil ity/profitability
assessment of the transaction and the Program’s maximum assistance per household.
For example, if a $130,000 principal reduction was required in order to provide an
affordable and sustainable monthly mortgage payment for the hous ehold and an
assessment of the property’s value justified the reduction, the program would provide
assistance up to the $50,000 maximum.The lender/servicer would be requested to
provide the additional principal reduction of $80,000 which would result in a 1 to 1.6
match.
Page 11 of 43
The existence of the HOME Affordable Modification Program (HAMP) provides
meaningful leverage in terms of establishing a consensus of what constitutes a quality
loan modification.This takes into consideration the monthly mortgage payment, and
thefact thatit should notexceed 31percent ofthegross monthlyincome.It alsotakes
intoconsiderationprincipalreductionwhichplays amajorroleinaligningthemortgage
paymentwith theconsumer’s ability topay.HAMP calls foreffective considerationof
the lender/servicer options as well; this is accomplished through the use of an NPV
model.Therefore, our program guidelines are consistent with HAMP underwriting
guidelines with one major exception.This exception is the fact that our program
emphasizesa loanmodification based ona “mark tomarket” analysis.Meaningwhile
weevaluate the consumers ability topay in light of the investor’scash flow we do not
go below “market” in terms of interest rate or property value when determining our
modificationassistanceorrequest.
Our Neighborhood Stabilization Program (NSP) documentation preparation and
delivery system will also be leveraged in order to produce the required documents to
deliver the Save My Home AZ Program assistance.Additionally, this structure brings
considerable efficiencies in terms of program monitoring information as well.We can
and will track the lender/servicers that approve modifications.Home Mortgage
DisclosureAct (HMDA)datawillbecaptured andanalyzedasapartofthis processas
well.
Pre‐ProgramImplementationTimeline
May
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
----- TREASURY REVIEWING PLAN -----
Week of May 3:
• Determine website vendor; execute contract with June 30, 2010 delivery date. Meet with vendor.
• Draft Request for Qualifications (RFQ) Application for counseling partners.
• Receive incorporation approval from Arizona Corporation Commission.
• Continue:
o Ongoing discussions with lenders.
o Working on Program Handbooks and Standard Operating Procedures.
Week of May 10:
• Issue RFQ for any additional counseling partners, beyond existing.
• Publish incorporation articles for the “eligible entity.”
• Conduct job interviews for 3 new positions.
• Select title company and execute agreement between title company and “eligible entity.”
• Continue:
o Ongoing discussions with lenders.
o Working on Program Handbooks and Standard Operating Procedures.
o Working with website developer.
Week of May 17:
• Hold first Board of Directors Meeting of “eligible entity.”
• Continue to conduct job interviews for 3 new positions; check references.
• Begin planning of marketing campaign.
Page 12 of 43
• Continue:
o Issue draft MOU with lenders; continue ongoing discussions with lenders.
o Working on Program Handbooks and Standard Operating Procedures.
o Working with website developer.
Week of May 24:
• Conclude hiring for new positions.
• Continue:
o Ongoing discussions with lenders.
o Working on Program Handbooks and Standard Operating Procedures.
o Working with website developer.
o Working on marketing campaign.
June
31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
----- ANTICIPATED APPROVAL BY TREASURY-----
Week of May 31 (Holiday):
• RFQ for counseling partners due June 4.
• Continue:
o Follow up on MOU with lenders; ongoing discussions with lenders.
o Working on Program Handbooks and Standard Operating Procedures.
o Working with website developer.
o Working on marketing campaign.
Week of June 7:
• Establish bank account for eligible entity.
• ADOH to transfer advance to “eligible entity” for start up costs.
• Review RFQ for counseling partners and Title Company by in-house staff on June 10.
• Notify any new counseling partners and selected Title Company on June 11.
• Continue:
o Ongoing discussions with lenders.
o Finalize Program Handbooks and Standard Operating Procedures.
o Working with website developer.
o Working on marketing campaign.
Week of June 14:
• New staff to start; orientation and training.
• Finalize marketing campaign.
• Continue:
o Ongoing discussions with lenders; finalize processes.
o Working with website developer.
Week of June 21:
• Hold two-day counseling agency training.
• Hold training with local lenders participating in program.
• Continue training new staff.
• Continue follow up training with counseling agencies as needed.
• Release initial marketing.
• Continue:
o Ongoing discussions with lenders; finalize processes.
o Working with website developer; testing system.
Week of June 28:
• Continue training new staff.
• Continue follow up training with counseling agencies as needed.
Page 13 of 43
• Continue:
o Ongoing discussions with lenders; finalize processes.
o Working with website developer; testing system.
o Follow up on initial marketing.
PROGRAM READY FOR TEST LAUNCH: JULY 5, 2010
Weeks of July 5 and 12:
• Counseling partners will be required to test three cases each, by entering test cases into the electronic system and
tracking through the system.
• Last minute adjustments to website, etc. and increased marketing efforts.
ACTUAL LAUNCH DATE AND FIRST DRAW DOWN: BETWEEN JULY 19 – AUGUST 2, 2010
Should website development, hiring, training of counseling partners and most importantly, agreements with lenders not
move as quickly as this schedule suggests, OR Treasury’s approval of the proposal require delaying any of these steps,
we would suggest the alternative launch date of August 2.
