by Catherine Reagor The Arizona Republic Feb. 20, 2010 12:00 AM
Arizona is one of five states that will split $1.5 billion from a new federal program aimed at helping regions hardest hit by home foreclosures.
President Barack Obama announced the new funds Friday in Las Vegas as part of a government push to reduce the number of homes falling into foreclosure by assisting unemployed homeowners and other struggling borrowers.
Because foreclosures damage home values and have been a critical factor in the collapse of the housing market, any recovery will have to be preceded by a slowdown in repossessed homes.Almost a year ago in Mesa, Obama announced the $75 billion Home Affordable Modification Program, intended to help homeowners facing foreclosure. For a variety of reasons, that nationwide program has not helped as many homeowners as expected.
Money from the new program, called Help for the Hardest-Hit Housing Markets, will go only to Arizona, California, Florida, Michigan and Nevada, all states that have experienced at least a 20 percent drop in housing prices. Arizona's home prices have plummeted 50 percent.
Under the first program, lenders were paid to modify loans of struggling homeowners to lower payments so they could afford to stay in their homes.
In the new program, states can develop their own plans and then submit them for funding. The plans would be administered locally, most likely by state housing departments.
Details on how states can qualify for the federal money have not been released. But the new effort is intended to help unemployed homeowners, borrowers who owe more than their house is worth (which can prevent them from selling) and people with second mortgages on their homes.
"What we can do is help families that have done everything right to stay in their homes," Obama said during a Las Vegas town-hall meeting.
The $1.5 billion will come from money set aside for housing under the $700 billion Troubled Assets Relief Program, known as TARP.
To receive their share of the money, state housing officials must submit proposals to the Treasury Department. Money will be awarded based on a state's unemployment and foreclosure rates and should be available by summer.
Michael Trailor, director of the Arizona Housing Department, said, "Several million dollars will be coming to Arizona to invest in ways to keep people in their homes. The loan-modification program isn't working here as it should, and the president sees that. I am confident this money will help a lot more people in Arizona."
The old program
The first program, intended to help homeowners modify their mortgages to avoid foreclosure, has fallen far short of the government's expectations.
The Treasury Department reported Wednesday that the year-old program has helped only 116,000 U.S. homeowners permanently modify mortgages for more affordable loans. An additional 947,000 homeowners have gotten temporary reductions in mortgage payments, meaning they're in trial periods for loan modifications that lenders are not required to make permanent. The program's $75 billion is supposed to help 4 million homeowners within a few years. About $36 billion has already been allocated to the federal program.
Critics of the current loan-modification plan say lenders aren't acting fast enough or doing enough to help struggling homeowners.
In Arizona, many of the temporary loan modifications aren't being made permanent or aren't reducing payments enough to help homeowners.
The new program
The new program could do more to help Arizona homeowners. The Treasury will establish broad goals and supply the money. But Arizona and the other four states will have more input on how best to spend the money to stem foreclosures.
One of Arizona's first priorities will be to maintain its foreclosure hotline, which provides free housing counseling. National grant money for the hotline ran out in December, and the Arizona Housing Department has been digging into its depleted budget to keep it operating.
Trailor said there are more creative solutions to loan modifications, including giving U.S. grants to homeowners that lenders might match to reduce the loan principal and cut the monthly payment.
The Arizona Foreclosure Prevention Taskforce, made up of state and local government officials, non-profit housing advocates, regulators and real-estate business leaders, is expected to meet soon to start working on a plan for the federal money.
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