EP 630 – The Hardest Hit Fund: Why It’s Ending, Why It Shouldn’t Hurt So Much And How You Can Make The Most Out Of It



Ten years since its inception in 2010, the Hardest Hit Fund is finally going to end in December. What is the Hardest Hit Fund and why does it matter to note investors? In this episode of the Note Closers Show, Scott Carson discusses how the program works and which states are still offering this program for distressed borrowers. He also makes the case for why you don’t want to focus on this program as a priority exit strategy for your distressed note business and portfolio. There is a way, however, to make the most of it while it lasts. Stick around for this extra strategy.

Listen to the podcast here:

The Hardest Hit Fund: Why It’s Ending, Why It Shouldn’t Hurt So Much And How You Can Make The Most Out Of It

I’m excited to be here with you. I want to talk about something that’s been around for a few years, but it’s finally coming to it. I won’t say painful but coming to an end at the end of the year 2020. What am I talking about? I’m talking about the stimulus package. I’m talking about the Trump executive order. No. I’m not talking about either of those. I’m talking about the Hardest Hit Fund. I know a lot of people are like, “What is Hardest Hit Fund?” For us old dog note investors that have been around for a while, the Hardest Hit Fund was a plan put in place back in 2010 to deal with all the people that were facing foreclosures and losing their home.

The Treasury is the one that’s been working on it. It was put in place to provide assistance to struggling homeowners throughout modifications, mortgage payment assistance and different assistance with the Transition Assistance Program. Most of the states were given hundreds of millions of dollars, billions of dollars in the case of California, Florida and fortune states up there. It was put in place by the Obama and Bush administration to give tons of money to people facing foreclosure. The Hardest Hit Fund is a government-regulated thing in each state that gives different types of classifications to it. What do I mean by classification? They deliver it differently. They make you jump through different hoops, depending on what state you’re in. Some of the funds they would give to you would be for back payments or future payments.

The Nitty-Gritty

It was an interesting thing. The reason I bring this up is out of the blue, my servicer emails me and says, “One of your borrowers looks like they’re going to qualify for the Hardest Hit Fund Program.” I haven’t had a Hardest Hit Fund go through and it’s been two years at least. I wanted to make some clarification on what’s available, what’s not available, what states are involved and if you should be targeting these assets in these states to take down. Let’s start with the nitty-gritty. The nitty-gritty being the states that have this program, Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee and our nation’s capital, Washington, DC.

The Hardest Hit Fund has $7.6 billion to support homeowners in states hit hardest by the economic crisis dating back to 2010. What happens is that a lot of money got used. Obama added another $2 billion to it during his administration to drag it a little bit. What’s funny is each state that was given this money didn’t have a clear and defined path on how to use it. The different eighteen states plus DC all put together different qualifications. Some of it can be towards a past, some it is going to be towards future payments and it can all go towards that. It all can vary a little bit, especially the amounts could vary differently. Some like California would allow you to put $750 towards back payments and the rest of that money would give you that go towards future payments.

It had to be on the first liens. The second liens didn’t qualify. The contract for deeds didn’t qualify in a lot of states because they weren’t considered a traditional mortgage. It was designed to stabilize the markets, help people go through, but it wasn’t a high success rate. The thing you have to keep in mind too and I want to throw this out there. I haven’t brought this up because it was not an easy thing to get approved for. We talked about the Hardest Hit Fund on the show back on one of our first 100, 150 episodes. We’ve been talking about it for the last few years because we didn’t see a lot of them. Some states like Ohio closed down their entire program on the first allotment of money because they ran out of it.

They laid all their staff off and then they got reapproved for more money. It took them time to rehire those people back or train new people. Some states like Illinois stopped taking applications a while back. All the states that still allow still have money they’ve not given out like Florida was the slowest one of the game. Florida was given the second most amount of money, but they also made it difficult for people to hop through things and to provide proof of things. I’ll give you an example of some of the things that they required. We got this email. What happens is they don’t give this money to the borrowers.

