A program meant to help 30,000 underemployed Americans keep their homes will end without achieving half its goal
For some reason, the government just can't seem to figure out how to aid struggling homeowners. First, its Making Homes Affordable program -- meant to prevent several million foreclosures -- continues to struggle to reach even one million. Then, its long-awaited principal reduction effort was completely shunned by Fannie Mae and Freddie Mac, which significantly limited its potential effectiveness. Another mortgage-aid effort ends Friday, which intended to help 30,000 underemployed Americans avoid foreclosure. Instead, it may not reach even 15,000. What went wrong this time?
The "Emergency Homeowners' Loan Program" was a little different from some of the efforts that preceded it. It wasn't designed to prevent foreclosures for any homeowner facing foreclosure. It was specifically aimed at underemployed Americans -- those who are struggling to keep their homes because they lost their jobs or are forced to work part time. It provides interest-free loans of up to $50,000 to pay mortgage debt for up to two years. The program was provided $1 billion in funding from last July's financial regulation bill. It will probably leave about half unspent.
A Few Months Work?
Cara Buckley at the New York Times reports on the problems that plagued the program. One issue was timing. Remember, the bill that gave birth to the program was passed in July 2010. Buckley says that the Department of Housing and Urban Development (HUD) dragged its feet:
Yet the department did not begin the program until this June, and set an original application cutoff date of late July. Across the country, nonprofit housing groups and mortgage counselors who had been chosen to work with applicants rushed to meet the deadline, which ended up being extended several times.
So the program would run for... two months? Is it even possible to spend $1 billion in such a short time period? It must have been like a scene out of Brewster's Millions at HUD this summer. Although, if anyone is good at spending oodles of money, it's the government. Maybe HUD should have recruited some Solyndra execs to help spend so much in such a short time.
But kidding aside, it took HUD about a year to ramp up this program. That's an incredibly long period of time to put a program into effect with the word "emergency" in its title. Over the period, thousands of potential participants who were unemployed likely lost their homes through foreclosure. This delay is absurd.
Of course, we could also place a little bit of blame on the shoulders of Congress here. Why it force the program to end in September? In retrospect, a more sensible timeline might have been to give HUD one year from the time the program began to spend the money.
Were Requirements Too Strict?
Buckley explains that others complain the program is too restrictive:
Under the stipulations, applicants had to be at least 90 days behind on their mortgage payments. They also had to be earning at least 15 percent less than their 2009 income due to unemployment, underemployment or serious illness. The program subsidized mortgage payments for up to two years. But if the cost of the subsidies and the repayment of a homeowner's mortgage debt exceeded $50,000, the applicant would be ineligible.
Perhaps it depends here what you mean by "restrictive." In this case, if you have a person with a severely delinquent mortgage on a home with a value somewhere in the ballpark of the median home price in the U.S. who has been underemployed since 2009, then they'll probably qualify under these terms.
Isn't that the target audience? The only way I could see tweaking these requirements much would be to allow borrowers who were less than 90 days delinquent, or even current, to qualify. Just because an unemployed person has managed to scrape together the money to make mortgage payments through June doesn't mean he or she will continue to be able to do so over the next two years if still unemployed.
Homeowners who still have a good job but are struggling to pay their mortgage for other reasons won't qualify. Their troubles may stem from their home being unaffordable in the first place or having had their loan reset to a payment they can't afford. While their situations are unfortunate, the program wasn't designed to help them.
So the timeline appears to be the more significant issue here, but the delinquency requirement also likely had an impact. About 25 million Americans are underemployed, according to the Bureau of Labor Statistics. A fair number of them must have mortgages that they're struggling to pay. And yet, less than 15,000 were helped by this program.
Image Credit: REUTERS/Rebecca Cook
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