Once again, Banks to Benefit from White House program to fight foreclosures

Banks to benefit most from White House

program to help fight foreclosures

By Vicki Needham - 08/15/10

The Hill.com

Banks will get the biggest benefit from an Obama administration housing program designed to help unemployed homeowners escape foreclosure.

Housing experts expressed concern that banks, not homeowners, will be helped by the White House's $3 billion funding infusion — $2 billion from the Treasury Department and another $1 billion from the Housing and Urban Development Department — going to those states hit hardest by the housing market crash and unemployment.

"Giving money to the banks isn't what the government should be doing right now," said Dean Baker, co-founder of the Center for Economic and Policy Research. "I'm not a big fan; it's ill conceived," he said.

The basic principle is to help struggling homeowners, but with so many people underwater on their mortgages, the new funding is unlikely to do much good, Baker said.

"You need to make sure that someone benefits from the program other than banks," he said.

Baker suggested that if the government is going to provide up to $50,000 in loans over the course of two years to those struggling homeowners that the money should be used for any of their needs, not just to pay the mortgage.

He said banks could offer a program that would allow homeowners to rent their home back from the bank at a lower monthly rate than their mortgage payment for up to five years, providing some security for those struggling to make monthly payments.

The arrangement would provide lenders with a real incentive to negotiate with homeowners because they don't want to be landlords.

If the recently announced program is expected to work there has to be a reasonable expectation that at the end of the two-year program homeowners will have some equity in their property.

"If that's not the case, then it's not worth it," he said.

He said he'd be "very surprised" if the vast majority of those who take advantage of the program don't eventually lose their homes.

Foreclosures were up 4 percent in July with 325,229 filings, a nearly 10 percent increase over the same month in 2009, according to a report from RealtyTrac, a group that tracks foreclosure filings.

David Abromowitz, senior fellow at the Center for American Progress, said the main problem with the funding is that lenders will benefit without requiring any concessions or matching of the federal aid.

"My concern is what are we asking from lenders who are going to get the benefits source to pay those loans for 24 months," he said.

Under the program, lenders don't have to make principle reductions on loans or major modifications, he said. Lenders should also be required to make concessions and possibly even match funding.

"Banks also should be required to share in the burden being faced by homeowners," he said.

Despite his reservations with the funding, he emphasized that with millions facing foreclosure, the fragile economy and a slowing economic recovery, "anything that slows or stops foreclosures is good."

"It's targeted well toward people facing a temporary situation when they can't pay their mortgage because of unemployment," he said.

Still, the challenge is difficult as federal officials try to find ways to get the economy to turn the corner and pick up pace.

"No one piece is going to turn the tide," Abromowitz said. "But this certainly could help in the housing market."

Under the federal program, Treasury will direct the $2 billion to the "Hardest Hit Fund" created earlier this year, while HUD will create a new "Emergency Homeowners Loan Program" that will provide zero-interest loans of up to $50,000 for two years. The funding will be divided up among 17 states and the District of Columbia.

The funding allocation announced last week is the third payout for the housing program, pushing the cost of the program to $4.1 billion. Complete article

Grandpa

On behalf of all children and grandchildren, grandpa suggests implementing the B.A.R.E. program (Bailout Awareness and Resistance Education). Our kids continue to be placed in financial harms way and our administration and congress has a moral obligation to afford them a fair opportunity!