The Obama Administration will allocate $1.5 billion to state housing agencies to help “underwater” borrowers and those unemployed facing foreclosures in the hardest-hit states of California, Arizona, Nevada, Florida and Michigan.
The funds are to be re-directed from the government’s primary bailout program, the Troubled Asset Relief Program, TARP. And the state agencies can use the additional aid to help troubled homeowners move into the government’s mortgage reduction program.
Obama made the announcement during a day of events in Nevada, the state with the highest estimated number of “underwater” homeowners, those with homes valued less than what they owe, also referred to as negative equity. About 65 percent of Nevada homeowners are underwater. The state also has one of the highest unemployment rates.
The Obama Administration has felt increasing pressure to push harder on foreclosure rescues as its primary program, the $75 billion Home Affordable Modification Program (HAMP), is seen as failing to keep pace with the unabated crisis. Out of more than 3.4 million eligible borrowers, HAMP has only approved 116,000 borrowers for permanent mortgage payment reduction as of the U.S. Treasury’s latest update released this week.
The year-old program has also been criticized for not providing widespread principal forbearance to the growing number of underwater homeowners.
The new foreclosure assistance will shift to state agencies with the traditional function of providing affordable housing to first-time or low-income buyers.
Known as HFAs (Housing Finance Agencies), they are independent entities that operate under the direction of a board of directors appointed by each state’s governor.