Asnotedaboveinthetimeline,ADOHintendstoconducta“testlaunch”acoupleof
weekspriortoactualprogramimplementation.Thistestingwilloccurthrougha
controlledrolloutwithourexistinghousingcounselingagenciesthroughNFMCandthe
consumerstheyarecurrentlyworkingwith.Eachcounselingpartnerwillberequiredto
testthreecases,byenteringtestcasesintotheelectronicsystemandtrackingthrough
thesystem.
C. DEMONSTRATIONOFCAPACITYTOIMPLEMENT
TheArizonaDepartmentofHousing(ADOH)hasbeeninexistencefornearlyadecade,
providingoversightforover$1.7billioninstateandfederalhousingresources.ADOH,
and its bond issuing arm, the Arizona Housing Finance Authority, have administered
over$161millioninsinglefamilymortgageandmulti‐familydevelopmentbonds.
In this current fiscal year the agency operates under a budget of over $135 million,
overseeingsuch resourcesas theState HousingTrustFund, andfederalprograms such
as the Community Development Block Grant (CDBG) Program, HOME Investment
PartnershipProgram,HousingOpportunitiesforPersonswithAIDS,ShelterPlusCare,
Supportive Housing Program, theLow‐Income HousingTax Credit Program, Section 8
Housing Choice Voucher Program, Section 8 Project‐Based Contract Administration,
and most recently a plethora of economic recovery programs, such as the CDBG‐R,
Homeless Prevention and Rapid Re‐housing Program (HPRP), Tax Credit Assistance
Program (TCAP), the Tax Credit Exchange Program, Neighborhood Stabilization
Program(NSP)andtheNationalForeclosureMortgageCounselingProgram(NFMC).
Inadministeringitsfederalallocations,theagencyhasacloseworkingrelationshipwith
both the U.S. Department of Housing & Urban Development (HUD) and the U.S.
Treasury/InternalRevenueService(IRS).
Over the past year ADOH has effectively administered two major programs directly
related to dealing with the foreclosure issue.The two programs referenced are the
Page 14 of 43
NeighborhoodStabilizationProgram(NSP),fundedthroughtheHUD,andtheNational
Foreclosure Mitigation Counseling (NFMC) program, funded through
NeighborWorks®.
The NSP plan, which is designed to move homebuyers into vacant, foreclosed homes,
was designed, developed and implemented by ADOH in as little as six months.Since
being launched in May 2009 this program assisted more than 600 households in
purchasing foreclosed properties as primary residences.This was accomplished
through a newly established funding mechanism in accordance with the Housing
Economic Recovery Act (HERA).The NSP program has exceeded expectations and
morethanaccomplisheditsinitialintendedobjectives.
In May of 2008 ADOH designed, developed, and implemented the NFMC program to
assist homeowners facing foreclosure with counseling and help modifying their loans.
ThisrequiredtheexpansionofourthenexistingnetworkofHUDapprovedcounseling
agencies as well as the establishment of a toll‐free foreclosure hotline.To date this
programhasprovidedforeclosuremitigationcounselingtonearly8,000householdsand
answeredbasicforeclosurerelatedquestionsformorethan34,000households.Thishas
entailed working with consumers and lenders/servicers alike to achieve mortgage
modifications, short sales, deed‐in‐lieu of foreclosure, and most importantly transition
withdignitytoconsumers.
Our Community Development & Revitalization (CD&R) division pers onnel have been
instrumental in the efficacies of the previously mentioned programs as well as a long
standinghomeownershipprogram.Theadditionofkeypersonnelforthecoordination
of the NSP plan has brought significant understanding of the residential mortgage
marketswhichhavefurtherenhancedtheknowledgebaseofthisdivision.
KeyStaffExperience
CommunityDevelopment&RevitalizationAdministrator
The CD&R Programs Administrator has 9 years of experience in the private sector
mortgage industry in processing, underwriting and closing of mortgages as well as 10
yearsofexperiencewithfederallyfundedandstatefundedhousingprogramsincluding
down‐payment and closing cost assistance programs and a foreclosure purchase
assistanceprogramwithADOH.TheCD&RProgramsAdministratorhassupervisedup
to11staffpersonswhohaveoversightoffederallyfundedorstatefundedprogramsand
has been involved in program policy and implementation development for those
programs and has a long standing working relationship with many of the foreclosure
mitigationcounselingagencies.
Page 15 of 43
SaveYourMyHomeAZProgramCoordinator(SMHAZ)
The SMHAZ Program Coordinator has over 20 years of mortgage lending knowledge
and experience in the private sector. This industry experience is well balanced in
management, retail, wholesale, sales, operation, servicing, underwriting of conforming
and non‐conforming loans. The SMHAZ Program Coordinator has recently managed a
wholesale mortgage operation with over 200 employees and $250 million dollars a
monthin production. Thismanagementincluded the completeoversight of operations,
originationsandtraining.MostrecentlytheSMHAZProgramCoordinatorhashelpedto
design, develop and implement the agency’s Neighborhood Stabilization Program
which has exceeded expectations. Additionally, the SMHAZ Program Coordinator
contributes to the management oversight of the National Foreclosure Mitigation
Counseling Program. The combined experience with these two programs has severed
the Coordinator well as we have worked to design, develop and implement this
program.
