Program to aid unemployed homeowners provides little relief
By E. Scott Reckard and Alejandro Lazo, Los Angeles Times
March 3, 2012
Only a fraction of the
$7.6-billion federal Hardest Hit Fund has been paid out to needy borrowers.
California has provided homeowners less than 2% of the federal funds it
received, as of last year.
A
$7.6-billion federal program to help unemployed homeowners stave off
foreclosure has provided little relief two years after being unveiled, with
less than $218 million of the money paid out to needy borrowers as of Jan. 1.
California,
which was allocated nearly $2 billion from the Hardest Hit Fund, provided less
than $38.6 million in assistance for 4,357 borrowers by the end of last year,
according to the state's latest report to the Treasury Department.
That amounted to less than 2% of the federal funds available to the state's Keep Your Home California program.
"It's about helping the homeowner, and that's not happening," said Bruce Marks, head of the foreclosure counseling group Neighborhood Assistance Corp of America. "As we speak, there are thousands of people losing their homes."
That amounted to less than 2% of the federal funds available to the state's Keep Your Home California program.
"It's about helping the homeowner, and that's not happening," said Bruce Marks, head of the foreclosure counseling group Neighborhood Assistance Corp of America. "As we speak, there are thousands of people losing their homes."
The
Hardest Hit program was funded by the U.S. Treasury Department with money left
over from the federal government's TARP program. States have earmarked about
70% of the money to keep unemployed homeowners current on their mortgage payments
or to help borrowers catch up on missed payments. The rest is set aside for
other relief programs, such as reducing mortgage balances and helping borrowers
move after losing their homes. In addition to California, 17 other
foreclosure-torn states and the District of Columbia were eligible for funds.
Government
officials, lenders and housing advocates offer a variety of explanations for
why the money has not been spent, including a slow-moving bureaucracy and the
government's inability to make eligible homeowners aware of the program. For
example, state and federal officials said California's Employment Development
Department declined to mail information about the program to laid-off workers
applying for unemployment benefits, citing legal constraints.
In
Oregon, state labor officials aggressively promoted the program to residents on
unemployment. It led to 16.4% of the available federal funds being distributed
as of Dec. 31 — the most of any state.
"I really, really don't understand why that unemployment program isn't used more" to promote the program, said Paul Leonard, California director of the Center for Responsible Lending, an advocacy group.
A California Employment Development Department spokesman did say the program was promoted on the agency's website and on its Facebook page. Samuel Herrera, 59, said he is struggling to keep up with the payments on his Bakersfield home after he was out of work for three months last year. Herrera said he went to a jobs center run by the state unemployment department last year and asked if there were any programs for borrowers. No one mentioned the Keep Your Home California program, he said.
"I am always looking for whatever news and new programs that come out to help homeowners working to pay their mortgages," Herrera told The Times, speaking in Spanish. "I am sorry I didn't know about it, because immediately when I lost my job I went to unemployment, and I asked them if there were any new programs to help me." State officials said another reason for the program's poor performance was that lenders would not go along with a plan to write down mortgage balances.
"I really, really don't understand why that unemployment program isn't used more" to promote the program, said Paul Leonard, California director of the Center for Responsible Lending, an advocacy group.
A California Employment Development Department spokesman did say the program was promoted on the agency's website and on its Facebook page. Samuel Herrera, 59, said he is struggling to keep up with the payments on his Bakersfield home after he was out of work for three months last year. Herrera said he went to a jobs center run by the state unemployment department last year and asked if there were any programs for borrowers. No one mentioned the Keep Your Home California program, he said.
"I am always looking for whatever news and new programs that come out to help homeowners working to pay their mortgages," Herrera told The Times, speaking in Spanish. "I am sorry I didn't know about it, because immediately when I lost my job I went to unemployment, and I asked them if there were any new programs to help me." State officials said another reason for the program's poor performance was that lenders would not go along with a plan to write down mortgage balances.
California,
Nevada and Arizona jointly devised a plan to provide mortgage relief funds to
struggling borrowers only if banks and loan investors agreed to reduce the
principal owed on the loan by a matching amount. For instance, a $25,000
principal reduction from the lender would be doubled, producing a $50,000
benefit to the borrower.
State
officials say banks, loan investors and the government-owned mortgage giants Fannie
Mae and Freddie
Mac declined to go along with the plan.
"I
think the biggest reason is the banks are not participating in the
principal-reduction piece," said Diane Richardson, legislative director
for the California Housing Finance Agency, which developed the state's program.
"They are choosing not to participate for whatever reason."California
is now considering helping homeowners without lender participation, state
housing agency spokeswoman Evan Gerberding said.
"That is something we might consider," she said. "We are constantly looking at ways to improve the program and make it more accessible to homeowners."Many lenders have adamantly opposed principal write-downs, arguing that they are not worth the cost and that they would create a "moral hazard" by rewarding delinquent borrowers while others get nothing.
"That is something we might consider," she said. "We are constantly looking at ways to improve the program and make it more accessible to homeowners."Many lenders have adamantly opposed principal write-downs, arguing that they are not worth the cost and that they would create a "moral hazard" by rewarding delinquent borrowers while others get nothing.
Edward
DeMarco, head of the independent federal agency that oversees Fannie Mae and
Freddie Mac, has contended that reducing principal on mortgages owned or
guaranteed by Fannie and Freddie was not consistent with his responsibility to
protect taxpayers. The government has pumped $183 billion into the companies,
which were seized in 2008 to prevent their bankruptcy.
Bank
and government officials say another reason is that many homeowners have simply
chosen not to participate, reasoning that they paid inflated prices for their
homes and that it no longer makes financial sense to keep the mortgage.Whatever
the reasons, housing advocates say many of the nearly 1 million Americans who
lost their homes to foreclosure last year might not have if the program had
been better managed.
Federal and state officials acknowledge the program started slowly but contend that it is gaining traction. In addition to the funds used by the end of last year, "considerably more has been committed," said Mark McArdle, director of the Hardest Hit Fund for the Treasury Department. California had allocated $50 million through the end of February and estimates that $200 million is in the pipeline, according to the state housing finance agency.
The program varies from state to state. In California, the funds can be used to help out-of-work homeowners by making monthly payments of up to $3,000 for nine months. During 2011, the state's housing finance agency delivered less than $25 million in such payments to 3,551 borrowers.
Federal and state officials acknowledge the program started slowly but contend that it is gaining traction. In addition to the funds used by the end of last year, "considerably more has been committed," said Mark McArdle, director of the Hardest Hit Fund for the Treasury Department. California had allocated $50 million through the end of February and estimates that $200 million is in the pipeline, according to the state housing finance agency.
The program varies from state to state. In California, the funds can be used to help out-of-work homeowners by making monthly payments of up to $3,000 for nine months. During 2011, the state's housing finance agency delivered less than $25 million in such payments to 3,551 borrowers.
A
recent $25-billion settlement struck by state attorneys general and the Justice Departmentrequires the five largest mortgage
servicers to reduce billions of dollars in principal. That deal raised hopes of
higher participation in the California, Arizona and Nevada programs by
servicers who could help borrowers further with the additional matching funds
at no cost.
Barrios, a clinical coordinator for United Healthcare, received first-time home buyer assistance from the city of Compton and a loan from the state Housing and Finance Department."I felt it was a blessing, like God sent me a blessing," Barrios said.scott.reckard@latimes.com alejandro.lazo@latimes.com
