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 Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets 

Kentucky Hardest Hit Fund (HHF) Proposal 

Kentucky Housing Corporation 

August 31, 2010 

SECTION ONE 

Overview of Program 

Background

On August 11, 2010, President Barack Obama announced an expansion of funding under the 

Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets, also known as 

the Hardest-Hit Fund (HHF). The expansion provides funding to states with the highest 

unemployment rates to offer a standard unemployment bridge program that will pay a portion of 

a borrower’s mortgage while they are unemployed or underemployed. 

The economic realities impacting the citizens of the state that led to Kentucky’s selection as one 

of the states eligible to participate in this program are devastating to individuals and families and 

daunting to state and local agencies attempting to provide relief. In order to better respond to 

these needs, Kentucky Housing Corporation (KHC) is pleased to submit this plan in response to 

the U.S. Treasury Department’s Guidelines for Housing Finance Agency Proposal Submission. 

A. OVERVIEW

The Kentucky Unemployment Bridge Program is a statewide program focused on unemployed 

and under-employed homeowners who are at risk of mortgage loan default or have defaulted in 

payment of their mortgage loan due to involuntary loss of employment income. Homeowners in 

all 120 counties in Kentucky will be eligible for assistance under the program equally, although 

KHC will set aside $10,000,000 in funding for the first 12 months of the program for rural 

counties as defined in this proposal. 

Program Goal 

The goal of this program is to prevent avoidable foreclosure for homeowners who have 

experienced loss of income due to unemployment or underemployment by providing funds to 

pay the household’s mortgage payments during the period of unemployment/underemployment 

and for two months after re-employment, if needed up to the maximum dollar threshold for 

assistance. 
Unemployment, Mortgage Default

Kentucky’s unemployment rate has consistently been above the national rate for several months, 

remaining at 9.9 

Kentucky has historically experienced unemployment rates higher than the national average. 

Beginning in fall of 2008 when national rates began to climb, Kentucky’s rate 

remained above the national rate 

in June 2009

Current data suggest that more than 203,000 persons are unemployed statewide. More than

26,000 Kentuckians have lost their jobs

200 “mass layoffs” since January 2010.

unemployed for more than six months. The median length of unemployment is cur

weeks. 

More than 30,000 mortgages in Kentucky are in default 

delinquent up to and including those in foreclosure. Since 2006, the number of foreclosures in 

Kentucky each year has been increasing. 

(AOC) collects data monthly from county court systems on the number of foreclosure actions 

filed. Foreclosure actions in Kentucky have increased tremendously since 2006.

Foreclosures increased 14 percent from 2006

percent from 2008 to 2009. 

2009. 

5000

10000

15000

20000

Unemployment, Mortgage Default

Kentucky’s unemployment rate has consistently been above the national rate for several months, 

remaining at 9.9 percent as of July 2010

Kentucky has historically experienced unemployment rates higher than the national average. 

Beginning in fall of 2008 when national rates began to climb, Kentucky’s rate 

remained above the national rate 

in June 2009, and remaining a

Current data suggest that more than 203,000 persons are unemployed statewide. More than

26,000 Kentuckians have lost their jobs

200 “mass layoffs” since January 2010.

unemployed for more than six months. The median length of unemployment is cur

ore than 30,000 mortgages in Kentucky are in default 

delinquent up to and including those in foreclosure. Since 2006, the number of foreclosures in 

Kentucky each year has been increasing. 

(AOC) collects data monthly from county court systems on the number of foreclosure actions 

filed. Foreclosure actions in Kentucky have increased tremendously since 2006.

Foreclosures increased 14 percent from 2006

percent from 2008 to 2009. 

0

5000

10000

15000

20000

2006

13526

Unemployment, Mortgage Default

Kentucky’s unemployment rate has consistently been above the national rate for several months, 

percent as of July 2010

Kentucky has historically experienced unemployment rates higher than the national average. 

Beginning in fall of 2008 when national rates began to climb, Kentucky’s rate 

remained above the national rate 

and remaining at or near this level through mid

Current data suggest that more than 203,000 persons are unemployed statewide. More than

26,000 Kentuckians have lost their jobs

200 “mass layoffs” since January 2010.

unemployed for more than six months. The median length of unemployment is cur

ore than 30,000 mortgages in Kentucky are in default 

delinquent up to and including those in foreclosure. Since 2006, the number of foreclosures in 

Kentucky each year has been increasing. 

(AOC) collects data monthly from county court systems on the number of foreclosure actions 

filed. Foreclosure actions in Kentucky have increased tremendously since 2006.

Foreclosures increased 14 percent from 2006

percent from 2008 to 2009. It is expected that total foreclosures for 2010 will be higher than 

2006 2007

13526

15404

Page 

Unemployment, Mortgage Default,

Kentucky’s unemployment rate has consistently been above the national rate for several months, 

percent as of July 2010, according to the 

Kentucky has historically experienced unemployment rates higher than the national average. 

Beginning in fall of 2008 when national rates began to climb, Kentucky’s rate 

remained above the national rate by approximately 

or near this level through mid

Current data suggest that more than 203,000 persons are unemployed statewide. More than

26,000 Kentuckians have lost their jobs so far

200 “mass layoffs” since January 2010. Over 91,000 persons in Kentucky have been 

unemployed for more than six months. The median length of unemployment is cur

ore than 30,000 mortgages in Kentucky are in default 

delinquent up to and including those in foreclosure. Since 2006, the number of foreclosures in 

Kentucky each year has been increasing. The Kent

(AOC) collects data monthly from county court systems on the number of foreclosure actions 

filed. Foreclosure actions in Kentucky have increased tremendously since 2006.

Foreclosures increased 14 percent from 2006

It is expected that total foreclosures for 2010 will be higher than 

2007 2008

15404

16766

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, and Foreclosures in Kentucky

Kentucky’s unemployment rate has consistently been above the national rate for several months, 

according to the 

Kentucky has historically experienced unemployment rates higher than the national average. 

Beginning in fall of 2008 when national rates began to climb, Kentucky’s rate 

approximately 1 percent, climbing to a high of 10.8 percent 

or near this level through mid

Current data suggest that more than 203,000 persons are unemployed statewide. More than

so far in 2010 alone. 

Over 91,000 persons in Kentucky have been 

unemployed for more than six months. The median length of unemployment is cur

ore than 30,000 mortgages in Kentucky are in default –

delinquent up to and including those in foreclosure. Since 2006, the number of foreclosures in 

The Kentucky Administrative Office of the Courts 

(AOC) collects data monthly from county court systems on the number of foreclosure actions 

filed. Foreclosure actions in Kentucky have increased tremendously since 2006.

Foreclosures increased 14 percent from 2006 to 2007 and 9 percent from 2007 to 2008 and 8.7 

It is expected that total foreclosures for 2010 will be higher than 

2009

18218

and Foreclosures in Kentucky

Kentucky’s unemployment rate has consistently been above the national rate for several months, 

according to the U.S. Bureau of Labor Statistics. 

Kentucky has historically experienced unemployment rates higher than the national average. 

Beginning in fall of 2008 when national rates began to climb, Kentucky’s rate 

percent, climbing to a high of 10.8 percent 

or near this level through mid-2010. 