D. STAFFINGANDBUSINESSPARTNERS
The grant will be accepted by and flow through the Arizona Home Foreclosure
Prevention Funding Corporation (the Corporation), a nonprofit corporation which was
established solely for the purpose of accepting this Treasury award. The Corporation
will be executing an Agreement with the Arizona Department of Housing (ADOH) to
provide staffing to the effort. The Agreement will allow ADOH staff to facilitate and
execute agreements on its behalf to meet any and all program‐related needs, including
lender and partner agreements, and to procure whatever goods and services necessary
tocarryoutalltermsoftheAgreementwithTreasuryforthedeliveryoftheProgram.
ADOHwillrelyupontheSave MyHomeAZdivisiontohandletheday‐to‐dayprogram
delivery.TheADOHpersonnelprimarilyassignedtothedeliveryofthisprogram will
consistofthefollowing:
• OneProgramCoordinator
• TwoUnderwriter/TransactionManagers
• Twoandone/halfProgramSpecialists
• OneAdministrativeAssistant
• OneDataSpecialist
Additionally, the program’s administration will also be supplemented by other
supportingandoperationalstaffincludingaportionoftimedevotedtotheprogramby
theDirector, AssistantDeputyDirector/Operations,PublicInformationOfficer,Finance
&Accounti ngAdministrator,Acco unting,AssistantDeputyDirector/Programs,andthe
CD&RProgramAdministrator.
Page 16 of 43
DIRECTOR
AssistantDeputy
Director/Operations
AssistantDeputy
Director/Programs
AssistanttotheDirectors
PublicInformationOfficer
Finance/Accounting
Administrator
Accountant
CD&RAdministrator
SaveMyHomeAZ
Program
ProgramCoordinator ProgramSpecialist
Underwriter/
TransManager ProgramSpecialist
Underwriter/ Trans
Manager ProgramSpecialist
(1/2 time)
AdministrativeAssistant DataSpecialist
BoardofDirectors
CORPORATION
TITLECOMPANY
COUNSELING
PARTNERS
ADOHProgramTeam’sorganizationalstructureisillustratedbelow:
A description of associated job duties for each of these individual positions is outlined
below,alongwiththeanticipatedpercentageofthetimeitisanticipatedeachwillspend
ontheProgram.
Director(.15)
The Direct or will provide direction and guidance at the highest levels for the
administration of this Treasury program. The Director is providing direction and
guidanceon programdesign andwillmaintain anongoing,active rolein theoversight
andpromotionoftheprogram.TheDirectorisexpectedtocontinueintheroleofmain
liaison between Treasury and the state of Arizona. Initially the Director will conduct
weekly Team meetings,including allkey management team members.As the program
Page 17 of 43
progressesmeetings may be rescheduledto bi‐weekly or monthly.The Assistanttothe
Directors provides administrative support to the Director and Assistant Deputy
Directors,atnocosttotheprogram.
AssistantDeputyDirector/Operations(.15)
The ADD/Operations will provide oversight of the following operational functions in
support of the Program, including: legal review, public informatio n dissemination,
program marketing, budgeting, finance and accounting, procurement of goods and
services,andinformationtechnologyneeds.
PublicInformationOfficer(.15)
ThePIOwillactastheagencyspokespersonintheabsenceoftheDirector,handlingthe
day‐to‐dayinquiriesfromthepress.ThePIOwilldisseminateinformationtothemedia
andplayakeyroleinthemarketingoftheProgram.
Finance&AccountingAdministrator(.15)
The Finance & Accoun ting Administrator will oversee all accounting functions
connected with the Program, including, but not limited to: payment of all program
obligations,accounting,monthlyandannualfinancialreports,andaudit.
Accountant(.10)
The Accountant assigned to the Program will handle the day‐to‐day accounting
functionsassociatedwiththeProgram.
AssistantDeputyDirector/Programs(.15)
The CD&R division reports to the ADD/Programs who is providing direction and
guidance at the highest levels of program design and will maintain an ongoing, active
role in the oversight of the Save My Home AZ. The ADD/Programs will serve as the
highest level of authority for authorizing program waivers and major program
managementdecisions.
CommunityDevelopment&RevitalizationAdministrator(.15)
All members of the Save My Home AZ Program will report directly to the CD&R
Administrator. The Administrator will provide ongoing supervision to the daily
management of the program. All program waivers and major program management
decisions will be first reviewed and approved by the Administrator prior to a final
determination by the ADD/Programs. The Administrator will coordinate with outside
Programpartners in theabsence of theCoordinator. In theabsence ofthe Coordinator,
alloffersofProgramassistancetoindividualhomeowners mustbesignedoffonbythe
Administrator.
SaveMyHomeAZProgramCoordinator(1.00)
The Program Coordinator will be responsible for the overall coordination of the Save
My Home AZ Program and will manage the day‐to‐day work flow of the remaining
membersoftheSaveMyHomeAZ team.TheProgramCoordinatorwillholdthemain
responsibility forassuring thatprogram partners areon track withgoals andreporting
andmeetingallintentsandpurposesoftheProgram.TheCoordinatorwillworkclosely
with lender representatives on program design and implementation, as necessary. All
offersofassistancetoindividualhomeownersmustbeapprovedbytheCoordinator.
