HUD offers interest-free $50K loans to unemployed homeowners to stem foreclosures

Hotair ^ | 08/15/2010 | Ed Morrissey

[SeekAndFind]

Call it a hair-of-the-dog solution to a seemingly intractable problem. The Department of Housing and Urban Development have begun issuing emergency $50,000 loans at zero interest to unemployed homeowners in an attempt to stall foreclosures, using $1 billion of Porkulus funds for the effort and $2 billion from the same source for indirect aid through state governments. Ironically, while foreclosure seizures are rising, the actual trend is more optimistic:

The Obama administration is providing $3 billion to unemployed homeowners facing foreclosure in the nation’s toughest job markets.

The Treasury Department says it will send $2 billion to 17 states that have unemployment rates higher than the national average for a year. They will use the money for programs to aid unemployed homeowners. Some of those states have already designed such programs.

Another $1 billion will go to a new program being run by the Department of Housing and Urban Development. It will provide homeowners with emergency zero-interest rate loans of up to $50,000 for up to two years.

The news comes as foreclosure seizures have increased by 6% over last year:

The number of U.S. homes lost to foreclosure surged in July, another sign lenders are moving quicker to take back properties from homeowners behind in payments.

Lenders repossessed 92,858 properties last month, up 9 percent from June and an increase of 6 percent from July 2009, foreclosure listing firm RealtyTrac Inc. said Thursday.

Banks have stepped up repossessions this year to clear out the backlog of bad loans. July makes the eighth month in a row that the pace of homes lost to foreclosure has increased on an annual basis.

Also, the cancer appears to have spread to areas outside of the original epicenters of the collapse:

Home foreclosures are climbing in the Northwest and Midwest, areas that had earlier dodged the worst of the mortgage crisis, according to real estate data firm RealtyTrac Inc. With 14.6 million Americans out of work and consumer spending declining, further weakness in housing could push the economy back into recession, former Federal Reserve Chairman Alan Greenspan said Aug. 1.

Foreclosure rates in Utah, Idaho, Illinois and Colorado rose in the second quarter compared with a year earlier, and rank among the 10 highest in the country. The number of homes seized by lenders at least doubled in 19 states and more than tripled in seven of them, according to Irvine, California-based RealtyTrac.

That’s the bad news, and it’s legitimately bad. The Obama administration has failed to do anything more than to extend the cycle of foreclosures, which merely postponed the inevitable for lenders faced with unsalvageable situations. However, it masks better news, which is that the actual failure rate is finally declining as the worst cases finally get cleared off the ledgers:

The number of properties receiving an initial default notice — the first step in the foreclosure process — rose 1 percent last month from June, but tumbled 28 percent versus July last year, RealtyTrac said.

Initial defaults have fallen on an annual basis the past six months.

In other words, the market has begun to find its equilibrium, a process in which the Obama administration has interfered for the last eighteen months in a vain attempt to make some political hay while the sun not only didn’t shine, but the skies poured. The use of a billion dollars to float homeowners over the next two years is hardly the most damaging intervention concocted yet by the administration, but it’s not going to do much without a big change in employment to match it. The real problem, as just about every one of these news reports acknowledge, is the lack of jobs for American workers.

To fix the foreclosure crisis, the Obama administration has to abandon its top-down, command-economy policies and eliminate the uncertainties that its massive expansion of the regulatory state and of the national debt has created. Otherwise, the interest-free loans will also mainly default and the foreclosure crisis will only be extended into 2012 … right before the presidential election.

[Vaduz]

But look on the plus side it will help GovMotors caddy sales exped to increase.

[SunkenCiv]

Thanks SeekAndFind.

[TopQuark]

" The Obama administration has failed to do anything more than to extend the cycle of foreclosures, which merely postponed the inevitable for lenders faced with unsalvageable situations."

Sorry, but what can he actually do? About 12 million people bought houses they could not afford, and about 300 million people have not been saving for a rainy day for about 29 years. What can a government do about that now?

[DaxtonBrown]

[Question: Do you mean that it started out as a short sale, and then the property went into foreclosure? Was it because the bank rejected the short sale price and foreclosed on the homes, so the sellers (if you can call them that!) had to declare bankruptcy instead of avoiding it with a short sale? ]

Scenario: one house bought for $310k in 2007 now worth $110k, owner out of work. second house bought for $270k in 2006 now worth $135k with seller out of work. Both shortsales start in Nov. 2009, I get buyers. Bank proceeds to piddle around for months in both cases, going through multiple mitigators. The first house we go through three buyers (two cash) the last one has an offer of $106 but the bank wants $112 and just last week calls it off (paying tenant $2,000 key money to leave). The second house has a buyer offer of 140k but the bank wants $150k plus a $20k note from the unemployed owner or $170k. The bank just up and auctions it without telling us though we are trying to restart the proceedings.

Here’s the kicker. On the first house the original cash offer was $112k, but now when they go to auction the will get $95k minus $2k to renter minus 8 months of lost rent or about another $10k. They are operating out of spite.

Even better, the second house is auctioned for about $120k though they have in hand a $140k offer. They also lose $12k in lost rent.

The whole system is corrupt and being bailed out by you and me.

[mac_truck]

The administration has it backward. What they should be doing is offering 20% loan guarentees to fully employed homeowners with good credit who want to remain in their homes but are prevented from refinancing their mortgage because the real estate downturn has eliminated their home equity. This is the core of the residential real estate market, not the folks who are defaulting.

[Finny]

Yikes!

Thanks for your answer. Very informative!

[longtermmemmory]

the ONLY solution is to give every singly homeowner a 50k tax free buydown of their mortgages.

[WOBBLY BOB]