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Emergency Loan Program for Foreclosures Disappoints

Back in the summer of 2010, HUD and the Treasury Department announced a new foreclosure prevention program, which would give bridge loans at no interest for up to $50,000 to unemployed borrowers facing foreclosure. I said at the time:

None of these programs have succeeded in doing what’s actually necessary – modifying mortgages so borrowers can pay them, so the foreclosure crisis slows down, and so the housing market can stabilize and prices can find their proper level. And while the new Hardest Hit program may help arrest the second wave of unemployment-driven foreclosures, rate recasts and the continued destruction of home prices will still work their way through the system and cause millions to lose their homes, if nothing is done.

That wasn’t exactly an optimistic view, but it was predicated on the idea that the $1 billion in the Emergency Homeowners Loan Program would actually get spent. But sadly, like most of the other foreclosure-prevention programs put forward by the Obama Administration, it underperformed. And now the unused money earmarked for troubled homeowners is going away.

In summer 2010, Congress set aside $1 billion for a program intended to bail out people in danger of losing their homes to foreclosure. It was estimated that the program, administered by the federal Department of Housing and Urban Development, would help as many as 30,000 households.

But the program is now ending after achieving lackluster results and stirring widespread recrimination.

Fewer than 15,000 households are expected to receive help despite enormous demand, and perhaps half of the money will go unspent.

Treasury is blaming Congress for the design of the program. Congress is blaming the Treasury, with Barney Frank claiming that they “dragged their feet” and didn’t make the program a priority.

I think Congress has the better of the argument. This program was announced in August 2010. The Treasury Department DID NOT START THE PROGRAM until this June, a lag of 10 months. The initial deadline was the end of July, giving housing counselors just weeks to process qualified applicants. The deadline got extended multiple times and now has moved to Friday. But a moving deadline that keeps counselors under the gun does not create an efficient program.

There’s also the nonsensical rule that an applicant would be ineligible for the loan if the cost of repaying mortgage debt for two years exceeded $50,000. The program was already capped at $50,000, but if the terms of the mortgage debt (not the bridge loan) went over by one dollar, then no loan. That’s ridiculous; it disqualifies practically anyone in a high-cost area. And it’s just one of the onerous eligibility burdens of the program, which HUD and Treasury blamed on the appropriation from Congress. Here’s a classic alibi:

No one could have anticipated how difficult the statutory requirements would make it to qualify homeowners, causing us to overestimate the number of people who could meet the eligibility criteria,” said Todd M. Richardson, director of the emergency loan program.


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David Dayen

David Dayen

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