Page 18 of 43
Underwriters/TransactionManagers(2.00)
The Underwriter/Transaction Managers will be responsible for reviewing individual
applicationpacketsreceivedfromCounselingpartneragenciesordirectlyfromlenders,
conducting underwriting and due diligence ta sks to assure that applicants are eligible
forassistanceandthatassistance levelshavebeencorrectly calculated.These managers
maywork closely with lenders andcounseling partners to work out waiversor handle
problems that arise. The managers will make final recommendations on all offers of
assistancetotheCoordinatorforfinalapproval.
ProgramSpecialists(2.50)
The Program Specialists will hold the primary responsibility for handling all of the
associated legal and lender‐related paperwork required for the final closing on each
individual loan. They will work closely with title companies and escrow officers as
necessary to complete each transaction. These positions will be responsible for the
establishmentandmaintenanceofallloanandassistancefiles.
DataSpecialist(1.00)
TheData Specialistwillhandle allof thedataentryand reportingrequirements forthe
Program.
AdministrativeAssistant(1.00)
The Administrative Assistant assigned to this Program will provide all clerical
assistanceneededbytheTeamandwillbechargedwithmaintainingadetailedtracking
ofallpendingapplicationsintheProgramque.
OutsidePartners
CounselingAgencies
ADOH will expand its existing network of contracted HUD approved counseling
agencies to provide pre and post foreclosure prevention assistance counseling.
Additionally these counselors will evaluate consumer’s application for program
qualifications and make appropriate recommendations for assistance to ADOH.The
currentbaseofcounselingagenciesandcounselorswiththeseagenciesareasfollows:
• 15Agenciesthroughoutthestate
• 50ForeclosureCounselors
• 10SpanishSpeakingForeclosureCounselors
It is expected that we will add an additional five to seven agencies in the primary‐two
Metropolitan StatisticalAreas (MSA) of Maricopaand Pima County.This will provide
an additional 15 to 20 foreclosure counselors.This level of foreclosure counselor
support should enable us to provide timely responses and quality information to all
programapplicants.
Counseling agency partners will be compensated through several mechanisms,
including:
• $100applicationevaluationfee;
Page 19 of 43
• $325 counseling fee on each home that closes a permanent or temporary
modification;and
• $6,250monthlyparticipationfee,which willgivethemtheresourcestodedicate
nolessthanoneFTEtothisprogramonafull‐timebasis.
TitleCompany
It will be necessary to contract with a title company to provide the following services
whichwillberequiredtodelivertheProgramassistanceandcompletethemodification
process:
• PreliminaryTitleSearch
• AutomatedValuationModels(AVM)
• Signing/Closing
• TitleInsurance
• EscrowServices
Asaresultofthescopeofthisprogramithasbeendeterminedthatinordertoprovide
consistent quality service one service provider is the most effective way to accomplish
this.
Toll‐freeHotline
ADOHwillutilizeanexistingpartnershipwithanonprofitcommunityinformation and
referral agency that provides a 24‐hour, toll‐free hotline that directly connects callers
withourCounselingagencypartners.Thehotlinewillbecompensatedat$5,000/month.
Please see the administrative expense section below for the detail compensation
associatedwiththisportionoftheproposal.
Page 20 of 43
Detailed Program Flow Chart
Program Flow is illustrated below. The process for each component of assistance is
identical and the distinction of the type of assistance to be delivered is made at the
“Application Process” stage.
Page 21 of 43
E. ADMINISTRATIVEEXPENSES
ADOH expects to expend approximately 11 percent of the $125.1 million award on
administrativeordelivery‐relatedexpensesoftheCorporation,ADOH,anditsdelivery
partners(e.g.,Counselingagencies.)Ofthat11percentjustunder5percentwillsupport
costs of the Corporation or ADOH and just under 6 percent will be utilized to support
theservicesprovidedbytheCounselingAgencypartners.
Administrativebreakdownbetween“Internal”and“External”:
Administrative Breakdown:
% of grant
Internal - State or Corp
$ 5,836,900 5
External - Counseling Partners
$ 7,363,100 6
$ 13,200,000
11
In order to receive this grant, ADOH has established the Arizona Home Foreclosure
Prevention Funding Corporation (the Corporation). We anticipate that the money will
flowthroughtheCorporationasillustratedbelow.
ArizonaHome
ForeclosurePrevention
FundingCorporation
(theCorporation)
AWARDFLOW
ADOHAdministrative
Feeswillbedrawnona
monthlybasisasrequired
$2.3million
Expensesofthe
CorporationandProgram
Partnerswillflowdirectly
fromtheCorporation
$10.8 million
Programfundingto
individuallendersfor
loansettlementswillflow
fromtheCorporationtoa
TitleCompanypartner
$ 111.9 m
illion
Anticipatedtimelineforallexpenditures:
FY2011 FY2012 FY2013
7/1/2010-6/30/2011 7/1/2011-6/30/2012 7/1/2012-6/30/2013 Total
Administration
$ 4,470,128.00 $ 4,364,936.00 $ 4,364,936.00
$ 13,200,000.00
Program
$ 33,570,000.00 $ 44,760,000.00 $ 33,570,000.00
$ 111,900,000.00
Total $ 38,040,128.00 $ 49,124,936.00 $ 37,934,936.00 $ 125,100,000.00
Annual Program Activity 30% 40% 30% 100%
Page 22 of 43
DrawSchedule
Wewouldanticipatethatthefirstmonthlydrawwouldbejustover$3.6million,or1/12
th
ofthe
anticipated expenditures for year one. Additional draws would not be requested until the
balance in the account established by the Corporation for the receipt of these funds was
depletedtoapproximately$1million.Atthattimethenext$3.6milliondrawwouldbemadein
anticipationoffutureclosingsandexpenses.
