Friday, Oct. 30, 2009

New focus: Keeping jobless in their homes

Option weighed to use TARP funds for bridge loans

Using taxpayer funds to keep out-of-work homeowners in their homes until they find another job is an option being looked at by some officials in the Obama administration, according to people familiar with government financial rescue programs.

At issue is an administration program that is employing $50 billion in taxpayer funds from the $700 billion Troubled Asset Relief Program to help lenders modify mortgages for troubled homeowners.

Elizabeth Warren, chairwoman of the Congressional Oversight Panel, which is a TARP watchdog group, and a gaggle of Pennsylvania groups representing troubled homeowners are pressing the Treasury Department to consider using some federal TARP funds from the modification program to give government bridge loans to people who recently have lost their jobs. The loans would not accrue interest until their income is restored.

The oversight panel argues in a recent report that the Treasury's mortgage modification program focuses its attention on the problem evident early in the financial crisis of people having subprime mortgages they can't afford. Panel member Richard Neiman contends that a second wave of foreclosures is coming that is based more on loss of income and unemployment.

"The mortgage crisis may have begun with unaffordable subprime or exotic loans, but it has expanded to capture an increasing number of homeowners with traditional, prime loans as the recession lingers," Neiman said.

Job losses rose in September, driving the unemployment rate to a 26-year high of 9.8 percent. Since the recession began in December 2007, 7.2 million jobs have been lost and the unemployment rate has doubled. A survey of 44 professional forecasters released by the National Association for Business Economics on Monday found that unemployment is expected to remain high in 2010.

The proposal to keep out-of-work homeowners in their homes, which was discussed at an oversight panel field hearing last month in Philadelphia, could be based on Pennsylvania's Homeowners' Emergency Mortgage Assistance Program.

With HEMAP, which was established in 1984, Pennsylvania state officials provide a two- or three-year loan to a jobless homeowner, depending on the individual's finances and the economic situation.

Using that program, a homeowner is not responsible for repaying the vast majority of the principle or any of the interest on the loan until he or she finds a job.

Specifically, a struggling homeowner participating in the Pennsylvania program, which has depleted resources, is required to pay a token $25 a month until he or she gets another job and gross income surpasses 35 percent of monthly housing costs, including mortgage and utility payments.

In some cases, when the household has some income, the payments would be made partly by the homeowner and partly by the state.

"What we're recommending to the administration is that they give people this loan until they get back to work," said John Dodds, director of the Philadelphia Unemployment Project. "If you don't deal with the people who lost their jobs, you are missing half of the problem, and if these homes go into foreclosure, it's bad for the broader economy and bad for neighborhoods. It's hard to recover."

According to people familiar with the Obama administration mortgage modification program, officials from the Housing and Urban Development agency have met with Pennsylvania officials responsible for the development of the HEMAP program to discuss whether the state program could be expanded nationally.

The presentation was met with a positive response from the HUD officials, they said. A federal official familiar with the mortgage modification program said the meeting took place and "a range of options are being discussed to expand the mortgage modification program nationally."