On Wednesday, the Obama administration approved the second outlay of the Treasury Department’s plan dubbed the “Hardest Hit Program,” which was established in February to bailout homeowners in California, Arizona, Florida, Michigan and Nevada, all with average home price declines of over 20 percent. The second round of states hit hardest in the housing crisis—North Carolina, Oregon, Rhode Island, South Carolina, and Ohio—were selected based on their high unemployment percentages, each with counties that exceed an average of 12 percent during 2009, said Herbert Allison, Treasury assistant secretary for financial stability.
The Obama administration has rolled out a number of initiatives to tackle the housing crisis, which has resulted in more than 2.5 million foreclosures since January 2007 through the end of 2009. But the administration has made little headway until now. More than 40 percent, or about 530,000 homeowners, have fallen out of the administration's main $75 billion mortgage assistance program. That program provides lenders with incentives to reduce mortgage payments. So far, it has provided permanent help to about 390,000 homeowners, or 30 percent of the 1.3 million who have enrolled since March 2009.
“The housing crisis is nationwide but it is very much a local crisis as well,” Allison said. “Some areas are hit from high unemployment or a large percentage of underwater mortgages. We think it is appropriate to supplement our national foreclosure prevention program with funds targeted to these states which are hardest hit.”
Some experts say throwing money at the problem is not an effective solution. And many argue against government bailout of homeowners saying it rewards irresponsibility at the expense of those who are fiscally prudent.
“To give state governments money now to try and address the problem, I don’t think it will necessarily prevent foreclosures,” said Rick Sharga, President of RealtyTrac, a website that tracks foreclosures. “The money by itself will not be enough to stem the tide of foreclosures in those states. The problem is just way too big for that.”
What the States Will Get
In the latest aid package Ohio will receive $172 million—the highest recipient, North Carolina is slated to receive $159 million, Oregon to receive $88 million, Rhode Island with $43 million and South Carolina is in line for $138 million. Each state will design its own plan to disburse the funds with the help of state Housing Finance Agencies.
Key proponents for state plans vary but some include:
- HAMP (Home Affordable Modification Program) assistance to provide funds to servicers to assist in making borrowers HAMP-eligible.
- Refinance existing second mortgages to make mortgage payments more affordable.
- Help unemployed borrowers pay mortgage payments for up to 12 months while they search for a job and/or participate in a job training program.
This second round of funding to states will not be the last. The Treasury Department plans to issue a third round of mortgage related assistance. An additional $3 billion was included under the sweeping financial reform bill signed into law last month. The Treasury Department was allocated $2 billion to help jobless homeowners pay their mortgages and $1 billion was designated to the Department of Housing and Urban Development.
Phyllis Caldwell, chief homeowner preservation officer with the Treasury Department, said the focus of the third round of funding from the “Hardest Hit Fund” will be for states with high unemployment. It is not known when the third round of aid will be dispersed or what states will be selected.
About 1.65 million homes received foreclosure filings during the first six months of 2010—a 38 percent increase from a year earlier, according to RealtyTrac Inc. It forecasts more than 3 million homeowners will receive a foreclosure notice in 2010.
The Associated Press contributed to this report