The New York Times
By: David Streitfeld
August 11, 2010
In an acknowledgment that the foreclosure crisis is far from over, the Obama administration on Wednesday pumped $3 billion into programs intended to stop the unemployed from losing their homes.
The housing market, which usually helps lead the country out of a recession, is this time helping hold the recovery back. Interest rates are at record lows, but too few can afford to buy or refinance. Unemployed homeowners who live in communities where values have fallen sharply are often unable to sell. Their foreclosures weaken neighborhoods and create a vicious circle by further undermining the market.
To try to break this pattern, the Treasury Department said it was adding $2 billion to its Hardest Hit Fund, roughly doubling its size. The fund, first announced by President Obama in February and expanded in March, goes to housing finance agencies in various states to create local aid programs.
Most of the state programs from the first two rounds are barely under way, but Treasury officials said it was clear that more funds were needed.
"In this very deep recession, people have tended to be out of work a little longer," Herbert M. Allison Jr., assistant secretary for financial stability, said. "That's why we think this additional relief for people searching for a job is so important."
The second program, announced by the Department of Housing and Urban Development, will draw on $1 billion authorized by the new financial overhaul law.
The agency said it would work with local aid groups to offer bridge loans of up to $50,000 to eligible borrowers to help them pay their mortgage principal, interest, insurance and taxes for up to 24 months. The loans will be interest-free.
Until now, the Hardest Hit Fund had been projected to help about 140,000 borrowers. Treasury officials said that number would grow with the new infusion of money, but offered no estimate. HUD also did not say how many homeowners would be eligible for its program.
If the new money is spent in the same way as the previous money, both programs would eventually aid about 400,000 borrowers -- a large number, but not when set against the 14.6 million unemployed or three million contemplating foreclosure.
Over the last two years, the government has deployed many programs to help housing. It pushed interest rates down, offered tax credits and set up an ambitious mortgage modification program. Yet housing remains feeble and seems poised after a brief respite this year to become weaker again.
"I think all these government programs are helpful, but I wouldn't look for them to cure the recession or even what ails housing," said the economist Karl E. Case. "At best, they're preventing things from getting much worse."
The Hardest Hit Fund will draw on the $45.6 billion set aside for housing in the Troubled Asset Relief Program, the rescue measure begun at the height of the financial crisis in the fall of 2008. Initially, the fund gave $1.5 billion to five hard-hit states: Arizona, California, Florida, Michigan and Nevada. The second round in March of $600 million went to North Carolina, Ohio, Oregon, Rhode Island and South Carolina.
The expanded list of states eligible for the latest funding includes Alabama, Illinois, Kentucky, Mississippi and New Jersey, as well as the District of Columbia. Each state's share of the money is based on its population.
Many of the programs involve direct assistance. Ohio, for instance, said it would use its $172 million to aid 15,356 homeowners by helping bring delinquent mortgages current for owners experiencing hardship because of a loss of income. The assistance will last up to 12 months.
The other housing money in the Troubled Asset Relief Program is earmarked for the modification programs ($30.6 billion) and a Federal Housing Administration refinancing program ($11 billion). The administration can shift money between the programs only until Oct. 3, the two-year anniversary of the program.
HUD said it was in the process of determining which communities would receive its money and how exactly the process would work. "We're still in the design phase," said Bill Apgar, HUD senior adviser for mortgage finance.