HUD has released Mortgagee Letter 2006-16 titled, Mississippi Homeowner Grant Assistance Program.

This Letter provides guidance regarding grant program issues specific to FHA-insured loans in the wake of the finalization of the State's plan to utilize Federal Community Development Block Grant (CDBG) funds to assist affected borrowers.

Under the state plan, eligible homeowners may receive a one-time grant payment, up to a maximum of $150,000, for flood damages not covered by insurance or FEMA grants.
The requirements for eligibility include:
a) home must be located outside a FEMA-designated 100-year flood zone and;
b) was flooded as a result of Hurricane Katrina.

In exchange for the grant payment, a qualifying homeowner must agree to covenants on their property establishing specific requirements for them and any future owner of the land and all existing lienholders must subordinate their liens to those covenants.  Unpaid and outstanding insurance claims must be subrogated back to the State.  After certain deductions, the homeowner has complete discretion of the use of the grant funds.

The Mississippi Development Authority (MDA), which is administering the assistance program, has requested that mortgagees manage the grant closing and funds disbursement process for their customers. As previously discussed (click here), Mortgagees that wished to participate were required to sign and return an Opt-In Agreement by the MDA deadline. The Opt-In agreement states that grant managing mortgagees will remit grant funds to the homeowner within five (5) business days and may only reduce the payment by the amount of any past due installments on the Homeowner’s mortgage and any taxes due and owing on the Property.
However, HUD understands that this agreement does not prohibit homeowners and mortgagees from voluntarily negotiating other arrangements with respect to disbursement of grant funds for home repairs or payoff of mortgage debt.

Subordination Agreements and Disbursement Accounts

HUD has no objection to the subordination of FHA-insured first mortgage liens to the covenants required by the state as a condition for grant awards, and covenant-encumbered title that is otherwise marketable will be acceptable to HUD upon claim, provided that there is no material breach of the covenants as of the date of conveyance of such property that is due to neglect or poor oversight on the part of the mortgagee. 

HUD recognizes that in order to ensure that there has been no breach of the covenants, mortgagees and homeowners may feel that it is necessary and prudent to enter into disbursement agreements, to which neither HUD nor the State of Mississippi are parties, that allow the mortgagee to escrow grant funds and disburse them in draws as repairs are completed in accordance with covenant requirements.

Secretary Held Liens

HUD may hold a junior lien on some eligible properties as security for a partial claim, mortgage assistance initiative payment or Section 235 subsidy mortgage.  Requests to subordinate such liens to the State required covenants should be submitted to HUD’s servicing contractor at the address below:

      U.S. Department of HUD
      c/o Morris Griffin Corp./First Madison Services, Inc.
      4111 South Darlington
      Suite 300
      Tulsa, OK 74135
      Phone:  800-967-3050

Any questions regarding this Mortgagee Letter may be directed to HUD's National Servicing Center (NSC) at (888) 297-8685 or hsg-lossmit@hud.gov.

To view the Mortgagee Letter in it's entirety please click on the following link.

HUD ML 2006-16 Mississippi Homeowner Grant Assistance Program