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."

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.

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.

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.

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.

One borrower who did get help was Gabriela Barrios of Compton, a single mother of two who had her loan balance cut by $40,000 and her interest rate lowered under the Keep Your Home California program.

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