Obama’s New Housing Band-Aid

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Is President Obama’s latest foreclosure fix, a $1.5 billion program targeting hard-hit states, another boondoggle in his housing rescue?

Earlier today, Obama announced in Las Vegas the program to tackling the housing crisis in states like Michigan, Nevada, Florida, and a few others by asking state and local Housing Finance Agencies, or HFAs, to create innovative new ways to address mounting foreclosures tailored to their areas. HFAs, in Obama’s new plan, will submit program designs to the Treasury Department specifically geared to help homeowners who’re unemployed, underwater (they owe more than their home is worth), or grappling with second mortgages on their homes. The $1.5 billion in funding will come from the bailout bill passed in 2008 that set aside $50 billion for housing-related programs, including the Home Affordable Modification Program. “The funding announced today will help target resources to those hardest hit markets, promoting innovation that tailors programs to meet local needs and complementing our national foreclosure relief efforts,” said Shaun Donovan, the Department of Housing and Urban Development secretary.

The new program arrives at something of a crossroads for the housing industry. While a report by credit analyst TransUnion earlier this week found that mortgage delinquencies—traditionally a precursor to foreclosures—were at record levels, statistics released today by the Mortgage Bankers Association suggest that, as the organization’s chief economist put it, we’ve reached “the beginning of the end” of the foreclosure crisis. Fewer people, the MBA found, are late on their loan payments, which points to a potential upturn on the horizon. With that in mind, Obama’s new program could be a catalyst in that budding recovery.

Lending experts, however, voiced doubts over whether the program will really do all that much. “This latest effort is just a Band-Aid,” said Kathleen Day with the Center for Responsible Lending. Day said what’s needed is a housing relief program in which loan modifications are mandatory, which isn’t the case with the multi-billion dollar Home Affordable Modification Program, Obama’s flagship relief program. Running with the medical theme, Day went on to say, “Every additional Band-Aid helps, but we need take a more wholistic view of the patient and need a more fundamental diagnosis and prognosis.”

But even this new Band-Aid is no guarantee to stop the bleeding in the housing market. As Herb Allison, the Treasury’s TARP czar, told reporters in a conference call today, the new $1.5 billion program was created to “foster innovation” and promote outside-the-box ways for addressing housing problems specific to hard-hit areas but potentially applicable on a national level. Innovation, however, is no easy, quick task, and to think that HFAs will generate novel ideas for stemming foreclosures in a month or two is probably wishful thinking. Allison said rules on the program would be issued in two weeks, and that the application process would begin sometime after that, though he declined to elaborate further. All of which is say, even if Obama’s new housing Band-Aid generates smart new ideas for helping homeowners, it won’t be happening anytime particularly soon.

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