Washington is initiating a program to help the unemployed stay in their homes: Qualified applicants will get zero-interest loans of up to $50,000 for two years to pay their mortgages while they remain jobless. But The Hill questions whether it might be banks benefiting from the arrangement. The government is not a direct lender, instead backing loans made by banks.
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. “My concern is what are we asking from lenders who are going to get the benefits source to pay those loans for 24 months,” he said. Under the program, lenders don’t have to make principle reductions on loans or major modifications, he said. Lenders should also be required to make concessions and possibly even match funding. “Banks also should be required to share in the burden being faced by homeowners,” he said.
Despite his reservations with the funding, he emphasized that with millions facing foreclosure, the fragile economy and a slowing economic recovery, “anything that slows or stops foreclosures is good.” “It’s targeted well toward people facing a temporary situation when they can’t pay their mortgage because of unemployment,” he said.
Dean Baker of the Center for Economic and Policy Research also says that he imagines many of the borrowers will end up losing their homes anyway.
I’m a little sunnier on this program — mostly because it is a replica of a highly successful Pennsylvania state program. I wrote in July:
[T]he Emergency Homeowners’ Relief Fund [is] a $1 billion fund to help unemployed workers stay in their homes. [...] Legislators modeled the program after Pennsylvania’s successful Homeowners’ Emergency Mortgage Assistance Program, or HEMAP. Since its creation in 1984, HEMAP has helped 41,500 homeowners with $433 million in loans. About half of HEMAP loan-takers have repaid in full to date. And 90 percent of HEMAP participants have avoided foreclosure.
“Millions of American homeowners, through no fault of their own, have lost their jobs in the current economic downturn and have faced the loss of their piece of the American dream,” [Rep. Chaka] Fattah said in a statement. “[HEMAP] — which the Emergency Homeowners’ Relief Fund is patterned after — is a proven success in Pennsylvania and it will work nationally. It will keep families in their homes, providing emergency relief from foreclosure for those with a proven history of working and paying their mortgage.” He added: “[F]inancial reform isn’t just about saving banks and markets from failure. It has a message for distressed and unemployed homeowners: We won’t allow you to fail either.”
And Pennsylvania has actually expanded HEMAP to keep up with the recession, now allowing loans for up to three years. Housing advocates and many state politicians argue the main problems with HEMAP have been underfunding and too-high rates of loan denial. They also argue that forcing banks to write down mortgages would help to cure the illness rather than treating the symptoms.