Administration‐ADOH
ADOH will seek to be reimbursed by the Corporation for expenses incurred by the agency in
thedeliveryoftheProgram.Theagencyisnotproposingtheuseofanindirectallocation plan.
Belowistheexpectedbudget.Theagencywillonlyseektobereimbursedascostsareincurred.
Anyunusedbudgetwillberolledovertoassistadditionalhouseholds.
ADOH Annual
Save My Home AZ
Budget
Salaries $ 472,108.48
ERE $ 162,217.42
Outside Prof Services $ 10,965.00
In State Travel $ 2,500.00
Out of State Travel $ 1,500.00
Other:
Space @$697.91/monthx8.5 FTE $ 71,186.82
Office Supplies $500/yrx8.5FTE $ 4,250.00
Postage and Delivery $ 2,800.00
Risk Management $400/yr*8.5 FTE $ 3,400.00
Subscriptions, Books, Publications $ 2,000.00
Printing $ 2,000.00
Telecommunications $420/yr*8.5 FTE $ 3,570.00
TOTAL
$ 738,497.72
Expected Monthly $ 61,541.48
Expected Annual $ 738,497.72
Three Year Total $ 2,215,493.15
Administration–Corporation
ThefollowingadministrativeorsupportingcostswouldbepaiddirectlybytheCorporation.
# of Transactions Per Transaction On-going/1x Annual FY2011-FY2013
Audit - Corporation $ - $ 18,000.00 $ 54,000.00
Marketing - Years 2-3 $ - $ 10,000.00 $ 30,000.00
Closing Costs (1) 3,348 $ 736.00 $ 2,464,128.00 $ - $ 2,464,128.00
Decision Costs (2) 4,348 $ 10.00 $ 43,480.00 $ - $ 43,480.00
Wire transfer fees 4,348 $ 15.00 $ 65,220.00 $ - $ 65,220.00
Toll Free Hotline $ - $ 60,000.00 $ 180,000.00
Corporate Insurance $ - $ 50,000.00 $ 150,000.00
Page 23 of 43
Miscellaneous $ 29,386.85 $ - $ 29,386.85
Total $ 2,602,214.85 $ 138,000.00 $ 3,016,214.85
(1) Closing costs include: $36 Recording fee; $500 Title Insurance; $200 Settlement Charge.
(2) Decision Costs are attributable to an Automated Valuation Model (AVM) on-line property appraisal system.
CounselingAgencyPartnerFees
The followingfees are beingproposedto support the work beingprovided by the Counseling
Agency partners to the process. All fees would be reimbursed to the Counseling agencies
directlythroughtheCorporation.
Counseling Partner Fees # of Transactions Per Transaction On-going/1x Annual FY2011-FY2013
Evaluation Fee 10,000 $ 100.00 $ 1,000,000.00 $ - $ 1,000,000.00
Counseling 4,348 $ 325.00 $ 1,413,100.00 $ - $ 1,413,100.00
Counseling Agency Staffing $ - $ 1,650,000.00 $ 4,950,000.00
TOTALS
$ 2,413,100.00 $ 1,650,000.00 $ 7,363,100.00
Two of the proposed fees to the Counseling partners would be based on the number of
transactions.
• For every application that is reviewed, the Counseling agency would receive a
reimbursement of $100.00 with applications anticipated at 10,000 over a three
year period. Bear in mind that the Program application will be accessed,
primarily, through a website that will contain filters. The Counseling agencies
will only review applications that are completed, as the website will not allow
the printing of incomplete applications. This screening will limit the number of
applications to those who may appear to be initially eligible; the review will
allowforfurther,humanscreeningthatonlyacounselorcando.
• For every closed transaction, the Counselin g agency will receive a $325.00
Counseling fee. This will incent the Counseling agencies to complete
transactions.
• $75,000.00 annual participation fee to each Counseling Agency partner, to be
issuedonamonthlybasis.ADOHexpectsupto22partneragencies.
One‐timeStartUpCosts
The Corporation and ADOH will seek to be reimbursed for the following co sts related to
launchingtheProgram.
Legal $ 4,192.00
Equipment $ 6,000.00
Marketing $ 25,000.00
Website development $ 50,000.00
Start Up Contingency $ 500,000.00
Total $ 585,192.00
• Forpre‐awardlegalexpenses.
Page 24 of 43
• Computerequipmentforthreenewhires.
• Initialmarketingmaterialcoststhatwouldnotbeanon‐goingexpense.
