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$7B homeowners bailout unused

By Polyana da Costa · Bankrate.com
Thursday, April 12, 2012
Posted: 4 pm ET

While millions of homeowners struggle to pay their mortgages, more than $7 billion sits, unused, in a federal fund that was created to help borrowers avoid foreclosure.

Why? In one word: incompetence.

In 2010, the Treasury Department created the Hardest Hit Fund. The plan was to distribute $7.6 billion among housing finance agencies in states that were hit hardest by the housing crisis, so the states could help borrowers stay in their homes.

But only 3 percent of the $7.6 billion in this fund, or $217.4 million, was spent, as of December, according to a report released Thursday by the Office of the Special Inspector General.

Designed to help millions of homeowners, the program has helped only 30,640 people since it was created.

The main reason for the program's failure may be familiar to you: Fannie Mae, Freddie Mac and the large mortgage servicers refused to participate, for the most part.

An official from Florida Housing Finance Agency, which was allocated more than $1 billion from the fund, explained in the report: "The one billion dollars has been a nice carrot to use for servicers in Florida, but there is no stick with the carrot to force servicers to participate."

Who's to blame? The Treasury Department, at least according to the report. Treasury made the money available for the program, but it lacked planning and oversight. In other words, just like with the bank bailout, Treasury basically said: "Here is the money; we hope you do the right thing with it."

When will the government ever learn that a no-strings-attached policy will never work on the lending industry?

According to the report, Treasury failed to gain support from Fannie and Freddie before announcing the program. Not until seven months after its announcement did Treasury hold a summit with servicers to try to get them on board, the report says.

Months after the Hardest Hit Fund was created, some servicers started to participate in the program, but they embraced only the parts that benefited them. The program, which was made available to 18 states and the District of Columbia, was supposed to help borrowers by:

  • Reducing mortgage balances for underwater borrowers.
  • Paying off or reducing second mortgages.
  • Paying amounts past due on mortgages to help borrowers who had fallen behind on payments.
  • Providing unemployment assistance.
  • Offering relocation help to those selling homes through short sales or handing over the keys to the lender in lieu of foreclosure.

Guess which part of the program the servicers welcomed? The unemployment assistance, in which the government makes payments for homeowners while they're unemployed. Most of the money spent in the program so far went to unemployment assistance, the report shows.

"The servicers, investors and GSEs make no financial sacrifices in the unemployment and reinstatement programs because the mortgages are essentially paid by the government in whole or in part," the report says.

By the way, for those who complain about how banks got a bailout but homeowners didn't, it might help to know that this program was -- is -- supposed to be your share of the bailout. The money for the Hardest Hit Fund comes from the Troubled Asset Relief Program, which was set up to help banks during the 2008 crisis.

Too bad it's mismanaged. According to the report, at this pace, the fund will have helped fewer than 500,000 homeowners by 2017, when it's set to expire. When the program was announced, Treasury estimated that the fund would help at least 3 million homeowners.

Do you think these $7 billion will help struggling borrowers avoid foreclosure?

Follow me on Twitter @Polyanad

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7 Comments
sp
June 07, 2012 at 11:31 pm

It all boils down to money. If a bank or lending institution stands to loose money they will not do it. They dont care, they are in it for themselves. Their officers dont have to live hand to mouth or paycheck to paycheck or on minimum wage. If things dont get cleared up soon, I fear we will step back to the 19th century way of things.

Infuriated
May 23, 2012 at 3:37 pm

The problem lies with the lenders. They can't fully comprehend the constantly changing credit guidelines, thus, they are just playing it safe, just don't lend. Supposedly banks are sitting on $4.2 trillion. I tried to get a home equity line of credit consolidation loan. Due to an accident, I had to resign and can now only secure part-time work. The credit union and a bank I consulted, said they would not loan to me. I still have excellent credit and a sizeable equity share in my home. Their reasoning-I don't have a full-time job. Folks are being laid-off daily. A full-time job does not guarantee that one will have continued income. I will keep trying, however their current one-size-fits-all guidelines were established by those with a poor understanding of what constitutes a credit-worthy borrower. In return, they are losing out on business and furthering the destruction of our country and it's citizens.

DoppieK
April 16, 2012 at 6:43 pm

My sister lives in NC and has been buying a house on land contract. She has paid on it for 13 years at 9.75% interest and has been looking to refinance it to a lower rate and get a lower payment. Because of the economy she has been forced to take a minimum wage job and can no longer afford the $650 a month mortage payments. Can you help her with any of these bail out programs?

Lynda
April 16, 2012 at 12:32 pm

What about those of us who lost our homes prior to this so called "Hardest Hit Fund"? For example, those whom for many years contributed to society with small businesses, as well as paid taxes. Then in turn, had to close their doors due to non-negotiating lenders? "7 billion...unused", UNBELIEVABLE!

Naz
April 14, 2012 at 8:40 am

I was looking that WELLS FARGO re writes my 7.5% rate loan to 5% a new mortgage they refused they answer was go to other lenders and refinance the loan I don't qualify for a loan thru reqular FANNIE MAE loan guidlines since my credit is tarnished neither I have the income, If I am able to pay the payments on a 7.5% rate, I will be able to pay at 5% rate. I exuasted my savings soon I will be behind on my payments, the whole think stinks.

Lori
April 13, 2012 at 3:01 pm

This and all the other programs that have been set up to help the american people with mortgages will do nothing, because even though programs are offered, the banks still refuse to finance any of the programs. I am freddie mac owned and fully qualify in every way for the HARP 2.0 and the banks are adding their own rules so no one will be financed.