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May 2nd, 2010 (Modified on January 30th, 2013)

Update3: U.S.’s Worst Housing Markets Get More Cash

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Update2: When we first published this story back in February, long-time blog.HSH.com reader Mitch left us a comment asking if we knew exactly how the states — Arizona, California, Florida, Michigan and Nevada — planned on spending this money:

I don’t understand how any of this will work, Tim. I get its overall purpose, but I have no idea how or what they’ll do with the money. And based on what you wrote, no one else knows either.

I responded to Mitch’s comment, letting him know that I would post the details as soon as they became available.

While we knew that at the time the president outlined this plan to spend an additional $1.5 billion on the five states “hardest-hit” by foreclosures and unemployment that the money would be up to the respected states’ Housing Finance Agencies to propose how they would utilize the money, we didn’t know how the states planned on spending it.

Let’s see how each state (AZ, FL, MI) proposes to spend their money:

Arizona ($125 million):

-$90 million on 3,000 principal reductions of deeply underwater borrowers

-$12 million to subsidize monthly payments of unemployed borrowers

-$7.5 million to buy out second mortgages

-$10 million on housing counselors

Update3: California ($700 million): California released their plans this week for how they plan to use their cash:

-$419 million to reduce the principal balances of underwater borrowers

-$128 million to bring delinquent borrowers current on their mortgages

-$64 million to subsidize monthly mortgage payments for up to six months for the unemployed

-$32 million for foreclosed borrowers to occupy and maintain homes until they’re resold

Florida ($418 million):

-Majority will be used to make mortgage payments for up to 12,000 unemployed borrowers for up to nine months

-$40 million in downpayment assistance of up to $15,000 for up to 4,000 potential buyers

-Unspecified amount to provide borrowers with legal services

Michigan ($155 million):

-Two-thirds of their cash will be utilized to make mortgage payments for up to one year for unemployed borrowers

-$31 million “to encourage banks to write down loan balances” for borrowers who are so far underwater that they can not qualify for a refinance or loan modification because of it. “The state would match up to $10,000 in write-downs made by banks and investors,” writes Nick Timiraos of the Wall Street Journal.

Nevada ($100 million): Will not release their proposals until they are approved by the Treasury Department in the weeks ahead.

There are several different strategies being explored here by the states, none of which has a proven outcome of success. One thing is for sure, we’re going to spend $1.5 billion. You can bet on that.

Proposals for the ‘next five’ states in the hardest-hit markets — North Carolina, Ohio, Oregon, Rhode Island and South Carolina — are due on June 1.

Update1 (published on 03/29/10): Our friend Alan Zibel at the Associated Press reported that the Treasury Department is planning to allocate more money to states with high unemployment that have been especially crippled by the housing crisis:

The Treasury Department plans to unveil $600 million in financial aid for five more states with high unemployment that have been slammed by the housing bust, two people briefed on the plan said.

The announcement of funding for North Carolina, Ohio, Oregon, South Carolina and Rhode Island was expected Monday. The people declined to be identified because the announcement was not yet public.

It comes on top of the $1.5 billion in funding announced last month by the Obama administration for Arizona, California, Florida, Michigan and Nevada, which all have deeply depressed home prices.

The new money is going to housing finance agencies in states with the most people in counties with unemployment rates above 12 percent.

Original Post (published on 02/19/10): Earlier today President Obama announced the latest addition to his Home Affordable Modification Program (HAMP) at a townhall meeting in Las Vegas.

Five of the nation’s hardest-hit housing markets — Nevada, Arizona, California, Florida and Michigan — will receive a combined $1.5 billion in aid:

The White House is spelling out broad outlines and supplying the funds, but it is leaving it up to the states to decide what to do on the ground. Precise funding levels for the states will be determined by the severity of home-price declines and unemployment.

The state housing finance agencies will be responsible for ultimately deciding how the dollars are spent.

Besides not being able to assist the number of homeowners even remotely close to its original estimations, HAMP has also been strongly criticized for a lack of meaningful assistance for the unemployed:

One criticism of HAMP is that it doesn’t do enough to address the problem facing borrowers who are temporarily unemployed. These borrowers may need a short-term bridge to help them stay current on their loans but may not need a long-term reduction in their mortgage payments. The White House says that states could come up with a program inspired by this one that Pennsylvania has used for nearly 20 years to help unemployed homeowners make their mortgage payments until they get a new job.

We wrote about the PA program — Pennsylvania’s Homeowners’ Emergency Mortgage Assistance Program — back in late January. Despite it’s success on the local level,  high individual costs were one reason federal officials felt the PA program wouldn’t work for a large number of homeowners. Yet, if you crunch some numbers, it’s easy to see that the costs associated with the PA plan are quite similar, if not less, than what is being financially dedicated to each borrower under HAMP.

From “Mortgage Relief for the Unemployed“:

Why can’t the PA plan work for large numbers of people? If [Assistant Treasury Secretary Michael Barr, who is overseeing the federal modification program] is concerned about the “high” costs associated with the PA program, consider this: the $10,500 spent on each PA borrower is darn close to what Washington is already spending on each Federally-modified borrower — if not less. Lenders, servicers, and borrowers are each being paid incentives to modify loans. Servicers are receiving up to $3,000, borrowers up to $5,000. That’s $8,000 right there, and excludes any per loan subsidies, administration costs, and promotion costs. It’s also worth noting the fact that PA loans must be repaid, where as Federal mods do not. Right there, the costs of the two plans are extremely similar.

While we kicked around the idea that more and more borrowers may begin to receive substantial principal reductions as a strategy to increase the number of permanent loan mods, it seems that idea is becoming less popular as time goes on. Judging by some reports released today, both “fewer people [are] falling behind on home loans,”and more households are benefiting from HAMP.

Washington is pulling together important puzzle pieces in place to improve their foreclosure numbers: this state aid should serve to help the unemployed, recent changes to HAMP should help weed out the unqualified borrowers from entering into the program, and  HAMP part two should lead to an increase in short sales, which short-circuits the run to foreclosure.

In any event, it will be interesting to see if this “bridge loan” idea catches.

Homeowners: Would a short-term “bridge loan” help out your specific scenario?

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6 Responses to “Update3: U.S.’s Worst Housing Markets Get More Cash”

  1. Mitch Says: February 21st, 2010 at 5:26 pm

    I don’t understand how any of this will work, Tim. I get its overall purpose, but I have no idea how or what they’ll do with the money. And based on what you wrote, no one else knows either.

  2. Tim Manni Says: February 22nd, 2010 at 10:36 am

    Details were limited, I’ll try to fid out some more info. But as the article says, the states will spend the money as they see fit, and they haven’t announced it yet.

  3. Schuylkill Mortgage Says: March 2nd, 2010 at 12:16 am

    Another new project of President Obama..

  4. GERALD POLLACK Says: May 3rd, 2010 at 4:48 pm

    Who can I contact in the state of California to apply for one of these programs?

  5. Tim Manni Says: May 3rd, 2010 at 4:53 pm

    Gerald,

    Thanks for commenting. I would get in touch with the housing finance agency in California since they seem to be steering the ship: http://www.calhfa.ca.gov/

    -Tim

  6. » Are Tax Credits for Homebuyers Still Available? Yes Says: May 12th, 2010 at 9:30 pm

    [...] of the states with the worst housing markets in the country? The federal government is providing extra funding to ten states that have been hit especially hard by the housing downturn. While five states have yet to announce how they plan to allocate the added funds, so far, [...]

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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