Obama Pledges 1.5 Billion for Upside-Down Homeowners

GSIG LLC

This past Friday, the White House announced a new initiative to help the nation’s hardest hit housing markets. President Obama has allocated 1.5 billion dollars in aid for states where home prices fell more than 20% after the aftermath of the housing bubble and unemployment is high.

Since the Obama Administration’s economic policies began to take effect almost a year ago, home prices across the country are beginning to stabilize. However, local conditions vary considerably, and the administration says price declines, together with the effects of high unemployment, means that many homeowners are still facing serious challenges.

President Obama is setting up an “innovation fund” for state housing agencies to develop assistance programs for upside-down, unemployed homeowners. Based on home price declines and unemployment rates, a formula will be created for allocating funding among eligible states. According to House Speaker Nancy Pelosi, the money will go to support homeowners in California, Nevada, Arizona, Florida, and Michigan.

The Treasury must approve each Housing Finance Agency’s (HFA) program design, which will include programs that address the challenges of second liens and assistance for the unemployed and borrowers who owe more than their home is worth.
The White House said in a statement: “The funds must be used to pay for mortgage modifications or for other permitted uses under federal guidelines.”

Unemployment has hit many home-owners since the recession began two years ago. Those in states where prices have dropped more than 20% often find themselves owing more than the house is worth. In such circumstances, one use of funds would be for HFAs to begin programs to help unemployed homeowners until they have secured a new job.

For states where home prices have crashed, a large percentage of homeowners are finding themselves upside-down on their mortgage. A sale is often difficult to secure because lenders may not agree to a transaction that fails to pay back the mortgage in full. The White House said HFAs should experiment with programs that will help borrowers negotiate with lenders.

State HFAs will determine the priorities facing their local markets. The administration said agencies’ plans will be under strict transparency and accountability rules, with all funded program designs and success measurements posted online.

The Treasury is expected to announce maximum state level allocations in the next two weeks, along with rules governing the submission of program designs by HFAs.