President Obama told a town hall meeting crowd in Henderson, Nevada that the administration is rolling out a $1.5 billion program to help struggling borrowers in five states, including Nevada, California, Arizona, Florida and Michigan.
These are all states where home prices have fallen dramatically off their peak prices and millions of homeowners are "underwater" or owe more on their home than it is worth. These are also states where unemployment is high.
The $1.5 billion comes from the $700 billion set aside from the original TARP money. State and local housing finance agencies in the five states are suppose to develop innovative programs to help homeowners in three categories: underwater borrowers, out of work borrowers, and those with second mortgages or equity home lines of credit that have had trouble getting loan modifications.
Those agencies must then submit their program proposals to the Treasury departments which will evaluate them and see if they qualify for the money. Unlike past programs, once the money is secured from the fund, the state does not have to pay the fund back.
ABC7 met someone in the South Bay Friday who is an ideal example of a struggling homeowner that could benefit from such a program. Donna Dewhirst has a home in San Jose. Not only has her home value fallen but in this recession, the salary of her current job is less than when she bought the home. Her loan is a 6.8 percent and she has been trying to get a loan modification for a year without success.
The bank says it's because her home is not worth the amount of the loan. She is now taking money out of her retirement 401K fund to make her mortgage payment. If only the bank would modify the loan, she could continue with her payments without that extra stress.
Without a loan modification, Donna says "I would have to make the difficult decision and perhaps walk away from the home and ruin my pristine credit for the foreseeable future."
Mortgage brokers ABC7 talked with Friday say Donna is one of thousands of cases in the Bay Area where the bank should work with the borrower and is not. Industry brokers say for the most part the banks have not been working with clients to bring about real help and modifications where they could benefit everyone involved. Unfortunately, many are skeptical this latest program will help.
Doug Jones of Mortgage Magic says "Somebody has an idea and it goes to the bank and it dies right there. If that's what happens with this pool of money, it is going to frustrate the public and make the public more angry."
Mortgage broker Cathy Warshawsky adds " It's very frustrating right now because I feel the banks and lenders just aren't listening."
Much of the success of the fund seems to rest on the programs designed by the state and local housing agencies and their ability to negotiate with the banks on behalf of the lenders in these five states. Like past programs, it could be some time before the public and homeowners see any real relief.
You can see the full White House announcement on the plan here.