Current data suggest that more than 203,000 persons are unemployed statewide. More than

in 2010 alone. Kentucky has experienced nearly 

Over 91,000 persons in Kentucky have been 

unemployed for more than six months. The median length of unemployment is cur

– including those at least 30 days 

delinquent up to and including those in foreclosure. Since 2006, the number of foreclosures in 

ucky Administrative Office of the Courts 

(AOC) collects data monthly from county court systems on the number of foreclosure actions 

filed. Foreclosure actions in Kentucky have increased tremendously since 2006.

to 2007 and 9 percent from 2007 to 2008 and 8.7 

It is expected that total foreclosures for 2010 will be higher than 

Master Commissioner Fees

and Foreclosures in Kentucky

Kentucky’s unemployment rate has consistently been above the national rate for several months, 

Bureau of Labor Statistics. 

Kentucky has historically experienced unemployment rates higher than the national average. 

Beginning in fall of 2008 when national rates began to climb, Kentucky’s rate consistent

percent, climbing to a high of 10.8 percent 

Current data suggest that more than 203,000 persons are unemployed statewide. More than

Kentucky has experienced nearly 

Over 91,000 persons in Kentucky have been 

unemployed for more than six months. The median length of unemployment is cur

including those at least 30 days 

delinquent up to and including those in foreclosure. Since 2006, the number of foreclosures in 

ucky Administrative Office of the Courts 

(AOC) collects data monthly from county court systems on the number of foreclosure actions 

filed. Foreclosure actions in Kentucky have increased tremendously since 2006.

to 2007 and 9 percent from 2007 to 2008 and 8.7 

It is expected that total foreclosures for 2010 will be higher than 

Master Commissioner Fees

Kentucky’s unemployment rate has consistently been above the national rate for several months, 

Bureau of Labor Statistics. 

Kentucky has historically experienced unemployment rates higher than the national average. 

consistently 

percent, climbing to a high of 10.8 percent 

Current data suggest that more than 203,000 persons are unemployed statewide. More than

Kentucky has experienced nearly 

Over 91,000 persons in Kentucky have been 

unemployed for more than six months. The median length of unemployment is currently over 23 

including those at least 30 days 

delinquent up to and including those in foreclosure. Since 2006, the number of foreclosures in 

ucky Administrative Office of the Courts 

(AOC) collects data monthly from county court systems on the number of foreclosure actions 

filed. Foreclosure actions in Kentucky have increased tremendously since 2006.

to 2007 and 9 percent from 2007 to 2008 and 8.7 

It is expected that total foreclosures for 2010 will be higher than 

Master Commissioner Fees

Kentucky’s unemployment rate has consistently been above the national rate for several months, 

Kentucky has historically experienced unemployment rates higher than the national average. 

percent, climbing to a high of 10.8 percent 

Kentucky has experienced nearly 

rently over 23 

delinquent up to and including those in foreclosure. Since 2006, the number of foreclosures in 

ucky Administrative Office of the Courts 

(AOC) collects data monthly from county court systems on the number of foreclosure actions 

to 2007 and 9 percent from 2007 to 2008 and 8.7 

It is expected that total foreclosures for 2010 will be higher than 
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The highest number of foreclosures, as expected, occurred in the highest population centers in 

the state as indicated on the following map. 

The program described in this proposal will serve the hardest-hit households in Kentucky who 

have experienced loss of household income due to the loss of or decrease in employment. As the 

data indicate, there is more need for assistance than assistance available. Therefore, Kentucky’s 

program will be limited to mortgage assistance for unemployed or underemployed households 

who are seeking employment and who meet the additional criteria of the program. 

Kentucky Unemployment Bridge Program Design 

The Kentucky Unemployment Bridge Program will provide funds to lenders and servicers on 

behalf of qualified homeowners who are delinquent on their mortgage payments or anticipate 

default due to unemployment or underemployment (loss of income). Maximum assistance per 

household is set at $10,000 for the payment of eligible expenses as detailed in Subsection B of 

this program proposal. There is a time limit of 12 months for households to utilize the assistance 

– assistance ends at the sooner to occur of 12 months from the loan closing or $10,000 in 

assistance, so long as other conditions of eligibility are met and continue. Funds will be 

available on a first-come, first-served basis. During the first 12 months of the program, 

$10,000,000 will be set aside to serve rural counties, which are defined as counties not located 
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within a Metropolitan Statistical Area (MSA). A map depicting the MSA and rural counties 

follows. 

Timeline for Deployment 

KHC will implement the program in two stages. The pilot program, estimated to begin January 

2011, will target assistance to households in KHC’s loan portfolio, which is composed of 

families of low to moderate income. Statewide deployment to remaining eligible households is 

scheduled for April 2011. Additional timeline details are in the following table. 

Estimated Date Milestone/Activity 

September 1, 2010 Proposal submitted to U.S. Treasury Department. 

September 23, 2010 KHC provides information and technical assistance to counseling agencies 

at state housing conference pertaining to expectations under the proposed 

program. 

Day 0 Treasury approves KHC plan 

+30 days KHC issues Request for Proposals (RFP) for title companies (if needed). 

KHC begins entering into Participation Agreements with servicers. 

KHC posts openings for available internal positions. 

KHC enters into Performance Agreements with counseling agencies. 

KHC finalizes assistance application package. 

KHC reviews loan portfolio and identifies potential households for 

assistance. 

KHC starts software development/enhancements and installs additional 

telephone lines. 
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+60 KHC begins offering additional training to counseling agencies as needed. 

KHC staff positions filled. 

Title company RFPs reviewed, approved. 

KHC/counseling agencies begin processing applications for assistance for 

households in KHC’s loan portfolio. 

RFPs approved by KHC board of directors and filed with state. 

Marketing campaign design completed. 

+90 days Assistance Loans begin closing (pilot testing). 

+180 days Program is implemented statewide. 

State Stakeholder Feedback 

Since notification of receiving the funds to create the unemployment bridge loan program, staff 

members have been discussing the program design and use of funds with partners and other 

stakeholders across the state. Specifically, staff attended the Jefferson County Foreclosure 

Conciliation meeting in Louisville, Kentucky, on Friday, August 20, 2010. This group is 

composed of Metro Louisville government staff, County Clerk, Master Commissioner, counselor 

agencies, legal aid, attorneys representing lenders/servicers, nonprofits providing outreach to 

homeowners served a summons, the sheriff’s office, judges, and staff from KHC. Staff 

discussed the purpose and scope of the HHF. Many were very excited to have another solution 

for struggling homeowners. Some were concerned that borrowers’ salaries might have 

permanently decreased and that even though this loan would make their current payment, they 

were concerned that the mortgage may not be sustainable with new employment at the lower 

income level. 

Staff also conducted five lender regional trainings where they discussed details of the HHF 

program with the partners. These trainings were held in Owensboro, Ft. Mitchell, Louisville, 

and Lexington and the discussions were held with over 200 lenders. 

KHC also sought feedback regarding program design and use of funding through a survey that 

was conducted with our partnering counseling agencies and other partnering nonprofits and 

agencies. Overall, the feedback was supportive of the program and its design, as well as the 

proposed use of funds. Several counseling agencies identified the need for increased funding to 

support the level of counseling activities required under the program. Most agencies indicated 

that unemployed borrowers are a target population that they see often in their offices in need of 

assistance. 

KHC will continue to solicit feedback from its partners and stakeholders. The statewide 

affordable housing conference, which typically hosts over 600 affordable housing providers from 

non-profit and for-profit agencies, occurs September 22-23, 2010. Staff will provide an 

explanation of the HHF program and solicit comments through a paper survey provided to each 

attendee in their conference packet. Likewise, KHC staff in the Homeownership and Loan 
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Servicing Departments, as well as in the Homeownership Protection Center (Protection Center), 

will continue to discuss the program design with partners and stakeholders in any meetings that 

will be held between September 1, 2010, and the date of program inception. 

