Continuing to fund the circle
Doesn’t it feel like the national economy is just one big circle? Instead of moving on a parallel line going forward, we keep running on the same circular track never quite catching up. This unfortunately is what homeowners all around the country who are either upside down on their mortgages or just can’t make that monthly payment are experiencing. And I can’t help but wonder if all the help the federal government is offering to distressed homeowners will ever get them to move off that circle.
On August 11th, the White House announced additional support to help homeowners who are struggling with unemployment through two targeted foreclosure prevention programs. The program to receive the most funding is the Hardest Hit Fund, which was initially established in February with $1.5 billion, and is now being infused with an additional $2 billion dollars.
Under this program funds will be allocated to states that have experienced unemployment rates at or above the national average over the past 12 months. The states will then use the funds for targeted unemployment programs that provide temporary assistance to eligible homeowners to help them pay their mortgage while they seek re-employment, additional employment or undertake job training. Florida will receive almost $239 million in additional funds about half of the $476 million that California will receive.
The second program to benefit is the U.S. Department of Housing and Urban Development (HUD) Emergency Homeowners Loan Program. This program will receive an addition $1 billion and is designed to give loans to homeowners who are at risk of foreclosure because of involuntary unemployment, underemployment or medical condition with a maximum of $50,000 for up to 2 years. These bridge loans will be managed through a variety of state and non-profit entities offering zero percent interest to be used for mortgage payments, insurance premiums and property taxes.
To qualify the homeowner must be at least 3 months delinquent on their payments and have a reasonable likelihood of being able to resume repayment of their mortgage payments and related housing expenses within two years. The mortgaged property must be a principal residence, and the homeowner must have demonstrated a good payment record prior to the event that produced the reduction of income.
Will any of these billions, a total of $4.5 billion at this point, help any appreciable number of homeowners stay in their homes? If you’re asking my opinion it’s no. The combination of funding being filtered down through states and related agencies as well as restrictions placed on qualifications will create another bureaucratic nightmare. Chances are whatever homes are saved won’t be more than just a drop in the bucket.
And just in case you don’t think the federal government hasn’t already spent enough money bailing out mortgages, there’s still an outside chance that Fannie Mae and Freddie Mac may forgive that portion of mortgage debt that is underwater. If this happens the unintended consequences to the economy and the real estate market are virtually unknown.
At the risk of sounding like Simon Legree, the last thing I want to see is people losing their homes, but continuing to throw money at the circle will never get it to straighten out. At this point the entire economy is being held captive inside the bad mortgage circle, and so far it has not been demonstrated that continuing to fund the circle is a way to get it on the straight and narrow; aren’t we all just tired of running in circles.