• Web design consultants to design the Save My Home AZ website. ADOH has
experienceindesigningawebsiteforitsYourWayHomeAZProgramfundedthrough
the Neighborhood Stabilization Program, and would set up a similar, user‐friendly
website available in both English and Spanish. The front end of the website would
provideinformationon theprogram.Theprogramapplicationwouldbecompletedon ‐
line.Apre‐filterwillbeinplacetoensurethatonlythosehomeownersmostlikelytobe
eligible will be able to apply. Homeowners who are determined ineligible through the
web filter will be referred to HUD Counseling agencies for counseling only, available
throughotherresources.Onthebackend,thewebsitewillcontainastorage mechanism
forallapplications,makingtheapplicationsaccessiblebyallthosedeemednecessaryin
the review process. The website will include required encryption to assure
confidentiality of consumer information. The agency currently hasa bids ranging from
$35,000‐$45,000forthiswork,andhasbudgetedupto$50,000toensure thatcostssuch
as web address registration, website hosting, and related costs are covered. One other
alternativethatiscurrentlyunderreviewisawebsitethatNeighborWorkshasdesigned
thatiscurrentlybeingmarketedandusedbycounselingagenciesnationwide,aswellas
by a number of lenders. This product appears significantly more expensive ($300,000
range),butcould holdsomesignificantadvantagesinthatit isalreadyupandrunning
andwouldtakelittletimetoadaptorcustomizeforArizona’suseandhasalreadybeen
approved for use by some of the nation’s major mortgage servicers. This last option
wouldrequireusageofthe“startupcontingency”mentionedbelow.
• The Corporation has budgeted $500,000 as a “start up contingency”, for unanticipated
administrativeorstartupcosts.Anyfundsnotutilizedforsuchpurposeswithinthefirst
12monthsoftheprogramwouldbereturnedtotheProgrambudget,resulting inaidto
approximately10additionalhouseholds.
F. OVERVIEWOFRISKMANAGEMENT/FRAUDPREVENTION
Theinitialassessmentofapplicationswillbecompletedbytheforeclosurecounsel ingagencies.
This is the first step in preventing fraud and insuring proper management of risk in terms of
delivering the Program assistance.As a part of their process they will evaluate and verify
consumer’s eligibility in accordance with the program guidelines.This will include assessing
the applicant’s need and verifying the eligibility of the circumstances creating the need.A
majorconditionofqualifyingfortheProgramassistanceisaneligiblehardshipwhichhasbeen
determined not to be self inflicted.The second major condition of qualifying forthe Program
assistance is the applicant’s ability to sufficiently financially contribute to the objective of
obtaining a permanent mortgage modification.The foreclosure counselor is charged with
properlyassessingtheapplicant’sabilitytofulfillthisportionoftheProgramguidelines.
ADOH will confirm the foreclosure counseling agent’s assessment of the applicant’s
qualificationsandrecommendationforassistancepriortoissuingacommitmentforassistance.
Page 25 of 43
Additionally ADOH will complete further investigation of the transaction.This will include
butisnotlimitedtoevaluationoftheproperty’svalue,conditionoftitletothepropertyandthe
applicant’sabilitytosufficientlyfinanciallycontributetotheobjectiveofobtainingapermanent
mortgagemodification.
Lastly, the lender/servicer whose cooperation is essential to the success of this program bears
mutual responsibility and desire to ensure that fraud is not perpetrated and assistance is
providedto qualified applicants.Thedriving force behind the lender/servicer commitmentto
this effort is the fact that they will be contributing financially to the objective of obtaining a
permanent mortgage modification as well.Therefore, it is reasonable to expect nothing less
than complete diligence on their part in assisting to ensure that only qualified applicant’s
receiveassistance.
G. TRACKING/REPORTING
The two methods for measuring the program’s success will be the conversion ratio of
modification requests to modifications obtained and homeowners not re‐defaulting and
remaining in their homes.The conversion goal for the program is 90 percent and the
homeownerretentionrategoalis90percent.ThismeansthatADOHexpectstoreceivelender
cooperationinnineoutoftenscenariosproposedtothem.
The performance measures of the program will be monitored in terms of the time it takes
ADOH to deliver the desired and expected services the program is designed to provide.The
followingisabriefoutlineofkeymeasuringcomponentsandtimelines:
• Acknowledgement of initial application submission.This will be accomplished by way of
anautomatedresponseimmediately.
• Initial foreclosure preventioncounseling with the consumer (this will address any missing
information and possible solutions).This should occur within five business days of
application submission.This timeline is communicated to the applicant on the automated
responsetotheapplicationsubmissionandwillbeupdatedasneeded.
• Consensusbetweentheapplicantandtheforeclosurecoun seloronthetypeofassistanceto
berequested from ADOH.The decisionmaking process forthe counselorshould not take
morethan24hours.However,itisreasonabletoexpecttheconsumertoneedmoretimeto
come to termswith their situation and the potential solutions.Therefore, 72 hours will be
allottedfortheconsensusperiod.
• ADOH’s response to the requests for assistance (this will address confirmation of the
requestanddeliveryofthecommitment).Theseevaluationsandcommitmentsareexpected
tobecompletedwithinfiveworkin gdays.
• Foreclosure counselor’s submission of the modification request to the lender/servicer.The
foreclosure counselor should submit the modification request to the lender/servicer within
72hoursofreceivingtheADOHcommitmentforassistance.
• Foreclosure counselor’s review of the lender/servicer modification documentation and
request for assistance documentation from ADOH.The foreclosure counselor should
completethisreviewandrequestwithin72hoursofreceiptofthedocumentation.
Page 26 of 43
• ADOH’s preparation of foreclosure assistance documentation.ADOH should complete
theserequestswithin72hours.