 Program Implementation Obstacles and Mitigation 

Communications and Marketing Challenges: 

KHC, as well as other mortgage lenders and servicers, continues to experience challenges in the 

housing market due to declining home sales, extended periods of high-rate unemployment 

statewide, and a negative shift in homeowners’ attitudes toward homeownership as a long-term, 

valuable investment. Foreclosure rates have increased, home loan rescue scams have been on the 

rise, and consumer confidence is low. All of these factors affect the efficacy of the message. 

In the current environment, public perception will be challenging as information spreads about 

the bridge assistance and funds become available. KHC has not been able to offer rescue funds 

in the past to help homeowners and worked to encourage homeowners in need to seek loan 

modifications and payment decreases rather than to quit their jobs in order to receive the help 

they sought. 

Communication and Marketing Solutions: 

The overall objective of marketing is to communicate to unemployed/underemployed 

homeowners about a qualifying, forgivable loan option to protect long-term homeownership for 

those seeking employment meeting eligibility requirements. Low- and no-cost marketing 

options will be explored through a variety of communication methods to best reach targeted 

demographics over the course of the allotted $300,000 budget. As a grassroots approach, KHC 

will partner with other state agencies, including the Kentucky Department of Financial 

Institutions, and the existing network of counselors for training, implementation, and statewide 

and targeted community outreach. KHC will begin marketing the pilot program to help current 

mortgagors and use its existing Web site to house and market program information. 

Due to economic realities, targeted marketing tactics may entail traditional and nontraditional 

advertising methods, including television and radio public service announcements, billboards, 

newsprint, Web-related advertising, and community events, to reach audiences in various 

demographics and of various ages. 

Counseling Network Challenges: 

Kentucky has a strong counseling network in place that is trained in providing both 

homeownership education and counseling or legal services to those borrowers in need of 

foreclosure intervention and delinquency counseling services. This network of counselors has a 

decade-long history of working with KHC borrowers and staff and continues to provide service 
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to KHC clients on a daily basis. There are 51 agencies in Kentucky that provide counseling 

services in partnership with KHC who employ a total of 146 trained and certified counselors 

with an average of ten years of counseling experience. All of these counselors are certified 

through either the U.S. Department of Housing and Urban Development or NeighborWorks 

America. However, implementing a program to serve this number of clients will place a strain 

on agencies to provide the level of counseling and services required. Additionally, counselors 

work with many different programs, not solely KHC’s programs, and they will need training on 

program requirements, eligibility determination, as well as counselor roles and responsibilities. 

Counseling Network Solutions: 

In order to strengthen the existing network of counselors within the state to best provide staffing 

for this program, KHC will use a portion of the grant funds to conduct training and provide 

technical assistance to build the capacity of the counseling agencies to participate in the HHF 

Program. KHC’s Homeownership Protection Center staff will provide training on borrower 

eligibility and program compliance requirements with all counseling and support agencies as 

soon as possible. This will prepare the partner agencies to qualify borrowers using predetermined eligibility requirements. In addition, agencies will be trained in HHF program 

requirements to prepare them to provide services within the rules of the program. All agencies 

will be trained in accessing updates and program information from the U.S. Treasury and other 

relevant governmental web sites as well as through notices from KHC as to program 

requirements and updates. 

As an adjunct to this training and during the implementation stage, a complete assessment of 

training needs will be undertaken to gauge the skills and competencies of all agencies in using 

informational, client management and other data repository systems. 

Individual counselor skills and competencies throughout the partner network will be measured to 

determine any additional training necessary to update counselors or to train new counselors on 

the new program guidelines and interaction with existing loss mitigation programs. This training 

will also encompass data capturing processes. 

KHC will establish performance measures for the counseling agencies to ensure counselors are 

adhering to the roles and responsibilities outlined in signed Performance Agreements to receive 

funds under the HHF grant. KHC’s Homeownership Education and Counseling department will 

oversee the counseling portion of the HHF program and will implement specific performance 

goals expected of each of the counseling agencies based on their case management capacity. In 

addition, KHC will include in the Performance Agreement with each counseling agency a 

specific work plan template for eligible HHF borrowers that will include required data and 

service points under the requirements of the program. In doing so, specific responsibilities and 

expectations of each of the counseling agencies in providing services to borrowers will be 

delineated and measureable by KHC. 
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KHC will use existing performance metric frameworks established through the NeighborWorks 

Foreclosure Mitigation Counseling (NFMC) Program, the HUD-trained counseling network or 

other programs with counseling agencies to measure programmatic compliance with both 

production goals and substantive service goals. In reviewing accomplishments through 

performance measurement, it may become apparent that the state needs additional counselors to 

fill service provider gaps. KHC Homeownership Protection Center staff understand that they 

may have to provide services in these underserved areas for a period of time. Likewise, KHC 

will reserve the option to hire additional counselors to provide statewide coverage in needed 

geographical areas. 

Infrastructure/Program Setup Challenges: 

KHC anticipates the need to add staff and technology to its existing infrastructure to meet the 

demands under the program. Included are new staff positions, staff locations, upgrades to the 

phone system, phone lines and software integration. Although KHC currently operates the 

statewide Protection Center, it is anticipated that the demand under this program will be greater 

than the existing level of staff and phone lines can handle. In addition, numerous loan servicing 

entities will be involved with households affected under the program. Negotiating and entering 

into Participation Agreements with these entities will be challenging. 

Infrastructure/Program Setup Solutions: 

These challenges will be partially alleviated by initiating the program with households in KHC’s 

loan portfolio first before announcing the program statewide. This will allow KHC to begin 

assisting lower-income households first while operational staff members complete the 

infrastructure necessary to serve the broader public. The Kentucky Department of Financial 

Institutions will be instrumental in assisting KHC in obtaining Participation Agreements from the 

numerous loan servicing entities that are anticipated to be a part of the program. 

Leveraging Other Resources 

Kentucky’s HHF program will dovetail with existing programs including the PROTECTION 

CENTER, the Homeownership Education and Counseling Program funded through HUD and 

KHC, and the NFMC. Homeowners who participate in the program will work with a KHCapproved counselor and utilize the Homeownership Protection Center web site for their initial 

information. Counselors will assist borrowers in ensuring they have used all other loss mitigation 

options before being eligible for HHF funds. This program will not be combined with other 

financial resources. 
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KHC staff members currently participate on the HOPE Now Alliance conference call with 

National Council of State Housing Agencies (NCSHA) and have solicited feedback on these 

calls, as well as through local outreach to community banks. KHC will also partner with the 

Kentucky Department of Financial Institutions, Mortgage Bankers Association, the statewide 

network of Area Development Districts, Kentucky Credit Union League, local governments, 

County Extension offices, nonprofit housing and social service entities, and the Kentucky 

Legislative Research Commission’s Office of Constituent Services to market the program and 

integrate other social services that may be available to assist households in need. 

B. POPULATION SERVED AND ALLOCATION METHODOLOGY

Current data suggest that over 30,000 first mortgage loans in Kentucky are delinquent or in 

foreclosure. The average age of these loans is 51 months and the average loan balance is 

approximately $117,000. Using this data, KHC has determined that the average monthly 

mortgage payment per household (including principal, interest, taxes, insurance, mortgage 

insurance premium) is $1,000. Unemployment in Kentucky is also very high, with over 203,000 

persons presently unemployed. The average length of unemployment is six months. 

