Tuesday, March 2, 2010

Suffering states to share $1.5 billion in home owner aid

Credit Card Act confusion
Select state housing finance agencies are anxiously awaiting a small windfall to help as many as 125,000 struggling home owners in five states hardest hit by the housing crash.

by Broderick Perkins
© 2010 DeadlineNews.Com

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Deadline Newsroom - Select state housing finance agencies are anxiously awaiting a small windfall to help as many as 125,000 struggling home owners in five states hardest hit by the housing crash.

President Obama announced late last week a $1.5 billion infusion for housing agencies in Arizona, California, Florida, Michigan and Nevada, where home values have fallen more than 20 percent from peak 2006 and 2007 markets.

Looking for their share, officials from state housing finance agencies (HFAs) were scrambling Monday to come up with the required program proposals that target unemployed home owners, so-called "underwater" home owners with homes worth less than their mortgage and home owners struggling with second mortgages.

"We don't have any details, just the announcement that was made Friday, but we are working on proposals even without the knowledge of how much we'll receive and that's hard to do without knowing," said Mary Lou Keenon, spokeswoman for the Michigan State Housing Development Authority (MSHDA).

State housing agencies engage in public and private partnerships to promote affordable housing and community economic development activities. Low cost loans, grants, education and other efforts typically target needy low- and moderate-income households.

The $1.5 billion will be withdrawn from funds set aside for housing under the Emergency Economic Stabilization Act of 2008 (EESA).

The money is earmarked for state agency programs that reduce so-called "preventable" foreclosures. The U.S. Treasury must approve any programs before they begin.

Programs can vary, but mortgage modification has been the primary tool to help home owners stay in their homes.

A mortgage modification occurs when the lender reworks the terms of an existing home loan, typically to lower payments and make the home more affordable. To get the payment down, lenders lower the interest rate, extend the loan term, reduce the principal (rarely) or use any combination of those approaches.

Treasury estimates are putting the cost of modifying troubled loans at approximately $12,000 each, which would provide help to around 125,000 homeowners. That's not much considering some 1.5 million homeowners are in need of help.

Other programs could include financial assistance for unemployed home owners and using funds to pay cash incentives to second mortgage holders, in an effort to encourage first mortgage holders to provide mortgage modifications.

"I've got to again repeat — government can’t stop every foreclosure. There's not enough money in the Treasury to stop every foreclosure. And we shouldn’t be using tax dollars to reward the same irresponsible lenders or borrowers who helped precipitate the crisis," Obama cautioned during a town meeting with 1,800 residents Feb. 19 at Green Valley High School in the Las Vegas suburb of Henderson, NV.

"During these difficult economic times, we will work to help responsible homeowners stay in their homes and stabilize the housing market so home values can rise," the president added.

Las Vegas had the nation's highest metro area foreclosure rate, with one in every 82 housing units receiving a foreclosure filing in January, according to RealtyTrac.

The high rate came despite a nearly 2 percent decrease in foreclosure activity from the previous month and a nearly 21 percent decrease in foreclosure activity from January 2009, RealtyTrac reported.

On the state level, four of the states awarded the $1.5 billion fund, also have the nation's highest foreclosure rates. One in every 95 Nevada housing units received a foreclosure filing during in January — more than four times the national average. The rate was one in every 129 for Arizona; and one in 187 for both California and Florida. Michigan's foreclosure rate was 1 in 258 and not among the top five, according to RealtyTrac.

"We are really excited and grateful for this help, and we intend to hit the ground running as soon as we know how much we will receive," said Evan Gerberding, assistant director of marketing for the California Housing Finance Agency (CalHFA).

"We have a loan modification program in place, but we will develop new programs to help borrowers who are unemployed or under employed or are underwater because that's the administration's goal," Gerberding added.

There will be a formula for allocating the funds among the five states based on home price declines and unemployment.

HFAs must submit programs that target struggling home owners as well as affordable home programs. Funded programs and programs' efficacy ratings will be posted online to promote transparency and accountability.

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

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