• Foreclosure counselor’s scheduling of the signing of the modification and program
assistance documentation with the title company.Foreclosure counselor should be able to
accomplishtheschedulingwithin48hoursofreceipt.
• Title Company’s completion of the signing and disbursement of the proceeds as well as
return of all executed docs.Title Company should be able to complete the signing and
disburse the proceeds accordingto the instructions within ten working days (this includes
theconsumer’srighttorescindperiod).
• ADOH will monitor homeownership retention over the duration of the program. ADOH
will survey homeowners who have been assisted with the program every six months to
determineiftheyhaveremainedintheirhomes.
Basedontheabovetimelineofeventsthesemodificationscouldtakeaslittleas34daysto
complete.
Datatrackingwillconsistoftwoprimarycategorieswhichareconsumerinformationand
lender/servicerinformation.Belowisadetailedlistoftheconsumerdatatobemonitored:
• Lender/Servicer
• Race
• Ethnicity
• HouseholdType
• AssistanceType
• LienTypeFirst/Second
• DebtRatios(beforeandafterassistance)
• PercentageofAreaMedianIncome(AMI)
• GeographicalArea
Thebelowisalistoflender/servicerdata tobemonitored:
• Name
• Typeofmodificationrequested
• Responsetorequest(approved/denied)
• Responsetimetorequest(reasonable/unreasonable)
• Poorperformancepertransactionwillbetracked
H. BUSINESSPARTNERSELECTION
Arizonaintendstoengagetwotypesofbusinesspartnersinitsprogramstructure.Itintendsto
contract with up to 22 HUD‐certified non‐profit mortgage foreclosure counseling agencies to
provide the face to face interaction with homeowners, handling all counseling tasks and
negotiating for loan modifications and other assistance with the lenders. The second business
Page 27 of 43
partner will be one title company, selected to handle all of the loan closing transactions on
behalfoftheprogram.
ADOHhasnotidentifiedanypotentialconflictsofinterestforeithertypeofpartner.However,
ongoing monitoringwill be handledbyADO Hand should conflicts be identified, ADOHwill
putintopolicymitigationeffortsthatmustbeadheredtoandwillmonitorassuch.
Counseling Partners. ADOH currently contracts with 15 non‐profit HUD‐certified mortgage
foreclosure counseling agencies for the delivery of the National Mortgage Foreclosure
Counseling(NFMC)program.Becauseofitscur rent relationshipwiththeseagenciesand their
proven track record in providing mortgage foreclosure counseling to the state over the past
severalyears,we intendtocontract withthese agenciesas partnerstoassist withtheTreasury
programaswell.Thesecounselingagenciesarelocatedthroughoutthestate,coveringurbanas
wellasruralareasofthestate.
Inordertoaddadditionalcounselingpartnersforthetwourbancountiesofthestate,Maricopa
andPima,wherethebulkoftheforeclosureproblemlies,theCorporationwillissueaRequest
for Qualific ations (RFQ) to all other HUD‐certified mortgage foreclosure counseling agencies
working within these two urban areas of the state. The criter ia for selection will include
questions designedto ascertain capacity, historical service deliveryfigures,and audit reviews.
An internal review group made up of ADOH staff and the director of ADOH who is also the
Executive Director of the Corporation will review all qualifications and will make a
recommendation to the Corporation Board regarding additional partners. Current certification
standings will be verified with HUD by ADOH staff. ADOH will select up to 7 additional
counselingagencies.
All current and newly selected counseling agencies will be required to sign contracts with the
Corporation to provide these services and will be required to attend a series of trainings
conducted by ADOH prior to the program’s launch. Risks include failure to properly counsel
homeowners, failure to proceed in a timely fashion with counseling and loan modification
processes, failure to correctly identify the best course of modification for individual
homeowners, and lack of proper documentation. The work of the counseling agencies will
receiveadditionalscrutinyoverthefirstthreemonthsoftheprogramaswellasonanongoing
basis and counseling agencies that are not moving forward with production goals or
experiencing other issues or concerns or are experiencing a lack of demand for their services
maybedroppedaspartners.
Title Company. Arizona intends to select one title company partner to conduct all closing
transactions on behalf of the program. As such, the Corporation will be issuing a Request for
Proposals(RFP)toselectthemosthighlyqualifiedcompanytocontractwithfortheseservices.
The selection criteria will include qualifications and cost. Given that costs are likely to be
relativelysimilar,qualificationstoconductthebusinessathandmayweighmoreheavilyinthe
RFP.
Page 28 of 43
Thesameinternalreview committeethatwillreview thecounselingpartnerqualifications will
alsoreviewthetitlecompanyproposals.Onlytitlecompanieswithproventrackrecordswillbe
chosen.Theagencyhasahistoryofworkingwithanynumberoftitlecompanieswhowillmeet
thiscriteria.
The risks associated with this business partner are relatively minimal. Closing dates must be
adheredto,closinginstructionsmustbestrictlyfollowed,andeachtransactionwillrequiretitle
insurance.ADOHstaffwillmonitorperformanceextremelyclosely over thefirstthreemonths
andonanongoingbasisasappropriate.
PROGRAMCOMPLIANCE
Monitoring reviews for program compliance will be conducted by partner HUD Certified
Foreclosure Counseling Agencies and ADOH staff at several stages during the modification
process on each application for assistance. Included below is a step by step process for the flow
of applications for foreclosure prevention assistance through the Save My Home AZ program.
