When is enough, enough?
Obama Administration Expands Housing Aid Plan
By Renae Merle
Washington Post Staff Writer
Thursday, May 14, 2009 12:23 PM
The Obama administration announced new features of its foreclosure prevention plan today, including new incentives for lenders that help borrowers even when the assistance does not keep them in their homes.
The $75 billion housing plan focuses on paying lenders to modify the loan of distressed borrowers to affordable levels. But under the part of the program unveiled today by Treasury Secretary Timothy F. Geithner and Housing and Urban Development Secretary Shaun Donovan, lenders will be eligible for payment even if borrowers lose their homes.
"If a modification is not possible, we are also announcing steps to encourage the quick private sale or voluntary transfer of property, which will save homeowners money and protect their financial future," Geithner said. "These are critical steps in stemming the foreclosure crisis and stabilizing the housing market."
For example, if the homeowners do not qualify for a loan modification, their lenders could receive up to $1,000 if they allow the home to be sold in a short sale. In such deals the lender accepts less than the value of the mortgage. The homeowners might also be eligible for $1,500 for relocation expenses.
The administration also announced details of a $10 billion feature of the program that would shield lenders from losses associated with falling home prices. If a lender modifies a loan and the homeowner falls into foreclosure later, the lender could face more losses in the eventual sale of the property if home prices have fallen in the interim. The incentives in this part of the program will encourage loan modification in areas where home values have fallen dramatically, according to a summary of the program.
In the two months since it launched, the Obama administration's foreclosure prevention plan has outperformed the government's previous attempts, offering more than 50,000 homeowners lower-cost mortgages.
"It represents the type of aggressive response we needed from the beginning" of the foreclosure crisis, said John Taylor, head of the National Community Reinvestment Coalition.
Yet the $75 billion program, known as Making Home Affordable, has been implemented unevenly by lenders, leaving some homeowners frustrated and bewildered.
The demand from distressed borrowers has overwhelmed many lenders and nonprofit organizations, which have hired more staff to cope. Donovan said today that HUD would request $100 million for its housing counseling program in fiscal 2010, up $35 million from the 2009 budget allocation. But there is also a growing concern about whether the plan can reach its goal of helping up to 4 million homeowners without tackling the issue of borrowers who owe more than their home is worth.