Based on this data, KHC has established the maximum level of assistance under the program at 

$10,000, which would allow the program to serve a minimum of 4,500 households. Given that 

unemployment averages six months and the program is designed to assist during the period of 

unemployment and for two months thereafter, the average amount of assistance is anticipated to 

be $8,000, which would allow the program to serve 5,700 households. KHC is estimating that 

between 4,500 and 5,700 households will be served over the term of the program. The 

program’s budget has been developed based on closing 5,000 assistance loans. 

The program will be available statewide. KHC has excluded households whose mortgage 

payment does not equal or exceed 31 percent of present household income, those who have a 

loan-to-value ratio of greater than 125 percent, and those who are eligible for other loss 

mitigation options. To ensure that more moderate-income households are assisted, KHC has also 

limited the maximum total mortgage debt level to $275,000. 

Allowable uses of funding under the program include: 

• Delinquent mortgage payments for first and second mortgages. 

• Late fees, inspection fees, and attorney fees. 

• Delinquent property taxes, homeowner’s insurance, homeowner/condominium 

association dues or escrow shortage incurred as a direct result of the unemployment or 

underemployment event. 
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• Up to one year of standard homeowner’s insurance, if the servicer has previously 

imposed forced-placed insurance and the forced placement was a direct result of the 

unemployment or underemployment event. 

The total funding for the program is $55,588,050 of which $9,959,865 will be used for 

counseling costs, administrative costs, closing costs, etc., as described in the program budget. 

The remaining $45,628,185 will be used for direct household assistance. Funds will be available 

on a first-come, first-served basis. 

Eligible households must meet ALL of the following requirements: 

• The homeowners must be legal U.S. residents. 

• The financial hardship (loss of employment income) must have occurred after January 1, 

2009. 

• Monthly payment of principal, interest, taxes and insurance (PITI), including both first 

and second lien mortgages, must exceed 31 percent of the borrower’s gross monthly 

income at time of application for HHF, including any unemployment benefits. 

• The homeowner’s cash reserves cannot exceed six months, excluding retirement. For 

purposes of this program, “cash reserves” includes reasonable and sufficient funds (as 

defined by the Internal Revenue Service Financial Collection Standards) for the payment 

of food, clothing, housekeeping supplies, miscellaneous household expenses, out-ofpocket health care expenses, utilities, child care, and transportation. 

• The homeowner must be experiencing a financial hardship due to involuntary loss or 

reduction in employment income documented by an executed hardship affidavit. 

Unemployment or underemployment as the result of a documented short-term disability 

will also qualify. 

• Payments due on the homeowner’s mortgage(s) must have been current for 12 months 

preceding the unemployment and/or underemployment event. 

• All final eligibility determination will be made by KHC. 

• The homeowner must agree to participate in ongoing homeownership counseling through 

a KHC-approved counselor during the term of assistance. 

• The homeowner must be currently seeking employment and/or participating in a job 

training/educational program with the goal of obtaining employment during the term of 

assistance. 

Property/Loan Eligibility Requirements: 

• Owner-occupied primary residence is located in Kentucky 

• Combined loan-to-value cannot exceed 125 percent and a maximum of $275,000. 
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• Existing single-family homes or condominiums (attached or detached) and manufactured 

or mobile homes on foundations permanently affixed to real estate owned by the 

borrower. 

Program Exclusions: 

A household is not eligible for the program if: 

• Borrower’s total unpaid principal balance exceeds $275,000, including first and second 

mortgages combined. 

• Borrower owns other real property. 

• Borrower’s hardship is a result of voluntary resignation of employment or voluntary 

reduction in hours or income. 

• Borrower has consummated a cash-out refinance after January 2009, unless the proceeds 

were used for improvement of the subject property or for debt consolidation (KHC 

reserves the right to make a final determination in all cases). 

• Borrower’s application is for a second home or investment property. 

• Borrower is participating in or eligible for other loss mitigation options. 

• Borrower does not occupy the property as a primary residence. 

• Borrower’s present household income is sufficient to pay mortgage expenses (mortgage 

payment does not exceed 31 percent of gross income). 

The program will not fund job training costs. 

Structure of Assistance: 

Participating households will receive a non-recourse, non-amortizing, zero percent interest, fiveyear loan secured by the property that will only be repaid from equity proceeds of a refinance or 

sale. The lien will be subordinate to the homeowner’s existing first and second mortgages. 

Twenty percent of the loan balance will be forgiven each year on the anniversary of the closing 

date. Loan repayments and unused proceeds will be recycled back into the program and used to 

provide assistance to additional homeowners through the end of the program, December 31, 

2017. Any funds on hand on or after the program end date will be returned to the U.S. Treasury. 

Maximum Household Assistance: 

The maximum amount of assistance per household under the program is $10,000 to include 

eligible items described previously. The cost of application processing, counseling, and loan 

closing will be paid through administrative fees and not charged against the household’s eligible 

level of assistance. There is no maximum amount of assistance per month. 
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Duration of Assistance: 

Payment of assistance will end on the first to occur of: (1) 12 months from assistance loan 

closing date, (2) two months after re-employment, (3) the expenditure of the maximum amount 

of assistance ($10,000), or (4) the household no longer complies with other required program 

provisions. 

In the case of a new qualifying event of unemployment or underemployment, the household may 

reapply for assistance, provided, that the new assistance will be made available only to the extent 

funds are available, up to the maximum total assistance for the household, and the maximum 

time period for assistance has not been exhausted. 

As described under “Structure of Assistance,” loan funds will be due and payable if the property 

is sold, refinanced, or no longer occupied by the owner as a primary residence. Twenty percent 

of the loan balance will be forgiven each year on the anniversary of the closing date. 

C. DEMONSTRATION OF CAPACITY TO IMPLEMENT 

KHC, the state housing finance agency, was created by the 1972 Kentucky General Assembly to 

provide housing opportunities for lower- and moderate-income Kentuckians. KHC is a selfsupporting, public corporation administratively attached to the Kentucky Finance and 

Administration Cabinet. Through the sale of tax-exempt mortgage revenue bonds and the receipt 

of administrative fees, KHC offers lower-than-market rate home mortgages, multifamily housing 

production financing, homeownership education and counseling, a variety of rental assistance, 

housing rehabilitation and specialized housing resources programs. 

KHC is uniquely qualified to create and administer the Kentucky Unemployment Bridge 

Program and utilize the HHF dollars as the state’s lead agency in assisting families to stay in 

their homes and to prevent avoidable foreclosures. Additionally, KHC administers numerous 

federal housing programs as the state’s affordable housing finance agency. 

Although KHC is the state housing finance agency for the Commonwealth of Kentucky, it is not 

a state agency. KHC is defined in its enabling legislation as: “an independent, de jure municipal 

corporation and political subdivision of the Commonwealth which shall be a public body 

corporate and politic to be known as the Kentucky Housing Corporation.” [See KRS 198A.030 

(1) attached] KHC was “created and established as a de jure municipal corporation and political 

subdivision of the Commonwealth to perform essential governmental and public functions and 

purposes in improving and otherwise promoting the health and general welfare of the people by 

the production of residential housing in Kentucky. [KRS 198A.030(2)] KHC is governed by an 

independent board of directors [See KRS 198A.030(3) attached] pursuant to bylaws. [See Bylaws 

attached] Since KHC is a de jure municipal corporation, it has no separate Articles of 
Page 13 of 29

Incorporation; the enabling legislation serves the function of the Articles of Incorporation. 