Those items that are part of review for compliance are bolded.
Step 1: Consumer visits program website and completes the program assistance and modification
request package. The website which is sponsored and maintained by ADOH will allow only
satisfactorily completed packages to be submitted for a request for assistance. The website
filters and directs the completed request package to ADOH for review who then forwards to a
HUD Certified Foreclosure Counseling Agency.
Step 2: HUD Certified Foreclosure Counselor will receive the completed request package via the
program website and will complete the following:
a. Review package for documented hardship
b. Review package to determine if a reasonable modification request is possible.
c. Contact consumer to retrieve any necessary supporting documentation and counsel the
consumer either in person or by phone on the possible mitigation solutions.
d. Verify the modification request is supported by acceptable documentation. (i.e.
income, property value, credit report, utility statements or letters, mortgage
statement, property taxes, HOA, insurance etc. )
e. Determine consumer’s housing and total debt ratios based on gross and net income.
Step 3: Provided the package is properly documented and supported and provided a reasonable
balance between consumer affordability and lender profitability can be obtained, the HUD
Certified Foreclosure Counselor will submit the request package for foreclosure prevention
assistance to ADOH for approval. ADOH will determine whether the request package meets
program compliance through review of the package for the following:
a. Property is Owner Occupied and consumer has committed to remaining in the
property
b. Credit report evidencing a 60 day mortgage delinquency
c. Purchase mortgage financing exceeds property value by 120% or more.
d. Modification will achieve a monthly payment of no more than 31% of the
consumer’s gross monthly income.
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e. Consumer’s income does not exceed 120% AMI.
f. Hardship is documented and is due to loss of income due to underemployment,
medical condition, divorce or death.
Step 4: Provided the request package and all documentation is in accordance with the program
guidelines, an assistance commitment letter valid for 45 days will be issued by ADOH to the
HUD Certified Foreclosure Counseling Agency on behalf of the consumer.
Step 5: HUD Certified Foreclosure Counseling Agency will submit the ADOH commitment and
modification request package with all supporting documentation to the Lender for approval.
Step 6: The Lender will review the modification request for approval and issue their
modification approval containing any conditions to the HUD Certified Foreclosure Counseling
Agency.
Step 7: HUD Certified Foreclosure Counseling Agency will review the approved
modification to determine that no unacceptable changes have been made by the lender.
Step 8: HUD Certified Foreclosure Counseling Agency will open escrow with Title for the
ADOH Foreclosure Assistance Loan and will forward the acceptable modification checklist and
request for foreclosure assistance loan documents and funds to ADOH.
Step 9: ADOH will prepare documents and funds and forward back to HUD Certified
Counseling Agency.
Step 10: HUD Certified Foreclosure Counseling Agency will review loan documents and
forward to Title for signing. Title will be instructed to send recorded Deed of Trust and Original
Note to ADOH. Title will be instructed to forward the proceeds from the foreclosure assistance
loan and the signed modification agreement to the Lender. HUD Certified Counseling Agency
will forward a completed assistance loan package to ADOH along with their request for
reimbursement of counseling and file review fees. .
Step 11: ADOH will review completed assistance loan package and request for
reimbursement. No fee reimbursement payments will be made until loan package is fully
documented and properly completed.
In addition to the transmittals for individual applicants and assistance, ADOH staff will monitor
the HUD Certified Foreclosure Counseling Agency monthly through the web portal for their loan
pipelines and program activity. ADOH may request additional information from the foreclosure
counseling agencies as needed to meet its monitoring or reporting obligations to the federal and
state governments.
Finally, ADOH staff will conduct at least quarterly on-site monitoring visits to the HUD
Certified Foreclosure Agency to review a random sampling of consumer assistance files for
program compliance.
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READINESSASSESSMENTS
ADOH has detailed how it has evaluated the needed capacity for the program. As a result of the
ADOH evaluation it has determined additional staffing at ADOH and additional HUD approved
housing counseling agencies are required and is in the process of making those hiring decisions.
ADOH has also detailed the process intended to manage the homeowner modification program
and is creating standards of performance along with a measurement system to monitor
performance. ADOH is currently evaluating technologies that will be utilized for the application
and document management process. ADOH has researched several options and is currently
comparing the final three to make a decision. Program launch is projected by July 19, which
allows for preliminary testing of the systems and process from July 5 to that date.
ONGOINGINTERNALCONTROLS
There will be a dual set of assessments of the internal controls over this program. (1) The eligible
entity will engage an outside certified public accounting firm to conduct an annual audit; and (2)
Secondly, as a component agency of the State of Arizona, ADOH will be subject to the state’s
annual audit conducted by the independent offices of the State Auditor General.
The independent audit of the eligible entity will be conducted using generally acceptable
accounting standards. The audit of ADOH will be conducted in accordance with generally
accepted government auditing standards. As you are probably aware, those standards require that
the auditors plan and perform the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for any findings and conclusions based on audit objectives.
ADOH will monitor the internal controls of all selected counseling agency partners both at the
beginning of the program and on an ongoing basis according to the agency’s monitoring
guidelines. Additionally, the majority of these partners, due to myriad other state and federal
funding sources, are already required to be subjected to an annual, independent audit conducted
according to generally acceptable accounting principles. ADOH will require the submission of
these annual audits for review throughout the program period.
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