Second Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets 

(“HFA Hardest-Hit Fund”)

Guidelines for HFA Proposal Submission 

STATEMENT OF PURPOSE 

On March 29, 2010, building on the first HFA Hardest-Hit Fund, the Administration announced an 

expansion of the initiative to target five additional states with high shares of their populations 

living in areas of concentrated economic distress. This second HFA Hardest-Hit Fund will 

include up to $600 million in funding for innovative measures to help families stay in their 

homes or otherwise avoid foreclosure in states that have been hit hard by concentrated economic 

distress. 

Responsible families across the country have found themselves unable to pay their mortgages 

due to unemployment or underemployment. While the first HFA Hardest-Hit Fund targeted five 

states with home price declines greater than 20 percent, the second HFA Hardest-Hit Fund will 

target five states with high concentrations of people living in economically distressed areas, 

defined as counties in which the unemployment rate exceeded 12 percent, on average, during 

2009. Less than 15 percent of the U.S. population lives in such high unemployment rate 

counties. The five states that will receive allocations based on this criterion are: North Carolina, 

Ohio, Oregon, Rhode Island and South Carolina. 

State Housing Finance Agencies (“HFAs”) in North Carolina, Ohio, Oregon, Rhode Island and 

South Carolina may submit proposals (“HFA Proposals”) for use of these funds to develop and 

implement innovative housing initiatives tailored to their local conditions to help prevent 

foreclosures and stabilize housing markets, including individual programs (“Programs”) 

targeting unemployed borrowers, underwater borrowers and second lien relief. 

To receive funding from the HFA Hardest-Hit Fund, a Program must satisfy the requirements for 

funding under the Emergency Economic Stabilization Act of 2008, as amended (“EESA”). 

These requirements include that the recipient of funds must be an eligible entity, which is 

described below, and that the funds must be used to pay for Programs designed to prevent 

avoidable foreclosures and other permitted uses under EESA. 

ALLOWABLE USES 

The HFA Hardest-Hit Fund is designed to allow the maximum possible flexibility to HFAs in 

designing Programs that are tailored to the needs of each participating state. To be eligible for 

Troubled Asset Relief Program (“TARP”) funds, all programs must promote the purposes of 

EESA and be consistent with its requirements. Section 2 of EESA provides that the purposes of 

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EESA are to restore liquidity and stability to the financial system and to use TARP funds in a 

manner that, among other things: 

• Protects home values; 

• Preserves homeownership and promotes jobs and economic growth; and 

• Provides public accountability. 

The objective of the HFA Hardest-Hit Fund is to allow HFAs to develop creative, effective 

approaches that consider local conditions. To provide guidance to HFAs in designing Programs, 

Treasury has outlined below some of the possible types of transactions that would meet the 

requirements of EESA. States are encouraged to submit proposals that provide targeted relief to 

areas or localities with high concentrations of economic distress. Efforts could include: 

a. Unemployment Programs – Programs may provide for assistance to unemployed borrowers 

to help them avoid preventable foreclosures. 

b. Mortgage Modifications – Programs may provide for mortgage modification of loans held 

by HFAs or other financial institutions or provide incentives for servicers or investors to 

modify loans. 

c. Mortgage Modifications with Principal Forbearance – Programs may provide for paying 

down all or a portion of an overleveraged loan and taking back a note from the borrower for 

that amount in order to facilitate additional modifications.

d. Short Sales / Deeds-In-Lieu of Foreclosure – Programs may provide for assistance with 

short sales and deeds-in-lieu of foreclosure in order to prevent avoidable foreclosures.

e. Principal Reduction Programs for Borrowers with Severe Negative Equity – Programs 

may provide incentives for financial institutions to write-down a portion of unpaid principal 

balance for homeowners with severe negative equity. 

f. Second Lien Reductions – Programs may provide incentives to reduce or modify second 

liens. 

This is not meant to be an exhaustive list of acceptable transactions. Other innovations and 

transaction types (including programs that complement the Making Home Affordable Program) 

will be evaluated on a case-by-case basis for compliance with EESA. Treasury may publicly 

announce additional types of transactions that would meet the requirements of EESA. 

For Programs designed to help individual homeowners, the target population should be limited to 

residences with unpaid principal balances equal to or less than the current GSE conforming limit 

of up to $729,7501

. HFAs may target low and moderate income borrowers at their discretion 

consistent with that HFA’s state enabling legislation. 

Each Program must be in full compliance with, all federal, state, and local laws, including, but 

not limited to, the Equal Credit Opportunity Act and the Fair Housing Act, which prohibit 

                                                           

1

 Maximum loan limit for one unit dwelling. 2 units = $934,200; 3 units = $1,129,250; 4 units = $1,404,400. 

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discrimination on a prohibited basis in connection with mortgage transactions. Mortgage 

modification programs are subject to the fair lending laws and HFAs should ensure that the 

Programs do not treat a borrower less favorably than other borrowers on grounds such as race, 

religion, national origin, sex, marital or familial status, age, ability, or receipt of public assistance 

income in connection with any Program. 

