Banks to benefit most from White House program to help fight foreclosures [View All]

[seafan]

Vicki Needham at The Hill reported this afternoon:


August 15, 2010

Banks will get the biggest benefit from an Obama administration housing program designed to help unemployed homeowners escape foreclosure.
Housing experts expressed concern that banks, not homeowners, will be helped by the White House's $3 billion funding infusion -- $2 billion from the Treasury Department and another $1 billion from the Housing and Urban Development Department -- going to those states hit hardest by the housing market crash and unemployment.

"Giving money to the banks isn't what the government should be doing right now," said Dean Baker, co-founder of the Center for Economic and Policy Research. ..... The basic principle is to help struggling homeowners but with so many people underwater on their mortgages the new funding is unlikely to do much good, Baker said.

"You need to make sure that someone benefits from the program other than banks," he said.

Baker suggested that if the government is going to provide up to $50,000 in loans over the course of two years to those struggling homeowners that the money should be used for any of their needs, not just to pay the mortgage.

He said banks could offer a program that would allow homeowners to rent their home back from the bank at a lower monthly rate than their mortgage payment for up to five years, providing some security for those struggling to make monthly payments.

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If the recently announced program is expected to work there has to be a reasonable expectation that at the end of the two-year program homeowners will have some equity in their property.
"If that's not the case, then it's not worth it," he said.
He said he'd be "very surprised" if the vast majority of those who take advantage of the program don't eventually lose their homes.

Foreclosures were up 4 percent in July with 325,229 filings, a nearly 10 percent increase over the same month in 2009, according to a report from RealtyTrac, a group that tracks foreclosure filings.

David Abromowitz, senior fellow at the Center for American Progress, said the main problem with the funding is that lenders will benefit without requiring any concessions or matching of the federal aid.

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The bitter lesson of TARP goes unlearned.