Additionally, as the HFA, KHC meets the definition of a “financial institution” through its loan 

functions. KHC makes mortgage loans to help provide affordable housing options to low and 

moderate income Kentuckians, either through single-family loans or loans for rental housing 

production. Based on this business, KHC is regulated as a financial institution by state and 

federal laws. [See 198A.040 attached] Given KHC’s status as a de jure municipal corporation 

and as a lending institution, KHC should qualify as an “eligible entity” in order to receive the 

Hardest Hit Funds from the Emergency Economic Stabilization Act of 2008, as amended 

(EESA). 

KHC currently operates the Homeownership Protection Center (Protection Center), a statewide 

program that provides a centralized location for information on public services to assist 

Kentuckians in keeping their homes. Established by the 2008 Kentucky General Assembly to 

address the foreclosure crisis in Kentucky, the Protection Center helps homeowners find 

information on the foreclosure process, utility assistance and home repair assistance to help them 

make smart choices and avoid losing their homes. Financial counselors, attorneys, and public 

assistance agencies work through the Protection Center to help borrowers understand their 

options, receive counseling at no cost to the homeowner, and obtain assistance for eligible 

borrowers through the Kentucky Legal Aid Society when they cannot recover from their 

circumstances through counseling alone. 

In addition, KHC administers the National Foreclosure Mitigation Counseling (NFMC) program 

which provides foreclosure counseling and budgeting assistance to homeowners at risk of losing 

their homes. Since 2008, nearly 4,000 homeowners have received counseling services through 

this program. KHC has developed a strong network of partners throughout the state to assist 

homeowners. Collectively, this network of counseling agencies employs more than 70 

foreclosure counselors and specialists with an average of ten years of experience. KHC’s 

Homeownership Education and Counseling Program has been in operation over ten years and 

has counseled thousands of homeowners and prospective homeowners throughout the state with 

a staff of KHC counselors and through the same network of partners who provide assistance 

under the NFMC program. 

KHC currently administers other programs funded through the American Recovery and 

Reinvestment Act (ARRA) including the Tax Credit Exchange Program allocated through the 

U.S. Treasury, Tax Credit Assistance Program, Homeless Prevention and Rapid Rehousing 

Programs through the U.S. Department of Housing and Urban Development, and Weatherization 

Assistance Program through the U.S. Department of Energy. The infrastructure required to 

administer HHF has already been established as a result of administration of existing ARRA 

programs and other federal housing programs. 
Page 14 of 29

KHC’s Homeownership Program was established in 1972 as the first program at KHC. KHC has 

financed affordable first-time homeownership for over 81,000 households over the past 38 years. 

The KHC Homeownership Education and Counseling Program, under which the HHF will be 

housed, consists of a program director, program administrator, assistant program administrator, 

program evaluator and certified comprehensive homeownership counselors. The HHF will be 

overseen by the senior director of KHC’s Homeownership Department and the director of the 

Homeownership Education and Counseling Program in partnership with staff from KHC’s Loan 

Servicing, Organizational Planning and Performance, Program Tracking and Funding, 

Accounting, Compliance, and Audit Departments as described below. 

Key Staff 

Brenda Weaver, chief program and policy officer, will oversee coordination of the program and 

the development and implementation of program policy and partner relationships, including 

acting as the primary contact with the U.S. Treasury. Ms. Weaver has 28 years of experience in 

the affordable housing industry with KHC and other financial entities. 

The HHF will be primarily administered through KHC’s Homeownership Department headed by 

Brenda Walker as senior director. Ms. Walker provides oversight in the planning and 

development of programs for clients and homeownership counselors. She has over 22 years of 

experience in the housing industry, including 16 years with KHC. Ms. Walker directs all aspects 

of KHC’s multimillion dollar single-family mortgage lending program that has provided 

homeownership to thousands of families and is financed by a bond program rated AAA by 

Moody’s Investor Services. 

Abdon Ibarra, J.D., is director of KHC’s Homeownership Education and Counseling Program. 

Mr. Ibarra is bilingual and has over 22 years of housing-related experience, including housing 

counseling and training, nonprofit agency management and foreclosure law. Mr. Ibarra also 

oversees the NFMC program and the Protection Center. Mr. Ibarra and his staff will assume 

responsibility for the operation of the program. 

Numerous other staff responsible for the day-to-day operation of the program have numerous 

years of experience in foreclosure and loss mitigation counseling and mortgage underwriting. 

Loans will be serviced in-house by KHC’s Loan Servicing Department, a staff of 42 persons 

with many years of experience in all aspects of servicing single-family mortgage loans, currently 

with a portfolio of 25,000 loans. 

The organizational chart on the following page details the reporting structure and internal 

relationships for the program. 
Page 15 of 29

 Hardest Hit Fund 

 Organizational Chart 

 (8/27/10) 

Chief Officer Program & 

Policy 

Senior Director of 

Loan Servicing 

Senior Director of 

Homeownership

Loan Servicing Staff 

(4 dedicated positions)

Director of Education 

and Counseling 

Homeownership 

Protection Staff 

(8 dedicated positions)

Statewide 

Counselor Network

KHC Board of Directors

Chief Executive Officer

Chief Financial Officer

Controller

Internal Audit

Executive Counsel

Senior Paralegal

Call Center

(4 dedication positions)

Staff Accountant

(1 dedicated position)

Underwriter

(1 dedicated position)

Post Closing Specialist

(1 dedicated position)

Compliance Infrastructure, Audit and Internal Controls, Risk Mitigation 

KHC’s Internal Audit infrastructure is detailed in Subsection F of this program proposal. KHC 

will establish protocols for the program and performs reviews of outside partners who are 

administering funding allocated to them. The Internal Audit Department is responsible for 

evaluating internal controls established by management to mitigate fraud risks. In addition, 

KHC employs an outside, independent firm that performs an annual audit. Separation of duties 
Page 16 of 29

as described in the internal control plan also serves to mitigate risk of fraud. Monetary 

compliance is a separate function of program compliance. 

KHC’s accounting software system is Microsoft Dynamics. It is structured with unique cost 

centers for each source of funds, activity, and/or department and includes sufficient details to 

allow for tracking and reporting of each budget line item. Program activities and funds are also 

tracked in separate systems, including FICS, Housing Counselor Online, and CounselorMac. 

Protocols are in place to allow staff to balance program expenditures against receipts and to track 

funds allocated to each household assisted, title company, and housing counseling agency, as 

well as internal administrative expenses associated with the HHF. 

KHC will underwrite each loan funded under the HHF before closing and will coordinate the 

loan closing and disburse funds directly to the household’s mortgage servicing entity. KHC will 

also actively monitor the counseling agencies that will be required to submit electronic data 

through Housing Counselor Online that will allow KHC to monitor the success of households 

assisted. In addition, housing counselors have access to the Hope Loan Portal, an online 

interactive communications system that allows counseling agencies and loan servicers to share 

information and communicate about their common clients. 

KHC will require the following minimum activities be performed to assist in mitigating errors 

and fraud under the program: 

• KHC staff will underwrite each loan to ensure households and properties are eligible. 

• Loan closings will be conducted by legal entities and personnel who will be responsible 

for – 

o Verifying the identity of the borrowers and 

o Recording legal documents. 

• Loans will be serviced in-house by KHC’s Loan Servicing Department. 

• KHC will perform post-closing review of loan documents to ensure compliance. 

