Aug172010

Government Robs Working Renters to Subsidize Unemployed Homedebtors

With election season gearing up, politicians are seeing what voter groups they can buy off. Apparently, the unemployed homedebtors are a significant voter block this time around.HELOC_women_2

U.S. Plans More Aid for Jobless Homeowners

By DAVID STREITFELD
Published: August 11, 2010

In an acknowledgment that the foreclosure crisis is far from over, the Obama administration on Wednesday pumped $3 billion into programs intended to stop the unemployed from losing their homes.

So what has he done to provide aid to unemployed renters?

Unemployed loan owners already get to squat in relative comfort, eat three meals a day, and surround themselves with creature comforts whereas renters double up with friends or sleep in their cars. Yet, despite this obvious unfairness and disparity of benefits, the government sees fit to provide even more aid to homedebtors while unemployed renters get to sleep in shelters.

And how about you working renters who are continuing to subsidize these people squatting in homes that should be yours. As a working renter waiting for house prices to drop, you are paying the bills of the squatters living in what should be your home. How do you feel about that?

The housing market, which usually helps lead the country out of a recession, is this time helping hold the recovery back. Interest rates are at record lows, but too few can afford to buy or refinance. Unemployed homeowners who live in communities where values have fallen sharply are often unable to sell. Their foreclosures weaken neighborhoods and create a vicious circle by further undermining the market.

Did you notice the subtle emotional lie perpetrated in the sentence above? Foreclosures do not weaken neighborhoods. As written, the sentence conjures up images of slums and shantytowns. The truth is that foreclosures lower prices in neighborhoods, but then employed renters move in and buy these houses and strengthen the neighborhood. Lower prices makes existing homedebtors unhappy because their dreams of home equity wealth are revealed as sad fantasies. Loan owners who surrender their dreams of HELOC riches do not weaken neighborhoods. If anything, making people focus on adding value and working for a living will strengthen neighborhoods.

To try to break this pattern, the Treasury Department said it was adding $2 billion to its Hardest Hit Fund, roughly doubling its size. The fund, first announced by President Obama in February and expanded in March, goes to housing finance agencies in various states to create local aid programs.

Most of the state programs from the first two rounds are barely under way, but Treasury officials said it was clear that more funds were needed.

What they are really saying is that we have not been able to funnel this money to banks fast enough to repair their broken balance sheets. Nobody in the Treasury Department cares about homedebtors staying in their houses, their only concern is for the solvency and profits of lenders.

“In this very deep recession, people have tended to be out of work a little longer,” Herbert M. Allison Jr., assistant secretary for financial stability, said. “That’s why we think this additional relief for people searching for a job is so important.”

So do people submit paperwork and reports detailing their job search efforts in order to get this money? They make stealing from working renters and giving the money to the banks of unemployed loan owners sound noble.

The second program, announced by the Department of Housing and Urban Development, will draw on $1 billion authorized by the new financial overhaul law.

The agency said it would work with local aid groups to offer bridge loans of up to $50,000 to eligible borrowers to help them pay their mortgage principal, interest, insurance and taxes for up to 24 months. The loans will be interest-free.

Free money that can only be given to the banks. Unbelievable….

Somebody explain to me why this program is needed. With the HAMP program, borrowers can lower their interest rate to 2% and defer missed payments and interest by adding to principal like an Option ARM. Is this program intended to squeeze a few more payments out of those who are so hopeless that they can’t make their payments under HAMP? If so, this is nothing more than a bridge for lenders to get 24 months worth of payments from the government from borrowers who have no chance of sustaining ownership. In short, it is theft by the banks.

Until now, the Hardest Hit Fund had been projected to help about 140,000 borrowers. Treasury officials said that number would grow with the new infusion of money, but offered no estimate. HUD also did not say how many homeowners would be eligible for its program.

If the new money is spent in the same way as the previous money, both programs would eventually aid about 400,000 borrowers — a large number, but not when set against the 14.6 million unemployed or three million contemplating foreclosure.

So there are 14.6 million unemployed and 3 million facing foreclosure. The government is flying the bird at the 11.6 million unemployed renters and homeowners not facing foreclosure.

Over the last two years, the government has deployed many programs to help housing. It pushed interest rates down, offered tax credits and set up an ambitious mortgage modification program. Yet housing remains feeble and seems poised after a brief respite this year to become weaker again.

“I think all these government programs are helpful, but I wouldn’t look for them to cure the recession or even what ails housing,” said the economist Karl E. Case. “At best, they’re preventing things from getting much worse.”

At best they are delaying the inevitable and finding new and innovative way to give tax dollars to banks.

The Hardest Hit Fund will draw on the $45.6 billion set aside for housing in the Troubled Asset Relief Program, the rescue measure begun at the height of the financial crisis in the fall of 2008. Initially, the fund gave $1.5 billion to five hard-hit states: Arizona, California, Florida, Michigan and Nevada. The second round in March of $600 million went to North Carolina, Ohio, Oregon, Rhode Island and South Carolina.

The expanded list of states eligible for the latest funding includes Alabama, Illinois, Kentucky, Mississippi and New Jersey, as well as the District of Columbia. Each state’s share of the money is based on its population.

Many of the programs involve direct assistance. Ohio, for instance, said it would use its $172 million to aid 15,356 homeowners by helping bring delinquent mortgages current for owners experiencing hardship because of a loss of income. The assistance will last up to 12 months.

The other housing money in the Troubled Asset Relief Program is earmarked for the modification programs ($30.6 billion) and a Federal Housing Administration refinancing program ($11 billion). The administration can shift money between the programs only until Oct. 3, the two-year anniversary of the program.

HUD said it was in the process of determining which communities would receive its money and how exactly the process would work. “We’re still in the design phase,” said Bill Apgar, HUD senior adviser for mortgage finance.

I am appalled by the way our government steals from us to pay for the mistakes of lenders and loan owners. Renters don’t speak with a coherent political voice, and responsible homeowners are torn between wanting to see their illusory house prices maintained and not wanting to subsidize the bad behavior of irresponsible borrowers. The result is political inaction to stop the government theft.

Government officials dress up their theft with emotional bullshit about helping homeowners when in reality they are merely helping banks get a few more payments from the hopelessly overextended who are about to become renters again. This does nothing for neighborhoods nor for the borrowers themselves. This policy merely gives money to banks to encourage more bad behavior in the future.