ELIGIBLE ENTITY 

The HFA Hardest-Hit Fund has been designated specifically for implementation by state HFAs. 

To receive funds, each recipient of funding from the HFA Hardest-Hit Fund (each, an “Eligible 

Entity”) must be a “financial institution,” as that term is defined in EESA. Specifically, Section 

3(5) of EESA defines “financial institution” as: 

“FINANCIAL INSTITUTION.—The term ‘‘financial institution” means any institution, 

including but not limited to a bank, savings association, credit union, security broker or 

dealer, or insurance company, established and regulated under the laws of the United 

States or any State, territory, or possession of the United States, the District of Columbia, 

Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, 

American Samoa, or the United States Virgin Islands, and having significant operations 

in the United States, but excluding any central bank of, or institution owned by, a foreign 

government.” 

Accordingly, an Eligible Entity must be a regulated entity that is incorporated separately from 

the state government itself, such as a corporation (private or public) or similar entity formed or 

incorporated under state law, which has the corporate power to receive funds from Treasury in 

respect of the HFA Hardest-Hit Fund and to work with the related state HFA in implementing 

that state’s HFA Proposal(s). Agencies of state governments are not considered Eligible Entities 

for purposes of the HFA Hardest-Hit Fund. The Eligible Entity may be an existing entity or it 

may be newly-formed for the purpose of implementing the HFA Hardest-Hit Fund. Prior to 

receiving funds through the HFA Hardest-Hit Fund, each Eligible Entity will need to be 

approved as a “financial institution” under EESA by Treasury in its sole discretion. 

Additionally, Eligible Entities will be required to enter into an agreement (“Participation 

Agreement”) with Treasury (or Treasury’s agent), which must qualify as a “financial instrument” 

under EESA by Treasury. The Participation Agreement will include, among other provisions, 

reporting and compliance requirements as more fully described below under “Reporting” and 

“Compliance and Monitoring.” 

HFA PROPOSAL REQUIREMENTS 

All HFAs must submit an HFA Proposal organized into the following sections: 

Section One: The first section should clearly outline the overall strategy for utilizing the 

funding and: 

a. Briefly describe each of the proposed Programs (if more than one) to be funded by this 

initiative, explaining how they fit together and will be implemented, including an overview 

of the expected costs (broken out by incentive and administrative costs) and benefits. 

b. Describe how the strategy will help prevent foreclosure and stabilize housing markets. 

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c. If more than one Program is proposed, describe how available funding is expected to be 

allocated among Programs. 

Section Two: The HFAs should provide a detailed business plan for each individual Program 

proposal for the HFA Hardest-Hit Fund. Each business plan should include the following 

sections. Throughout the life of the HFA Hardest-Hit Fund program, Eligible Entities will be 

able to adopt new Programs and / or re-allocate funding across Programs based on Program 

performance subject to review and approval by Treasury. 

a. Overview of Program – The HFA should provide detailed information about the intended 

purpose and scope of the Program, including the specific problems that the Program will 

address as well as the specific goals for the Program and how progress toward these goals 

will be measured. 

b. Population served and allocation methodology – The HFA should provide detailed 

information about the estimated number of households that the Program will target, including 

a geographic breakdown or other targeting, if applicable. In addition, the HFA should 

provide a timeline in which it expects the Eligible Entity to deploy the funds. The HFA 

should identify any anticipated Program implementation obstacles and provide a related 

mitigation plan. The HFA should describe how funds will be leveraged by additional 

resources, if applicable (e.g., interaction with existing programs at the state or federal level or 

other proposed Programs). 

c. Demonstration of capacity to implement – The HFA should provide background 

information on its organizational capacity to implement the Program, including the 

experiences of key staff members, necessary compliance infrastructure, audit and internal 

controls, fraud risk mitigation, reporting protocols, systems infrastructure and necessary 

funding and implementation mechanisms. If the HFA has implemented or sponsored a 

similar or identical program in the past, the HFA should provide metrics regarding efficacy, 

where possible. 

d. Localization to help areas with concentrated economic distress – The HFA should 

provide detailed information about how the program will target counties or municipalities 

with the high concentrations of economic distress. The HFA should identify those local 

areas to receive a substantial majority of the program funds, and should provide (to the extent 

available) statistics on unemployment or other metrics of economic distress in these areas. 

e. Staffing and business partners – The HFA should provide a detailed staffing plan for the 

Program, including the use of outside partnership organizations, if applicable. The HFA 

should explain how the Eligible Entity will be managed (and / or staffed) by the HFA. The 

HFA should list any key partners that will be part of the Program and detail their roles, 

expertise and relationship to the HFA and expected level of compensation. The HFA should 

detail any agreements or other outside business relationships related to the Program. 

f. Administrative expenses – The HFA should include an estimate of administrative expenses 

(including expenses associated with staffing and business partners from paragraph e above) 

required to implement the Program, including a detailed expenditure timeline. 

