By Kevin Chiu
The $1.5-billion government bail-out plan targeted to save homeowners from foreclosure in the worst impacted states will be handled by local housing finance agencies working in conjunction with the Treasury Department.
A formula will be designed to allocate funding in each of the state’s most harshly affected areas, according to a White House statement. California, Florida, Michigan, Nevada and Arizona are targeted by the program to receive aid. The plan is expected to save hundreds of thousands of homeowners from foreclosure and may be expanded to help other state’s ailing real estate markets, but is not intended to aid real estate investors or speculators.
Under the plan, local housing finance agencies must submit a program to the Treasury Department to receive funding in area’s where housing deflation has hit a minimum of 20% on average since the beginning of the real estate crash.
“This innovative program will allow us to work directly with states and localities to tailor housing assistance to local needs,” said Treasury Secretary Tim Geithner. “It’s an opportunity to provide additional relief to the hardest hit states while continuing to strengthen our housing market stabilization efforts.”
Many housing markets in the states targeted for aid have seen housing deflation average at least 50%, and some have experienced deflation as high as 75% on average. Housing finance agencies are closely tied to their local housing markets, and will play a key role in determining what will work best to aid homeowners.
The program is designed to help homeowners who have lost their jobs, are upside down or owe more on their home than it is worth in today’s marketplace and those that have second mortgages or lines of credit, which make mortgage payments a hardship.
All funded programs will be posted on the Internet to provide better transparency, according to the White House. The program will be overseen by regulators of the Emergency Stabilization Act of 2008. It is expected to take at least two weeks for agencies to apply to the Treasury Department with plans for funding to aid homeowners in their communities and another two weeks before funds can be dolled out to aid mortgage holders.
The Obama administration has made a dozen efforts to push the housing market into a recovery, including a first time tax credit for home buyers and an expansion of the program to move-up buyers. The Treasury Department has also purchased billions of dollars in home mortgages in efforts to stabilize markets.
“The funding…will help target resources to those hardest hit markets, promoting innovation that tailors programs to meet local needs and complementing our national foreclosure relief efforts,” said Shaun Donovan, Secretary of Housing and Urban Development.