• Staff will perform monitoring of each counseling agency to ensure that the agency is 

performing its responsibilities under the program. 

• KHC program funding staff will be responsible for overseeing draws from U.S. Treasury 

and reconciling program reports, separate from program staff. 

Reporting Protocols, Systems Infrastructure 

KHC’s Organizational Planning and Performance Department has established reporting 

protocols and systems for all stimulus-related sources of funding and serves as the internal 

reporting entity for these programs. Reports submitted to the Office of Management and Budget 

(OMB) and the U.S. Treasury, as required by regulation, are prepared and submitted by staff of 
Page 17 of 29

this department following the infrastructure in place for the six current programs at KHC funded 

with stimulus dollars. 

Program data will be collected at different points of contact including: 

• Initial inquiry 

o Number of phone calls 

o Disposition of inquiry 

• Application receipt by counseling agency 

• Ongoing counseling sessions by counseling agency 

Program metrics expected to be collected and reported to U.S. Treasury include: 

• Number of inquiries 

• Number of qualified applicants 

• Number of closings 

• Number of months assistance provided and total dollar amount of assistance 

• Total funds disbursed by budget line item 

• Additional metrics as collected by the Protection Center detailed in the next section. 

Relevant Program Implementation Experience

Since 2008, KHC has operated the statewide Protection Center, a program that provides a 

centralized location for information on public services to assist Kentuckians in keeping their 

homes. Established by the 2008 Kentucky General Assembly to address the foreclosure crisis in 

Kentucky, the Protection Center helps homeowners find information on the foreclosure process, 

utility assistance, and home repair assistance to help them make smart choices and avoid losing 

their homes. Financial counselors, attorneys, and public assistance agencies work through the 

Protection Center to help borrowers understand their options, receive counseling at no cost to the 

homeowner, and obtain assistance for eligible borrowers through the Kentucky Legal Aid 

Society when they cannot recover from their circumstances through counseling alone. 

Through August 25, 2010, KHC has received nearly 10,000 inquiries through the Protection 

Center from homeowners needing assistance. The following data details the activities and 

outcomes tracked under this program. 

Initial Mortgage Position 

30 Days Late 939

60 Days Late 1,946

90 + Days Late 2,483

Current but anticipating delinquency 1,692

Summons has been served 2,006
Page 18 of 29

Not a foreclosure issue 527

Current Status 

Referred to Counseling Agency 3,541

Referred to Legal Aid 577

Complete 1,211

No Response – Letter Sent to Client 658

Withdrawn – Duplicate or Client Denied 2,868

Initial call to KHC 346

Returned call by KHC 251

Reassigned 141

Client/Loan Information 

Adjustable Rate Mortgage 810

Fixed Rate Mortgage 4,519

Average Original Mortgage Amount $100,000

Average Appraised Amount $82,702

Average Borrower Income $34,335

Outcomes 

Chapter 13 Bankruptcy 58

Chapter 7 Bankruptcy 40

Mortgage Brought Current 61

Counseled & Referred for Legal Assistance 141

Counseled & Referred to Social Svc Agency 108

Entered Debt Management Plan 18

Executed Deed-in-Lieu 9

Forbearance Agreement 71

Foreclosure Prevention/Budget Counseling 169

KHC Client Referred to Counseling 12

Mortgage Debt Forgiven 2

Mortgage Foreclosed 67

Mortgage Modified 196

Mortgage Refinance - HECM 2

Non-Compliant 1

Obtained Partial Claim Loan from FHA Lender 2

Over Income – Referred to Private Bar 153

Pre-foreclosure Sale 17

Received Second Mortgage 1

Repayment Plan 34

Sold Property/Chose Alternative Hsg Solution 32

 
Page 19 of 29

D. STAFFING AND BUSINESS PARTNERS 

 

Staffing Plan 

The HHF grant will be administered by KHC through the Protection Center which is staffed and 

housed by KHC. KHC will be executing agreements with its network of counseling agencies 

throughout Kentucky to provide eligibility determination and submit client financial information 

to the Protection Center for review and approval. KHC staff will provide administrative support 

for the daily activities associated with this grant, through the staff of the Protection Center and 

also through its staff in other departments to include marketing, legal and accounting services, as 

well as compliance monitoring and audit services. 

The Protection Center will handle the day-to-day program delivery with regard to intake and 

processing of clients in the program. The Protection Center personnel primarily assigned to the 

delivery of the program include: 

• Director of Education and Counseling (1) 

• Default Counselor (1) 

• Loss Mitigation Counselor (4) 

• Program Administrative Assistant (2) 

• Counseling Specialist (1) 

• Call Center Manager (1) 

• Call Center Representatives (4) 

Director of Education and Counseling (1): The director will manage all aspects of the program, 

including counseling activities through the Protection Center and the statewide counseling 

network, as well as coordinate fiscal and compliance responsibilities. 

Default Counselor (1): The counselor will oversee the pipeline of borrowers submitted to the 

program for evaluation and determination. 

Loss Mitigation Counselor (4): The counselors will work directly with the borrower to 

collaboratively determine borrower eligibility for the program, as well as maintain case 

management responsibility with internal and external servicers or lenders. 

Program Administrative Assistant (2): The program administrative assistants are responsible for 

maintaining program reports and other functions relating to the overall program administration. 

Counseling Specialist (1): The specialist will oversee counseling plans and conduct follow-up 

on counseling plans designed for each individual borrower as required for participation under the 

program. 
Page 20 of 29

Call Center Manager (1): The manager will oversee four direct reports working as call center 

representatives, manage and monitor agency pipeline, and coordinate counselor transfer of 

clients to the Protection Center. 

Call Center Representative (4): The representatives will take calls from the Protection Center 

hotline and web site requests, completing preliminary intake and demographics to determine the 

appropriate referral agency, mail the Comprehensive Intake and Document request package to 

the prospective client, track of all referrals and documents sent to partner counseling agencies, 

monitor agency pipeline, and oversee response to referrals. 

KHC staff from the Homeownership Department and the Legal Department will underwrite the 

loan, ensure the loan file is complete before transfer to servicing, as well as assist in the loan 

closing. These staff members include: 

• Underwriter (1) 

• Post closing specialist (1) 

• Senior paralegal (1) 

Underwriter (1): The underwriter will review the borrower’s financial package to determine if 

they meet all criteria outlined in the program summary guide. The underwriter will approve or 

deny the loan and communicate the determination to the counselor and/or homeowner. 

Post Closing Specialist (1): The specialist will coordinate the loan closing date, as well as 

prepare the closing package. Once the loan is closed, the specialist will verify execution of all 

closed loan documents, work with the closing attorney to correct errors or omissions and enter 

the status in FICS software to begin payments on behalf of the homeowner. 

Senior Paralegal (1): The paralegal will provide legal support for the program, to include 

assistance in closing the loans. 

KHC staff in the Loan Servicing department will be responsible for processing and making 

payments on behalf of borrowers once loans are closed. Staff primarily assigned to the daily 

administration of the program include: 

• New Loan Specialist (1) 

• Customer Service Specialist (1) 

• Investor Accounting Specialist (1) 

New Loan Specialist (1): The specialist will process the loan import from KHC’s origination 

software, audit data for accuracy, key in missing data and corrections, and prepare temporary 

coupons and welcome packages to all new mortgagors. 
Page 21 of 29

Customer Service Specialist (1): The specialist will answer all incoming calls regarding 

mortgage loan payments on behalf of the borrower as it relates to payment amount changes, 

name/address changes, etc., and assist in providing general customer service to borrowers. 