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g. Overview of risk management / fraud prevention – The HFA should provide a plan for 

minimizing Program and fraud risk, including details related to monitoring and auditing. The 

HFA should incorporate such risk management and fraud prevention strategies into the 

overall compliance plan (see Compliance and Monitoring below). 

h. Tracking / reporting – The HFA should describe its proposed methodology for measuring 

Program progress, including key performance measurements, frequency of reporting and 

tracking systems to measure progress against goals (see Reporting below). 

REPORTING 

HFAs will be required to develop and maintain operational and performance metrics, have a 

detailed financial reporting system, and track homeowners helped through its Programs. HFAs 

will report data to Treasury on a periodic basis, including metrics used to measure Program 

effectiveness against stated objectives. Treasury may request that the HFA modify the proposed 

performance measures or seek additional metrics as necessary. In its HFA Proposal, the HFA 

should provide details about how it plans to collect, archive and report performance and financial 

data, including systems integration requirements, if any, and how it will handle interim reporting, 

if necessary, until systems are in place and/or projects are implemented. Treasury may make any 

or all data reported by an HFA available to the public. 

COMPLIANCE AND MONITORING 

HFA’s and Eligible Entities will be required to comply with all requirements under EESA, 

including but not limited to, allowing full compliance and oversight by 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 EESA funds. All books, communications and records regarding the use of 

EESA funds must be available for review by any of these entities upon request. 

In addition, HFAs will be required to design Program(s), establish monitoring mechanisms, and 

implement a system of internal controls which minimize the risk of fraud, mitigate conflicts of 

interest, and maximize operational efficiency and effectiveness. A system of internal controls 

should encompass the entities’ processes, their business partnerships and relationships and any 

constituency being aided through these Programs. The entities will be required to test, certify, 

and provide an independent verification of the effectiveness of these controls at least annually 

including an assessment prior to program launch to ensure Eligible Entities have taken 

appropriate steps to meet program objectives, as well as to provide audited financial statements 

to Treasury. 

ADMINISTRATIVE EXPENSES 

Eligible Entities will be eligible to receive funds for administrative expenses necessary to 

achieve the Program goals and as approved by Treasury. Further details regarding administrative 

expense payments will be provided prior to final approval of an HFA Proposal.

INSTRUCTIONS FOR SUBMITTING HFA PROPOSALS 

Deadline

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HFA Proposals must be received no later than by 5:00 p.m. EST on June 1, 2010 (Treasury will 

confirm receipt). 

Format

Each HFA Proposal must include a one-page cover letter that provides: (i) the name, title, 

mailing address, e-mail address, and office and mobile phone numbers of the individual 

designated to receive communications from Treasury; and (ii) a certification statement that the 

HFA: (a) understands and agrees to the terms set forth in these guidelines; and (b) understands 

and agrees to the confidentiality provisions below. 

HFA Proposals may not exceed 50, one-sided pages, prepared in 12-point, Times Roman font 

with 1 inch margins. HFA Proposals must not include other documents or attachments including 

but not limited to generic marketing or sales information unless directly related to the ability of 

the HFA to execute the proposed plan(s). HFA Proposals must not rely on cross-references to 

other documents or websites. 

Delivery

Each HFA Proposal must be submitted via email in PDF format to 

HFAInnovation@do.treas.gov. 

Treasury Review

HFA Proposals will be reviewed by an interdisciplinary committee within Treasury. The 

primary purpose of the review is to confirm that HFA Proposals adhere to the requirements of 

EESA and these guidelines. Treasury may contact the HFA with questions as part of its review 

and may require the HFA to submit additional information. Treasury will notify the HFA 

entity’s designated individual once the plan is approved. 

Communication with Treasury 

HFAs are responsible for and encouraged to seek clarification on any aspect of these guidelines 

that the HFA does not fully understand. All questions should be directed to:

HFAInnovation@do.treas.gov. 

Treasury, in its sole discretion, may respond orally or in writing to any question(s) submitted by 

an HFA or about an HFA’s Proposal. Substantive questions should be submitted as soon as 

possible. No information gained from any communication may be considered in any way binding 

or limiting on Treasury. 

Treasury considers any information provided to an HFA in evaluating its HFA Proposal to be 

strictly confidential and must not disclose any communication from Treasury to any party 

outside the HFA’s organization, nor may correspondence from Treasury be duplicated, used or 

disclosed in whole or in part for any purpose other than to prepare an HFA Proposal, without the 

express prior written consent of Treasury. 

Other Terms and Conditions

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Treasury assumes no obligation to reimburse or otherwise compensate the HFA for expenses or 

losses incurred in connection with these guidelines, other than as specifically detailed in the HFA 

Participation Agreements. 

Treasury reserves the right to: (i) modify the requirements in these guidelines or withdraw these 

guidelines at any time; (ii) negotiate with each HFA and confirm any HFA Proposal considered 

acceptable in part or in total; (iii) request, orally or in writing, clarification of or additional 

information on an HFA Proposal; (iv) waive minor informalities or irregularities, or any 

requirement of these guidelines; and (v) reject an HFA Proposal that does not conform to the 

requirements of these guidelines.