New Administration Loan Program

AP Report: 6/22/10

Another day, another questionable use of your tax dollars:

The Obama administration has approved five state-designed plans to help homeowners as part of a $1.5 billion effort to assist areas slammed by the housing bust.
The Treasury Department said Wednesday that plans for Arizona, California, Florida, Michigan and Nevada had received approval.

The states estimate that the plans are projected to help up to 93,000 homeowners. That's a small part of the administration's main existing $75 billion mortgage assistance program, which is widely viewed as a disappointment.

The states were picked because they experienced at least a 20 percent decline in home prices. The programs, which vary by state, will help borrowers who have lost jobs make mortgage payments, cancel second mortgages that have blocked loan modifications and assist with the payment of piled-up mortgage bills.

According to the proposals from state housing finance agencies, the largest recipient of the funding is California, which will get nearly $700 million to assist about 46,000 borrowers. California officials are asking for matching contributions from lenders for its programs, which provide subsidies to unemployed borrowers and those who have missed mortgage payments, and for reductions in borrowers' principal balances.

Florida is getting the second-largest pot of money, $418 million. That will help about 12,500 borrowers. Treasury officials approved the state's plan to help the unemployed, but rejected two of the state's proposals.
Those included a plan to provide homeowners facing foreclosure with legal representation. A proposal to give homebuyers assistance with downpayments was also rejected, according to the Florida Housing Finance Corp.

Michigan will receive about $155 million to assist 17,000 borrowers, including 11,000 who are currently drawing unemployment benefits. It plans to start distributing the money in mid-July and estimates it could take up to 18 months to distribute all the cash. A major piece of Michigan's plan offers assistance to homeowners receiving unemployment benefits. Those who qualify could get half of their monthly mortgage paid for through the program -- as much as $750 a month for up to a year.
The state also would help homeowners who have fallen behind on payments because of a temporary layoff or a medical condition.

Arizona will receive $125 million for 12,000 borrowers. Nevada will receive $103 million for about 5,000 homeowners.

Besides these states, the Obama administration is providing an additional $600 million in financial support to help homeowners in states with high rates of unemployment. Those states -- Ohio, North Carolina, South Carolina, Oregon and Rhode Island -- have submitted plans to the Treasury Department. They are being reviewed now, with approvals expected in August.

More than a third of the 1.2 million borrowers who have enrolled in the Obama administration's main mortgage modification program have dropped out, officials said this week. About 340,000 homeowners, or 27 percent of those who started the program, have received permanent loan modifications and are making payments on time.

Weitz: Since the Making Home Affordable Program has gone so well (not really), I'm sure this will solve all our problems (not really). To sum up what the government is doing: we are going to pay the mortgage payments for unemployed folks in hard hit states....hardly seems fair to those that are working hard every day to pay off their mortgage(s). In general, I am not a big fan of this type of policy. Sure, unemployment benefits have utility to provide essentials...but paying off a mortgage!!...in the legal world, we like to call this 'a slippery slope' or 'grounds for abuse'.