Investor Accounting Specialist (1): The specialist will post payments and payoffs, balance daily 

receipts, ACH imports, prepare deeds-of-release, and research payment discrepancies. 

Staff in the Accounting Department will be responsible for making payments to the servicers. 

There will be one staff person, a staff accountant, assigned to the work and responsible for the 

daily processes in Accounting. 

Staff Accountant (1): The staff accountant will process or assist in processing incoming receipts 

and incoming disbursements ,as well as fund transfers, and will provide support to the investor 

accounting and other specialists as needed. 

The process is represented in the following flowchart. 
Page 22 of 29

HPC completes preintake refers 

borrower to 

counseling agency. 

Sends financial 

package (LMP)to 

borrower including 

return address 

envelop.

Borrower returns 

LMP to counseling 

agency.

Counseling 

Agency reviews 

LMP and 

completes intake 

and schedules 

appointment with 

borrower

Counselor 

evaluates file for 

all Loss Mitigation 

Options

Borrower 

qualify for 

HHF?

Counseling 

Agency initiates 

HHF case 

management. 

Completes loan 

profile for 1st and/

or 2nd mtg servicer, 

gathers 

reinstatement 

balances from 

servicers.

Yes

No

Borrower makes 

contact Website or 

Hotline

as of 8/25/10

Counselor submits 

HHF application 

and supporting 

documentation to 

KHC

KHC underwrites 

the HHF 

application and 

documentation

Are documents 

Approved?

KHC sends 

approval to 

counselor, servicer 

and borrower

KHC prepares 

loan docs, 

schedules closing 

with attorney.

KHC sends closing 

docs to attorney

Borrower goes to 

closing at 

attorney’s office

Counselor pursues 

other options

KHC sends denial 

letter to counselor 

and borrower

KHC wires closing 

fees to attorney 

and prepares and 

mails check for 

borrower 

reinstatement 

balance

Attorney records 

lien and sends 

closing package to 

KHC within 10 

calendar days of 

closing.

Counseling 

agency continues 

case management 

and follow-up

Case closes upon 

re-employment or 

reaches max 

benefit allowance

Servicing staff 

Import loan data 

from 

Homeownership

Disburse funds to 

lender for 

mortgagor’s 

payment from 

FICS

Servicing provides 

detail of required 

disbursements to 

Accounting and to 

lender

Accounting wires 

funds to lender for 

payments 
Page 23 of 29

Key Partners 

The HHF will include the following partners and contract agencies. 

1. Housing Counseling Agencies 

Under the Protection Center, NFMC Program and Housing and Education Counseling 

Program, a network of housing counseling agencies exists that will be utilized to assist 

homeowners under the HHF. KHC will enter into agreements with counseling agencies, 

providing funding for pre-screening and ongoing counseling and program tracking. 

Counseling agencies will be paid $300 for each program participant application review plus 

$100 per counseling session for participating households, up to $1,000 total. Because it is 

anticipated that most counseling sessions will be provided by telephone, counseling agencies 

must agree to provide counseling to program participants located statewide. 

Partner Housing Counseling Agencies include: 

Apprisen Financial Advocates (formerly Consumer Counseling Service) 

Barren River Area Safe Space (BRASS) 

Barret Center, Inc./Henderson Housing Authority 

Bell-Whitley Community Action Agency, Inc. 

Bluegrass Domestic Violence Program 

Brighton Center 

Catholic Charities 

Chrysalis House, Inc. 

Community Housing, Inc. 

Community Ventures Corporation 

Daniel Boone Community Action Agency, Inc. 

Gateway Community Action Agency, Inc. 

Homeownership Protection Center 

Hopkinsville-Christian County Habitat for Humanity, Inc. 

Kentucky Communities Economic Opportunity Council, Inc. 

Kentucky Domestic Violence Association 

Kentucky River Foothills Development Council, Inc. 

Leslie, Knott, Letcher, Perry Community Action Council, Inc. 

Kentucky Communities Economic Opportunity Council, Inc. 

Kentucky Housing Partnership, Inc. 

Live the Dream Development 

Louisville Central Community Centers, Inc. 
Page 24 of 29

Louisville Urban League 

McCreary County Community Housing Development 

Merryman House 

Northern Kentucky Community Action Commission 

OASIS, Inc. 

People’s Self-Help Housing, Inc. 

Pennyrile Housing Corporation 

Potentials, Inc. 

R.E.A.C.H., Inc. 

Sanctuary, Inc. 

Spring Haven 

Safe Harbor 

The Housing Foundation, Inc. 

2. Servicers 

Loan Servicing entities are important participants in the program. These entities are 

expected to act as an additional referral system for the HHF, review current portfolios of 

delinquent loans to determine which borrowers may qualify for assistance for the program, 

refer them to KHC, and work with counseling agencies and KHC to accept payments on 

behalf of borrowers participating in the program. The loan servicing entities with which 

KHC has a working relationship for this program include the servicers listed below plus 

numerous local loan servicing entities with which KHC currently works under the 

Protection Center: 

AMHSI Loan Care Roundpoint Mortgage 

Aurora Litton Saxon 

Bayview LBPS SPS 

Bank of America MetLife SunTrust 

Citi Nationstar Vericrest 

Chase Ocwen Vantium 

GMAC One West Bank Wells/Wachovia 

HomEq PNC Hope Loan Port 

Home Loan Services Quicken Loans HOPE NOW 

HSBC Residential Credit 

Solutions 

Kentucky Housing 

Corporation 

3. Closing/Title Companies 

In order to mitigate fraud and error, KHC will utilize closing and/or title companies to close 

loans under the HHF. Once KHC’s agreement with U.S. Treasury has been executed, KHC 
Page 25 of 29

will issue a Request for Proposals for these services. KHC is estimating that closing and 

recording costs will be a maximum of $275 per transaction. 

4. Other entities (no contractual relationship) 

The following entities in Kentucky have expressed interest in participating with KHC in the 

program and do not fall under the previous categories. 

• The Kentucky Department of Financial Institutions is the state agency responsible for 

oversight of mortgage brokers and lenders and other financial entities throughout the 

state. Their role will include outreach, marketing, and assisting with relationships 

between KHC and mortgage lenders and servicers operating in the state. 

• The Kentucky Legal Aid Society currently participates in the Homeownership 

Protection Center Program and National Foreclosure Mitigation Program by 

providing legal services to persons facing foreclosure who income-qualify. It is 

anticipated that Legal Aid will assist some homeowners who wish to participate in the 

program and may be experiencing difficulty working with servicers or legal firms 

involved in the foreclosure process. 

• Nonprofit affordable housing and social service entities throughout Kentucky will be 

instrumental in marketing the program, providing referrals, and offering additional 

non-mortgage assistance for which households may qualify. 

• The Kentucky Legislative Research Commission (LRC) Office of Constituent 

Services works for all 138 of Kentucky’s legislators and receives inquiries from 

Kentucky citizens in need of assistance. Since the inception of the Protection Center, 

LRC staff has referred more than 2,000 citizens to the Protection Center of which 

more than 200 were related to unemployment. 

 

E. ADMINISTRATIVE EXPENSES 

Administrative expenses under the program are detailed in the table below and are based on 

5,000 client loan closings. 