NCS 630 | Hardest Hit Fund

Hardest Hit Fund: If stuff happens on the Hardest Hit Fund, it’s a cherry on top. It shouldn’t be on the top of your due diligence checklist.


That’s one thing I want you to know. They’re not going to write a $25,000 check or $30,000 check to your borrower because we all know what’s going to happen. They’re going shopping. They’re going on vacation. The servicer has to provide a list of documents and a list of information on the specific loan. It’s the borrower who has applied for assistance through the Illinois Emergency Assistance Program. It’s the Hardest Hit Fund Program department. In some cases, some states have different departments. States all have different varieties of mortgage assistance programs. Every state in the union has something, it depends on what they can qualify, what you can or can’t qualify for and how far they are behind there.

We’ve dealt with borrowers reaching out to even cities in different areas and they’ve gotten help from different departments, from church groups, other things like that. Your borrower has been found eligible for their program. We are required to send them the below information on the loan in order for them to approve her. The origination date, the loan UPB, Unpaid Principal Balance, the next payment due date, the total past due less fees, a “good through dates” like good through the end of the month, or good through whatever. Monthly PITI, the performance status, their payment history, objection and objection reason. Why they would not if we objected to them and why that would be of them getting qualified for. The breakdown of service-incurred cost for reimbursement.

It’s giving them a full count of, “Where are you at? What’s the late or past dues,” and that stuff. They’ll be sending the request information, including the monthly escrow payment information. That’s a good thing. What happens? The borrowers applied for this. You’ve got to be showing if they’re working and what they’re making. They’ve got to file those things. They get qualified. What happens is the state agency, in this case, the Illinois Housing Department Development Authority would then send the money to the servicing company and not the borrower. For my servicing company, Madison Management, they’d be wired the money directly to Madison Management. That had been broken down, so much of this goes towards her 6 or 12 months that she’s passed you on or so much goes towards the back payments and a chunk of them goes to the future payments.

It’s Not “Easy Money”

That’s a beautiful thing. What has been an interesting thing over the years which has upset me. This doesn’t upset me in a way that it’s anything to do with what we’re doing. What it upsets me is the fact that some people out there in the industry have been telling people, “You should go buy loans in the Hardest Hit Fund states because that’s easy money.” That is not the truth. I believe if you look back, if you go to each state’s Hardest Hit Fund department and it’s easy to check this out. If you google Hardest Hit Fund, it will take you to MakingHomeAffordable.gov. That’ll take you into each states. Some states have stopped taking applications. Some have used all their money up quickly. What we saw was a lot of times there were a lot of applications that were filed initially and then the departments went back for secondary information and the borrower didn’t respond. I’ll give you an example. Ninety-three thousand people in California alone have qualified for more than $2 billion provided they avoid foreclosures. That’s quite a chunk of people.

You need to check state by state levels to see what state qualifies. That’s what I’m trying to get at though. There have been people out there and I won’t name names that are like I said, “You should go by loans in the Hardest Hit Fund states because that should be your number one priority.” That’s the biggest bullshit flat out lie most of the time. If I have stuff happens on the Hardest Hit Fund, it’s a cherry on top. I don’t focus on these eighteen states plus the District of Columbia. That’s not in my top at all on due diligence. I don’t even put it on my due diligence checklist. First and foremost, I’m not buying in Kentucky because of the fact that you need a $1 million bond there. I don’t like New Jersey because it takes forever to foreclose. I don’t see much stuff in Rhode Island. Oregon is overpriced. You need licensing. California is way overpriced for the most part. For what I could buy in one place in California, I could buy half of Ohio.

How To Make The Most Out Of It

The reason I bring this up now is this may be something you may want to reach out to your borrowers and see if they qualify. This would be something that you would have to do a lot. The servicers can’t reach out to the Hardest Hit Fund agencies to the borrower. The borrower has to be the one that reaches out. They have to be the one that provides the information. I know some investors of mine in Michigan, I got some friends up in Michigan. They utilize the Hardest Hit Funds when it first came out. They went door to door. They were only buying in Michigan and they were buying first liens owner-occupied loans. This does not work on vacant property where the borrowers walked off. This does not work on any loans you’ve already foreclosed on. This has got to be occupied with borrowers living in it. Primary residence, it doesn’t work for investment or second homes. The borrower got to qualify for it. They’ve got to send in their information.

