The five states where the housing crisis has taken the biggest toll will receive part of a $1.5 billion federal aid package intended to slow the tide of home foreclosures, the Obama administration announced Friday.
The money will be distributed to housing agencies in California, Nevada, Florida, Michigan, and Arizona – states where home prices have dropped more than 20 percent since the peak of the market, in a bid to help keep struggling homeowners in their houses.
"The goal is to target communities at the center of the crisis, and to empower local agencies who know these communities best to structure and tailor their programs in ways that are most responsive," said President Obama in a speech Friday to the Las Vegas Chamber of Commerce.
Obama was in Las Vegas to campaign for Senate Majority Leader Harry Reid (D) of Nevada who is up for reelection in November and whose poll ratings have plummeted recently, in part because of the dire economic situation in Nevada. The state has the highest rate of foreclosures in the nation and about 65 percent of its homeowners are upside down on their mortgages.
Obama looks to states for creative solutions
Federal officials say the aid package, which will be taken from the $700 billion Troubled Asset Relief Program (TARP), will be distributed to states based on a formula that will also consider unemployment numbers. The money could possibly fund programs to assist out-of-work homeowners or provide mortgage relief to owners with negative equity. The administration is looking to states to come up with creative solutions to the crisis in their bid for part of the funding.
Some experts, however, say that once the $1.5 billion is divided up among the five states it may amount to merely to a Band Aid on the foreclosure problem.
“It’s just not a lot of money in the context of what we’re talking about here,” says Richard Green, director of the University of Southern California Lusk Center for Real Estate. Especially, he says, “in a place like Nevada, where an astonishing number of homeowners are underwater on their mortgages.”
Many real estate experts have been saying that in order to forge a path out of the housing crash, lenders need to lower the principal owed by homeowners who hold mortgages for more than their home's worth.
“Some homes are never going to be worth the mortgage balances,” says Professor Green.
Diana Farrell, deputy director of the National Economic Council, said Friday that the initiative is “one of many tools” the government is using to improve the housing market.
Home prices have begun to stabilize
“We are in a dramatically different place” than a year ago, said Ms. Farrell in a press conference, as home prices in many parts of the country are stabilizing and foreclosures slowing.
“We are likely seeing the beginning of the end of the unprecedented wave of mortgage delinquencies and foreclosures that started with the subprime defaults in early 2007,” said Jay Brinkmann, chief economist with the Mortgage Bankers Association, in a statement.
Still, according to the group, 15 percent of all home loans are in foreclosure or a single payment overdue.
Green, who recently spoke to a group of real estate professionals in Fresno, Calif., a city with a foreclosure rate that ranked among the highest in the country, says some degree of optimism is returning to the market.
“There’s a cautious optimism. Maybe a greater emphasis on the caution rather than optimism,” he says. Nationally, he says, “we are more or less back in balance. Prices aren’t falling anymore. They aren’t going up a lot, but prices aren’t falling. I think we’re much closer to normalcy.”
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