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. $ 1 billion was given to a program to help unemployed borrowers who have delinquencies on their mortgages called Housing and Urban Development. This could very well help banks rather than homeowners which concerns numerous experts. Article resource – Obama throws an additional $ 3 billion at unemployed foreclosure loans by Personal Money Store.
Trying to stop foreclosure makes for a 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. As outlined by the Wall Street Journal, the program works with 10 states at present. The Troubled Asset Relief Program has $ 50 billion total to hand out witch then gets put into housing aid. 17 states will be able to take advantage of the $ 2 billion, such as the District of Columbia, that have unemployment rates super high. 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 is nothing
The economic recovery is going down because of the housing market, which historically has helped all the recessions. As outlined by the New York Times, having interest rates so low doesn’t help anything considering nobody can afford to refinance or buy a home. Everyone who’s an unemployed homeowner has a very difficult time selling their home. The housing market gets worse with foreclosures make neighborhood values go down. About 140,000 people could be helped with the Hardest Hit Fund. With the new money, both the Hardest Hit and HUD programs could eventually help about 400,000 borrowers — a drop within the bucket set against 14.6 million unemployed and 3 million unemployed borrowers contemplating foreclosure.
Deal seems great for mortgage lenders
It is likely that Obama has just helped a bunch of banks out more than unemployed homeowners with these new programs. 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. Concessions should be make by lenders along with matching the funding, says Abromowitz. The Hill also interviewed Dean Baker from the Center for Economic and Policy Research who said that funding wouldn’t even help individuals with underwater mortgages. Dean thinks that the programs won’t work because homeowners without equity in their homes are bound to lose it at the end of the whole process anyway.
Further reading on this topic
Wall Street Journal
online.wsj.com/article/SB10001424052748704901104575423493999575302.html
New York Times
nytimes.com/2010/08/12/business/12treasury.html
The Hill
thehill.com/blogs/on-the-money/banking-financial-institutions/114349-banks-to-benefit-most-from-white-house-program-to-stave-off-foreclosures
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