Hardest Hit Fund: The goal here is you’re not going to get a payoff. You’re going to get the borrower back on track to avoid foreclosure.


Don’t ask me what goes into it. You need to go and check out each state. What I would be doing since we’re all sitting around in forbearance land is they will stop taking applications on this because the whole program is going to be ending on December 31st, 2020. Could Trump in a new stimulus package throw more money on this to extend it? Yes, it could. I don’t think he will. If he does anything like this, he’s not going to focus on these 18 or 19 states because these are based on ten-year-old basic statistics. I think what he would do is probably let this thing die and come up with something similar on a nationwide basis and put it out there for the majority of states. If some governors claim disaster areas for defaults, foreclosures and stuff like that, they may try to get their state as a disaster area.

We’ve seen this happen before where things get stopped. The thing to keep in mind here, when you look at these eighteen states like Arizona has one of the lowest default rates in the country. One of the things that we like to look at is a website I like to go to called The Housing Hardship Index. You google that Bankrate.com. I like looking at this on a monthly basis because of the fact that it allows me to see how states are ranking, whether they’re moving up and moving down on their default rates. This Bankrate or the Housing Hardship Index gives you an interactive map to click on each state and see how it’s going. It ranks each state by default. This changes on a month by month basis.

Let’s start with California. If you look at the Hardship Index is 16.76. Their delinquency rate is 5.36%. They were for August 2020 and September 2020 numbers aren’t out yet. They’re the thirteenth worst. Nevada is ranked number one as the worst hardship. They ranked number one on hardship because they have a delinquency rate of 8.58% on their mortgages, an unemployment rate of 13.2%. Going over to Massachusetts, they have a delinquency rate of 5.87%. We talked about California and Arizona. Going back to our state, we look at Alabama, the delinquency rate is 8.37%. Mississippi delinquency rate is 11.34%. Florida delinquency rate is 8.56%. Those are all above the national average.

North Carolina delinquency rate is better than the national average of 6.62%. South Carolina with a delinquency rate of 7.3%. It’s varied across the board. We can get up to little old Rhode Island, the delinquency rate of 7.52%. It does not give me a rate in Washington, DC. We didn’t look at the bigger states, Georgia, Illinois and Indiana. We didn’t go through them. Michigan’s delinquency rate of 5.76%. Ohio has 6.43%. New Jersey has 8.52%. It’s the fifth worst based on August 2020 numbers. Illinois is at 7.19%. Indiana at 7.28%. Kentucky is at 5.55% delinquency rate. That’s why I believe that they’re going to let this thing die and then reallocate and reshuffle the numbers.

What are the states that are being hit the hardest in today’s decade, in the 21st century here versus the numbers in 2010? Can you target these? You could, but you’re probably not going to be able to close on the last stuff and then get back out to the borrowers trying to get them to apply before December 31st, 2020. You want to make sure, reach out and look at each state to see what the qualifications are. You may want to take, reach out, and mail directly to your borrowers individually. I would highly recommend you have your asset manager do this or I would have hired a third-party like an attorney, a senior law group or another attorney in-house that you have. A third party either through LegalZoom or your existing relationship and have them reach out and inform the borrowers that they may be able to qualify for these programs on a state by state level.

If you’re buying in one particular state, it would do you a lot of good to go to the website, scrub up, and learn about what each is offered. What does the borrower have to fill out? What does the questionnaire look like? Some of my friends in Michigan, they put all the qualification questions. They created their own custom list on a tablet and they would go door-knocking one at a time and help each borrower in Michigan that they had on their note fill up the Hardest Hit Fund to get them back on track. The goal here is you’re not going to get a payoff, you’re going to get the borrower back on track to avoid foreclosure.

