Wednesday, August 11, 2010

Aid For Responsible Delinquent Homeowners

This announcement from HUD is starting to make its way around the interwebs.

"WASHINGTON – The Obama Administration today announced additional support to help homeowners struggling with unemployment through two targeted foreclosure-prevention programs. Through the existing Housing Finance Agency (HFA) Innovation Fund for the Hardest Hit Housing Markets (the Hardest Hit Fund), the U.S. Department of the Treasury will make $2 billion of additional assistance available for HFA programs for homeowners struggling to make their mortgage payments due to unemployment. Additionally, the U.S. Department of Housing and Urban Development (HUD) will soon launch a complementary $1 billion Emergency Homeowners Loan Program to provide assistance – for up to 24 months – to homeowners who are at risk of foreclosure and have experienced a substantial reduction in income due to involuntary unemployment, underemployment, or a medical condition."

Here are the parts I found interesting, emphasis mine:

“This is part of the Administration’s comprehensive housing policy that has helped to stabilize a fragile housing market and allows responsible homeowners the chance to reduce their monthly mortgage payments to affordable levels.

What is the program exactly? emphasis mine:

"The program will work through a variety of state and non-profit entities and will offer a declining balance, deferred payment “bridge loan” (zero percent interest, non-recourse, subordinate loan) for up to $50,000 to assist eligible borrowers with payments on their mortgage principal, interest, mortgage insurance, taxes and hazard insurance for up to 24 months."

Then later, the qualifications:

Under the program, eligible borrowers must:

  • Be at least three months delinquent in their payments and have a reasonable likelihood of being able to resume repayment of their mortgage payments and related housing expenses within two years;

  • Have a mortgage property that is the principal residence of the borrower, and eligible borrowers may not own a second home;

  • Demonstrate a good payment record prior to the event that produced the reduction of income.

    And the method for dividing the money amongst the 18 states qualifying (by having unemployment above the national mean):

    " The states eligible to receive funds through this additional assistance, along with allocations based on their population sizes, are as follows"

    You can see the table with the allocations in the HUD link above. But why is the money allocated based on population?  Why isn't it allocated based on the number of responsible homeowners who are currently unemployed and at least 3 months behind who will be likely to resume payments within two years?  Are they really equally distributed?  Seems unlikely...

    I want to point out one thing, in relation to the post I wrote earlier about how expectations change - the problem with this solution, along with most of the kick-the-can (delay and pray, extend and pretend) solutions we've come up with so far, is that is presumes that things will get better in two years.   Note that the reason we currently have 99 weeks of unemployment benefits is because things have NOT gotten better.  I'll say again that we are returning to normal times - THIS is normal  - the bubble era was abnormal, and hoping for some magical return to prosperity seems illogical to me.

    Somehow I can't shake the feeling that this is reminiscent of another post I wrote several months ago about how what appears to be a homeowner bailout is actually another bank bailout in disguise.  Shouldn't these loans be recourse loans, so that, since the homeowner will use the funds to pay the bank, if the homeowner eventually defaults the bank has to pay back the government?  In other words, this "homeowner aid" prevents the banks from losing more money - shouldn't they participate in the costs? Seems reasonable to me...



    EconomicDisconnect said...

    I just cannot wrap my head around the "Responsible Delinquent Homeowner" thing. Any other time in history and this whole show would have been over long ago.

    Unknown said...

    This is another troubling indication that the current adminsitration is grasping at straws.

    Why not loans for delinquent car loans, margin accounts, child support payments, on-line porn subscriptions, ....

    At best this is a transparent gift to the banks, and a misguided attempt to interfere with market driven adjustments in RE prices.

    Eric said...

    "I'll say again that we are returning to normal times - THIS is normal"

    For someone who is young like myself and would like to wrap their head around what the new normal is going to be like, when was the last time we were in these "normal times"?

    Blue Moon said...

    Eric: I'm sure someone smarter than me has a better answer, but early 90's seemed somewhat normal...

    Kid Dynamite said...

    sorry Eric - I assume you mean to imply that our current employment situation is not "normal" which is absolutely correct. What I meant was that being able to use paper wealth as an ATM (which happened to a massive extent during the bubble - and created even more paper wealth, until it all blew up) - is not normal.

    Being able to buy houses with little or no money down is not normal - yet we're STILL trying to think up more ways to do it (yes - it's true - especially via FHA).

    house price / income ratios for the several years in the middle of the decade were positively not "normal," neither was the % of Americans owning a home.

    Calculated Risk Blog is one of the best for long term charts of economic data/ratios etc...