Foreclosure relief money diverted by states

In February, 5 large banks (with the intervention of the Obama administration) negotiated a $25 billion settlement with the states requiring the banks to provide foreclosure relief to distressed homeowners. But the New York Times reported last month that at least 15 states are diverting the money for their general budget. Pennsylvania is not among those states listed by the Times as among the 15, but the Times' list was incomplete. This is another example of the government's solutions to the financial crisis missing the mark and failing to address the real issues.

Of course, in those states where the money actually reaches distressed homeowners, the money is merely reinflating the bubble and preventing prices from reaching the point where they should be in order for houses to be marketable again.

Federal foreclosure assistance; Emergency Homeowner's Loan Program (EHLP); Pennsylvania participation

From Nasdaq.com comes details of a new $ 1 billion federal program to bail out homeowners facing foreclosure. The bailout takes the form of interest free loans.

This program will have the effect of delaying the price correction that we have needed to reignite sales volume since the market crash of 2006-2008.

The program is available in 27 states, but does not include Pennsylvania. Residents of Pennsylvania may apply for PA administered assistance that draws funds from the federal program.

There are more details at The Boston Globe, including the information that in some cases, the loans might not have to be repaid at all.

Foreclosure delays; HAMP (Home Affordable Modification Program) review;

From Bloomberg.com comes the story that the Obama administration is considering a ban on mortgage foreclosures pending review by the federal government's Home Affordable Modification Program. Such a plan would create lengthy delays in the foreclosure process (even before the bank could get to the point of encountering the normal delays resulting from bankruptcy, the usual sheriff sale process, PHFA, etc.).

The Treasury Department was quick to point out that nothing has been finalized, but even the beginning of discussion of such a program will have a negative impact on lending. Borrowers and investors have already complained that lending standards have tightened tremendously over the past few years. Serious discussion of any plan that would delay and increase the cost of foreclosure will make lenders more skittish about lending in the first place.

Quote of the day - Thomas Sowell - mortgage debt forgiveness

Government pressures on mortgage lenders to accept less than the full amount they are owed may win votes for politicians, since there are far more borrowers than lenders. But how much future lending can be expected when the lenders know that politicians are ready to intervene at any time to prevent them from getting their money back?

Thomas Sowell - 12-1-09