State housing finance agencies (HFAs) in Arizona, California, Florida, Michigan, and Nevada can begin to use $1.5 billion from the federal government’s “Hardest Hit Fund” for foreclosure-prevention initiatives in their local communities.

Herb Allison, Treasury assistant secretary for financial stability, announced Wednesday that all five state’s plans for homeowner assistance have been approved. This is the first round of funding awarded under the new federal program.

“These states have identified a number of innovative programs that will make a real difference in the lives of many homeowners facing foreclosure,” Allison said.

He called the announcement an “important milestone” for delivering much-needed relief to areas where housing market conditions have deteriorated the most and for keeping “responsible families in their homes.”

Arizona ($125.1 million)

Arizona will provide assistance in the form of principal reduction, interest rate reduction, and/or term extension programs with the goal of allowing borrowers to enter into a permanent modification program.

In circumstances where a second lien is prohibiting modification of a first lien, the state says it will provide assistance to eliminate the second lien.

The state is also offering help to the under-employed while they search for a new job. This assistance may be used to pay monthly mortgage payments or remove second mortgages if the second lien is hindering modification of a first lien.

California ($699.6 million)

California will use its money to reduce principal for struggling homeowners through an earned principal forgiveness program.

The state has also earmarked funds to assist borrowers with delinquent loan arrearages, and will offer a mortgage payment subsidy to unemployed families.

California’s HFA is also providing funds to borrowers that have executed a short sale or deed-in-lieu of foreclosure, to assist with their transition to a more stable housing situation.

Florida ($418 million)

Florida’s hard-hit funding will be used to help unemployed and under-employed homeowners make their mortgage payments during their search for work.

Florida will offer up mortgage payment assistance to the unemployed and under-employed while they seek re-employment. The state will also offer principal reduction or second lien extinguishment if necessary to achieve a mortgage modification.

Michigan ($154.5 million)

Michigan will subsidize an unemployed borrower’s mortgage payments while they search for employment.

The state will also assist with loan arrearages for those who can sustain homeownership and have undergone a financial hardship, and will implement a program that provides earned principal forgiveness to homeowners with negative equity.

Nevada ($102.8 million)

Nevada plans to create a mortgage modification program using a combination of forgiveness and forbearance, with a goal of reducing principal to less than 115 percent of LTV (loan-to-value) and lowering payments to 31 percent of DTI (debt-to-income).

The state will also offer assistance to reduce or eliminate second liens with earned forgiveness over a three-year term.

Additionally, the state will provide allowances for appraisal and transaction fees, moving fees, a legal allowance for up to three months, and a combination of incentives for borrowers and servicers to facilitate short sales.

President Obama established the Hardest Hit Fund in February 2010 to provide targeted aid to families in the states hit hardest by the housing crisis. The five states approved to receive a share of the first $1.5 billion in aid each experienced a 20 percent or greater decline in average housing prices – states where property values soared during the boom and nose-dived when the correction set in.

Each state’s HFA gathered public input to create programs that target the unique challenges facing struggling homeowners in their respective markets. Arizona, California, Florida, Michigan and Nevada will now begin to set up and roll out their specific Hardest Hit Fund programs “as soon as possible,” Treasury said.

In March, the administration announced a second round of Hardest Hit Funding totaling $600 million for five additional states with high areas of concentrated unemployment: North Carolina, Ohio, Oregon, Rhode Island, and South Carolina. Proposals from these states are currently being reviewed, and Allison says approval should come within a few weeks.