Realty Check

Bigger Bailout for Unemployed Borrowers

We knew it was coming, as it was part of the recently signed financial reform bill, but today the Obama Administration announced it would be sending another $1 billion to unemployed borrowers to help them pay their mortgages.

Here's part of the release:

"This new program will complement Treasury’s Hardest Hit Fund [a now $4 billion fund established last February, going to states with above-average unemployment rates] by providing assistance to homeowners in hard hit local areas that may not be included in the hardest hit target states. Those areas are still being determined.

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."


To be eligible, borrowers have to be at least three months behind on payments and, "have a reasonable likelihood of being able to resume repayment of their mortgage payments and related housing expenses within two years."

I'm not sure what that means, but that's just me.

They have to be owner-occupants and not own a second home.

They also have to have had a good payment record prior to unemployment.

At face value it seems pretty basic…the government will lend the borrowers up to $50,000 each for up to 2 years to pay their mortgages.

The loan is 0% interest.

But then I got to thinking…the trouble today is not that so many more people are losing their jobs, it's that those who have already lost their jobs are having a hard time getting new jobs. Plus they're already way behind on all kinds of debt. By giving many of these folks cash to pay their loans, the government is essentially putting them deeper into debt.

Blatantly absent from the release today was any information on how borrowers would be required to pay this "bridge loan" back.

So I asked the folks at HUD and got the following response:

"We are still working on the details of repayment. However, the statute gives the Secretary broad latitude to prescribe the terms and conditions of any loans and repayment. We are exploring options that provide incentives for borrower payments for their primary mortgage while deferring the repayment of the assistance funds."

In addition to this new program, the Treasury announced it was adding another $2 billion to the state's "Hardest Hit Fund," a program that started in February of this year and is described above. The addition of funds brings the total to just over $4 billion, even as it's still getting under way in most states. "Each state will 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."

That money comes out of the TARP's $50 billion allocation for housing.

And that makes me, and several of the reporters on the conference call today about these programs, ask, why do we need this if we have the government refinance program, the government modification program as well as other government additions to these programs starting this fall that target unemployed borrowers?

The answer was a bit of a dance about how the states say they need this.

I just worry, once again, that government, which while trying to do its best to save the housing market, is just prolonging its agony, kicking the can down the road and making permanent renters out of all too many Americans.

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