NCS 630 | Hardest Hit Fund

Hardest Hit Fund: If buying notes in States that have Hardest Hit Funds is your number one exit strategy, you’re going to be highly disappointed 95%, if not 100% of the time.


They’re going to be keeping them in their houses, but you can turn something of a nonperforming note into a re-performing or give people that handout that they need. I only bring this up because the fact is we got an email that one of our borrowers has been actively reaching out to it and I love those kinds of borrowers. It helps you. What I would do maybe, look at your portfolio and check out the eighteen states plus DC, if you’ve got any loans in the capital and create your own Mailchimp. Send a flyer, “Attention, program expiring. You may qualify,” or something like this. I like to send out party envelopes, the big invites, “You may qualify already.” I literally say, “We’re here to work with you and be willing to go back and forth on us.” You may have to forgive some of the loan balance. You may have to forgive a chunk of the back payments.

If a borrower is going to make a lump sum and get back on track, I’m willing to forgive back payments to allow them to keep proceeding and move forward on a performing basis, like doing a loan mod or trial payment plan where the government is paying it. What happens if the borrowers pay for a while and they stopped paying again? Start the foreclosure process and the legal aspect of that as well. If you’ve got 65, 90 odd days before the end of the year, what’s it going to hurt you? If your borrowers are asking for forbearance agreements or they’re asking for some help, I would offer this up to them if they’re in one of the states that’s offering it. If they’re not in any of the Hardest Hit Fund’s states, check with the local State Attorney General’s office or the Housing Authority. See if each state offers different individual programs for you. You may be surprised.

Some cities offer up programs. We all know this has been in the press, some of the cities like Houston and others have offered rental assistance programs that got gobbled up immediately. The little bit of press that they were doing willing to help people like that. We saw this happen in Houston. They put together $15 million to help Houston people that were out of work to stay in their house. It was gone in a day. They helped 8,400 people. Everybody else, “I didn’t qualify.” You’re late to the table. You’ve got to be able to qualify and be able to jump through the hoops the government wants you to do to get this. If you’ve got a borrower that wants to stay in their house and they apply for this, I’m willing to work with that borrower especially if I bought it as a nonperforming note and I bought it as a big enough discount. Why not? Why wouldn’t you want to help somebody stay at their house?

If the government is willing to give you some money and want to give the borrowers some money to pay directly to your servicer, where does that go? That goes in your Hit National Bank, your pocket. I haven’t talked much about this because I haven’t seen hardly any of this stuff done. We’ve had a few Hardest Hit Funds come through in our day. I was surprised to see this. I thought, “I’ll talk about it on the show.” A big caveat here is do not buy notes in states that have Hardest Hit Funds as your number one goal. “Hardest Hit Funds, I’m going to get that approved 100% time.” No. It’s about a 5% to 10% approval rate. If that’s your number one exit strategy, you’re going to be highly disappointed 95% if not 100% of the time, because it varies on a state by state basis and your borrowers got to follow through the paperwork. You almost have to hold their hands to get them to qualify for it. It’s something to keep in mind there.

Here’s the thing, it might work for owner finance, but I’m not 100% sure. I don’t believe it works for owner finance loans. I may stand corrected. It may well if you’re owner finance loans. I have to look at the state by state basis, but I think it’s mostly institutional debt. I don’t believe it could be on a wraparound mortgage. It’s got to be either a first lien and a wraparound mortgage is technically a second lien because it encumbers an underlying first one. If you’re behind on the owner finance loan, that doesn’t count because the underlying first lien may still be current. You want to check on a state by state basis and see what’s going on with it. It’s interesting times and I’m surprised to see this. I think we’re going to see something get moved into the year 2021 with this. This is an extra strategy for you to cash in a little bit and get some Uncle Sam’s government cheese. Check it out. Go to MakingHomeAffordable.gov and look for the Hardest Hit Fund out there. Go out and check it out. We’ll see you all at the top.

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