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Obama to target five states for home-loan help

WASHINGTON (MarketWatch) — Facing millions of foreclosures and high unemployment, President Barack Obama on Friday announced a $1.5 billion fund to help unemployed homeowners and other struggling borrowers in a handful of states.

“What we can do is help families that have done everything right to stay in their homes and we can stabilize the housing market so that home values can begin rising again,” Obama said at a town hall meeting in Nevada.

As part of the program, five states — Florida, Michigan, Arizona, California and Nevada — have home prices that have fallen enough to qualify for the additional assistance.

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Obama said that price declines in homes and high unemployment in these regions have created major challenges for families.

He argued that too many lenders were too focused on “making a quick buck than acting responsible,” that “too many borrowers acted irresponsibly by taking on mortgages they couldn’t afford,” and government regulators ‘turned a blind eye to the problem.”

State and local housing-finance agencies in states seeking assistance must submit program proposals to the Treasury Department, which will evaluate and decide if they qualify. The funds are allocated from capital set aside for housing from the $700 billion Troubled Asset Relief Program.

States where the average price for all homeowners in the state have fallen more than 20% from their peak are eligible to participate.

According to Obama three sorts of problems may be addressed with funding: unemployed borrowers, underwater borrowers and those with second mortgages on properties.

“This fund is going to help out-of-work homeowners avoid preventable foreclosures. It will help homeowners who owe more than their homes are worth find a way to pay their mortgages that works for both borrowers and lenders alike.”

Obama announced the program in Nevada, one of the hardest-hit states, along with Senate Majority Leader Harry Reid and other lawmakers.

Reid, a Nevada Democrat, is in a battle for re-election in his state, in part due to frustration over high unemployment.

The program’s announcement comes two days after the Treasury Department announced that a one-year-old $75 billion program to help 3 million to 4 million homeowners modify their mortgages to avoid foreclosure has only aided a small fraction of those at need.

The program, known as the Home Affordable Modification Program, seeks to aid borrowers by allowing them to modify their mortgages and lower monthly interest rates through any participating lender. Under this plan, the lender would voluntarily lower the interest rate, and the government would provide subsidies to the lender. Read more about how modifications are languishing.

According to the Treasury on Wednesday, the Obama program has so far only helped 116,000 troubled borrowers modify their mortgages from three-month temporary plans into more affordable permanent loans. The HAMP program was announced on Feb, 18, 2009.

Henry Sommer, director at the National Association of Consumer Bankruptcy Attorneys in Philadelphia, said he supported the idea of targeted taxpayer assistance to states that need it most.

However, he was skeptical whether the vast majority of the $1.5 billion would ever be used. Sommer pointed out that the largest part of the $75 billion HAMP program so far hasn’t been allocated — in large part because only a small number of households have received permanent modifications, which is when the majority of incentive payments go out.

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This entry was posted on Wednesday, February 17th, 2010 and is filed under Business News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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