Friday, February 19, 2010

The White House Fact Sheet: Obama Admin Announces A Program for "Hardest Hit Housing Markets"

It's just a drop in the bucket, but it might save a few folks: An additional $1.5 Billion in taxpayer funds will go toward measures that will be announced today, Friday, February 19.  Below is the Fact Sheet from the White House via the office of the Press Secretary.  The funds will be channeled to state and local Housing Finance Agencies, and characterized as helping "families facing urgent problems" in states with high unemployment and "where home prices have fallen the furthest."
Mortgage delinquencies are at an all-time high,there will be more than 3 Million foreclosures this year , and because they're cheaper than foreclosures, short sales are increasing. And while currently one in four mortgages is underwater, up to 50% of all mortgageholders will be underwater by 2011. 

The housing crisis isn't getting any better, nor are prices "stabilizing" (as claimed in sentence 3 of press release, below) so the Obama Admin seems to feel it has no choice but to make further effor at rescue.

The current mortgage modification Home Affordable Mortgage Program or HAMP , has an estimated cost of $75 Billion and is supposed to help up to 4 Million borrowers by 2012. Currently, about 116,000 mortgages have been permanently modified , and the program will likely go nowhere near its goal. Meanwhile, there are in place unlegislated billions in bailouts for giant housing losers Fannie Mae and Freddie Mac what's a billion more?


President Obama to Announce Funding to Help Address Urgent Problems Facing Families in States with High Unemployment and Where Home Prices Have Fallen the Furthest

Today, President Obama will announce funding for innovative measures to help families in the states that have been hit the hardest by the aftermath of the housing bubble.  In each of these states, the average price for all homeowners in the state has fallen more than 20% from the peak.  Home prices across the country are beginning to stabilize since the Administration’s economic policies began to take effect almost a year ago.  But the legacy of price declines, together with the effects of high unemployment, means that many working and middle-class families in these especially hard-hit areas are facing serious challenges, in many cases beyond what their families’ resources can handle.

President Obama recognizes the challenges facing our families in the nation’s housing markets, where local conditions vary considerably. The Administration is setting up an innovation fund to expand the capacity of housing finance and similar agencies in the hardest-hit areas, so that those states and localities can further respond to the most pressing problems in their communities.

Help for the Hardest-Hit Housing Markets (4HM)

$1.5 Billion to Work with State Housing Agencies to Innovate and Help Address the Problems Facing the Hardest-Hit Housing Markets
o   There will be a formula for allocating funding among eligible states that will be based on home price declines and unemployment.
o   HFAs must have program design approved by Treasury.
o   Programs may include:
§  Measures for unemployed homeowners;
§  Programs to assist  borrowers owing more than their home is now worth;
§  Programs that help address challenges arising from second mortgages; or
§  Other programs encouraging sustainable and affordable homeownership.

Accountability and Transparency for these Housing Programs
o   All funded program designs posted online.
o   Accountability for results – program effectiveness measured and results published online.

The program will apply to states that have suffered an average home price drop of over 20% from the peak.  State and local Housing Finance Agencies (HFAs) in each state are already familiar with the urgent challenges facing their communities and have demonstrated the ability to address these challenges.  For that reason, we will work with these HFAs to expand their capacity to help address these challenges, with $1.5 billion from the funds set aside for housing under the Emergency Economic Stabilization Act of 2008.

The HFAs will determine the priorities facing their local markets.  The plans will be under strict transparency and accountability rules.  The increase in HFA resources for these areas should provide meaningful support for families in these markets, when combined with the numerous other steps the administration has taken to address housing markets.

Funds can be used for innovation to take steps to address difficult, locally-important remaining challenges for the hardest-hit housing markets, including unemployed borrowers, underwater borrowers, and second liens.

Under this program, HFAs can submit program designs to Treasury.  To be eligible for funding, HFA program designs must meet program goals of providing meaningful support for housing in the hardest-hit markets.  Programs must meet funding requirements under EESA.  These include that the recipient of funds must be an eligible financial institution and that the funds must be used to pay for mortgage modifications or for other permitted uses under EESA.  Treasury will announce maximum state level allocations in the next two weeks, along with rules governing the submission of program designs by HFAs, and provide a period thereafter for HFAs to submit their program designs in order to receive funding. 

Illustrations of the Sorts of Programs that May be Funded in the States

Housing markets vary considerably from state to state, and often within a single state.  Housing Finance Agencies are intimately engaged already in their local housing markets, and will play the lead role in determining what sorts of programs are most appropriate to local conditions.  Three sorts of problems that may be addressed with funding are unemployed borrowers, underwater borrowers, and second liens:

1. Unemployed borrowers.  Since the recession began in 2008, unemployment has hit many families who own homes.  In previous times, when house prices were rising, families with unemployment could often sell their homes for more than they had paid, using the proceeds to tide them over. 

Today, by contrast, families in states where prices have dropped more than 20% often find themselves owing more than the house is worth in the current market.  Such homes are often difficult to sell, and families with unemployment often can’t pay the current mortgage and may not have enough income to qualify for a modification.

In such circumstances, one use of funds would be for HFAs to begin programs to help unemployed homeowners until they have secured a new job.  HFAs can consider a variety of programs to help unemployed borrowers.

2. Underwater borrowersFor states with more than 20% home price declines, a large portion of homeowners are “underwater” -- they owe more than the house is worth in the current market.  Such borrowers often find it difficult to sell their homes -- lenders may not agree to a sale that fails to pay back a mortgage in full.  HFAs may experiment with programs that would assist borrowers to negotiate with lenders to write down mortgages.

3. Second liens.  An important problem can arise when borrowers have a home equity line of credit or other second mortgage on their home.  In these instances, the first mortgage lender may be willing to adjust to the home price decline by modifying the loan.

Difficulties can emerge, however, in coordinating between the first and second mortgage lender. To smooth this coordination problem, and help assure that homeowners get an overall modification that works best, funds can be used to pay incentives to the second mortgage holders, addressing this potential obstacle to re-setting the market.


downtownenvy said...

Looks like it might be time to teach the children how to love snow and Mounties. If this keeps up we'll have to emigrate to Canada because there is no way any of this is getting paid back anytime soon, and why should my 4 year old get stuck with this bill?
Maybe I should start taking loans in his name and ruin his credit record now. But wait, our government has already taken care of that for me. Happy 2010 baby!
By the way I love Canada. More every day in fact.

Anonymous said...

Or time to teach the kids Chinese. This program will help "owners" in Michigan. Detroit has a median price of -$10k. They don't need mortgage help, they need bulldozers.

Anonymous said...

Great. We're paying extra in taxes and in inflation to support someone in California and Michigan who "bought" a house they could never afford.

Let the bank foreclose and let the "owner" rent. No more bailouts from those who acted responsibly to those who didn't - the bankers and pretend-homeowners.