Obama throws another $3 billion at unemployed foreclosure loans
The Obama administration is pumping $3 billion into programs to help the unemployed with foreclosure prevention. Last week the administration announced plans to allocate $2 billion toward the Hardest Hit Fund, doubling the size of the program. Another $1 billion will go toward a Housing and Urban Development program to help unemployed borrowers who are delinquent on their mortgages. However, some housing experts are concerned that the funding infusion will help banks more than homeowners.
The foreclosure prevention money pit
To fend off an epidemic of unemployed foreclosures, the Hardest Hit Fund was launched in February as a way to help states design their own foreclosure prevention programs. The Wall Street Journal reports that the fund is currently financing initiatives in 10 states. The money is part of $50 billion earmarked for housing aid under the Troubled Asset Relief Program. The $2 billion infusion will be distributed to housing agencies in 17 states, plus the District of Columbia, that have the highest unemployment rates. Another $1 billion goes to HUD for providing interest-free bridge loans of up to $50,000 for eligible unemployed borrowers to be used to make mortgage payments for up to two years.
Hardest Hit Fund a drop in the bucket
The housing market, which has led the way out of past recessions, is dragging the current economic recovery down. The New York Times reports that interest rates are at record lows, but too few can afford to buy or refinance. Unemployed homeowners who live in communities where values have fallen sharply are often unable to sell. Their foreclosures weaken neighborhoods and create a vicious cycle that further undermines the housing market. Until now, the Hardest Hit Fund had been projected to help about 140,000 borrowers. With the new money, both the Hardest Hit and HUD programs could eventually help about 400,000 borrowers — a drop in the bucket set against 14.6 million unemployed and three million unemployed borrowers contemplating foreclosure.
Gravy train for mortgage lenders
Banks, not unemployed homeowners, will benefit more from Obama’s unemployed foreclosure funding, some experts believe. David Abromowitz, senior fellow at the Center for American Progress, told The Hill that banks should be required to share the burden being faced by unemployed borrowers. He said the main problem with the funding is that mortgage lenders don’t have to make principle reductions on loans or any major modifications. Abromowitz suggested that lenders should be required to make concessions and possibly even match funding. Dean Baker of the Center for Economic and Policy Research told The Hill that with so many people with underwater mortgages, the new funding is unlikely to do much good. Dean said for the programs to work there has to be a reasonable expectation that homeowners will have some equity in their property at the end or they will lose their homes anyway.