Kentucky 

 

 One-time / Start-Up Expenses: 

 

Information Technology $105,000

RFP advertising for Professional 

Services $1,500

Marketing $100,000

Computers $6,600

Telephone sets $2,500
Page 26 of 29

Chair, desk set-up supplies $1,500

Cabling for phones and computers $500

Bank of New York start up fee $400

 

 Subtotal $218,000 2.19%

 

Operating / Administrative 

Expenses: 

Salaries $2,925,788

Professional Services (Closing 

Attorney) $1,375,000

Credit Reports $84,000

Marketing $200,000

Bank of New York Fee $1,975

Training $10,000

Utilities $10,270

Cleaning $4,582

Telephone line $35,550

Supplies $13,200

Postage $19,250

Travel $19,750

 

 Subtotal $4,699,365 47.18%

 

 Transaction Related Expenses: 

Recording Fees 

Wire Transfer Fees $42,500 

 Counseling Expenses $5,000,000 

File Intake 

Decision Costs 

Successful File $1,500,000 

Key Business Partners On-Going $3,500,000

 Subtotal $5,042,500 50.63%

 

Grand Total $9,959,865

 

% of Total Award 17.92%

Award Amount $55,588,050 

Program Funds $45,628,185 

 
Page 27 of 29

Timeline for expenditures: 

Fiscal 

Year Administrative Program 

Total 

Expenditures 

FY 2011 $1,309,801.00 $6,250,000.00 $7,559,801.00

FY 2012 $2,152,022.50 $12,500,000.00 $14,652,022.50

FY 2013 $2,133,522.50 $12,500,000.00 $14,633,522.50

FY 2014 $1,096,450.75 $3,608,184.51 $4,704,635.26

FY 2015 $1,096,450.75 $3,590,000.00 $4,686,450.75

FY 2016 $1,086,450.75 $3,590,000.00 $4,676,450.75

FY 2017 $1,085,167.25 $3,590,000.00 $4,675,167.25

Total $9,959,865.50 $45,628,184.51 $55,588,050.01

F. OVERVIEW OF RISK MANAGEMENT/FRAUD PREVENTION 

KHC has established an Internal Control Plan, implemented policies and procedures and 

designated an internal control officer in an effort to deter, prevent, and detect fraud and 

corruption. The Internal Control Plan delineates the concepts of adequate internal controls 

including the lines of authority and responsibility, segregation of duties, proper authorization for 

transactions, proper and adequate control over resources, as well as adequate supporting 

documentation. 

The designated internal control officer is responsible for maintaining and updating the Internal 

Control Plan and ensuring its availability to corporate personnel and auditors. In addition, the 

internal control officer is responsible for ensuring that recommendations for the improvement of 

the internal control structure are promptly evaluated by KHC’s executive management team and 

implemented in a timely manner. 

Furthermore, KHC employees are bound by Executive Order 2008-454; the Executive Branch 

Code of Ethics contained in the Kentucky Revised Statutes (KRS) Chapter 11A, and the KHC 

Code of Ethics adopted by the Board of Directors, as well as the requirements of KRS 198A.210 

as it pertains to conflicts of interest. A copy of the Guide to the Executive Branch Code of 

Ethics is provided with all hard copies of the Employee Handbook. Additional copies may be 

obtained from the Human Resources or Legal Department or at http://ethics.ky.gov. Employees 

must avoid any actual conduct which constitutes a conflict of interest or conduct which gives a 

reasonable basis for the perception of a conflict of interest between their private and public 

interests. 

• Employees are prohibited from taking action, performing any duty, or giving any 

preferential treatment from which they would benefit personally. 
Page 28 of 29

• Employees are prohibited from taking action which would result in illegal receipt of 

public or private funds. 

• Employees may not participate in any official action relating to any entity or individual in 

which they or their immediate family has a financial interest. 

• Current or former employees or officers must comply with restrictions regarding other 

employment, unwarranted privileges or self-exemptions, or improper exemptions. 

• Employees must adhere to other standards of conduct described in Section 02-06 of the 

Employee Handbook. 

Other fraud prevention measures require that all new employees, as well as temporary and 

contract employees, be pre-screened or subjected to background investigations including a 

criminal background check. KHC will also verify all applicants’ employment history, education, 

and personal references prior to making an offer of employment. 

All vendors, contractors and suppliers must be active, in good standing and authorized to transact 

business in the Commonwealth of Kentucky. Vendors, contractors and suppliers are subject to 

screening, including verification of the individual’s or company’s status as a debarred party. 

In addition, contractual agreements with Kentucky Housing will contain a provision prohibiting 

fraudulent or corruptive acts and will include information about reporting fraud and corruption. 

Compliance and Monitoring 

Pursuant to KRS 198A.170, KHC is subject to an annual audit to be performed by a resident 

independent certified public accountant. The annual audit and examination of financial 

statements for Kentucky Housing Corporation must be performed in accordance with generally 

accepted auditing standards applicable to financial audits contained in Government Auditing 

Standards issued by the Comptroller General of the United States and the Single Audit Act of 

1984. This Independent Auditor’s Report includes the consideration of KHC’s internal control 

over financial reporting and the results of tests of KHC’s compliance with certain provisions of 

laws, regulations, contracts and grant agreements. Furthermore, the OMB has determined that 

all Recovery Act federal awards be considered higher-risk programs per Circular A-133 

Compliance Supplement, and therefore, subject to the requirements of the Single Audit Act, 

without regard to the $500,000 threshold of expenditures for federal awards. 

The most recent Annual Audit Reports of KHC’s financial statements performed in accordance 

with Government Auditing Standards, and the annual Single Audit Reports performed in 

accordance with OMB Circular A-133 are available for review at http://www.kyhousing.org/ 
Page 29 of 29

KHC established an internal audit function in 1987 by a Board- adopted resolution. With this 

resolution, an internal Audit Charter was approved. The charter outlines the purpose, authority 

and responsibilities of the internal audit function within KHC. 

Specifically, the internal audit department was established as an independent, objective 

assurance and consulting activity reporting directly to the Finance Committee of the Board of 

Directors and administratively to the chief executive officer. The Internal Audit staff performs 

all audits and reviews with the objectives of evaluating the efficiency and effectiveness of 

internal controls, ensuring the accuracy of recorded information, and determining the extent of 

compliance with federal regulations and corporate policy. 

In addition, Internal Audit staff also performs quality assurance reviews of KHC’s Loan 

Origination and Loan Servicing Departments. These quality assurance reviews are performed in 

order to evaluate and ensure that loans comply with regulatory and program requirements. 

 Testing by the Internal Audit Staff is performed on a sample basis, but consideration is given to 

the loan correspondents to ensure that reviews performed during the year include files from all 

correspondents during the audit period. Special reviews are performed for all loans that have 

defaulted within six months of closing. On completion of the review, a report is prepared and 

forwarded to the appropriate department for comment. The Internal Audit director reviews all 

work papers and reports. Any responses are incorporated in the report and forwarded to 

management. 

KHC intends to comply with the requirements of the Emergency Economic Stabilization Act of 

2008 and allow oversight by U.S. Treasury, the Comptroller General of the United States, 

Government Accountability Office, Congressional Oversight Panel, and the Special Inspector 

General of the Troubled Asset Relief Program, as to the application of any Emergency Economic 

Stabilization Act (EESA) funds. KHC will make available upon request all records and 

communications regarding the use of EESA funds. Compliance with EESA will be achieved or 

provided by the existing internal control framework and through the inclusion and monitoring of 

program specific requirements. These program requirements will include an evaluation of 

homeowner eligibility, verification of income and/or employment status, and verification of 

mortgage payment amount.