Banks will get the biggest benefit from an Obama administration
housing program designed to help unemployed homeowners escape
Housing experts expressed concern that banks, not homeowners, will be helped by the White House's $3 billion funding infusion — $2 billion from the Treasury Department and another $1 billion from the Housing and Urban Development Department — going to those states hit hardest by the housing market crash and unemployment.
"I'm not a big fan; it's ill conceived," he said.
The basic principle is to help struggling homeowners, but with so many people underwater on their mortgages, the new funding is unlikely to do much good, Baker said.
"You need to make sure that someone benefits from the program other than banks," he said.
Baker suggested that if the government is going to provide up to $50,000 in loans over the course of two years to those struggling homeowners that the money should be used for any of their needs, not just to pay the mortgage.
He said banks could offer a program that would allow homeowners to rent their home back from the bank at a lower monthly rate than their mortgage payment for up to five years, providing some security for those struggling to make monthly payments.
The arrangement would provide lenders with a real incentive to negotiate with homeowners because they don't want to be landlords.
If the recently announced program is expected to work there has to be a reasonable expectation that at the end of the two-year program homeowners will have some equity in their property.
"If that's not the case, then it's not worth it," he said.
He said he'd be "very surprised" if the vast majority of those who take advantage of the program don't eventually lose their homes.
Foreclosures were up 4 percent in July with 325,229 filings, a nearly 10 percent increase over the same month in 2009, according to a report from RealtyTrac, a group that tracks foreclosure filings.
David Abromowitz, senior fellow at the Center for American Progress, said the main problem with the funding is that lenders will benefit without requiring any concessions or matching of the federal aid.
"My concern is what are we asking from lenders who are going to get the benefits source to pay those loans for 24 months," he said.
Under the program, lenders don't have to make principle reductions on loans or major modifications, he said. Lenders should also be required to make concessions and possibly even match funding.
"Banks also should be required to share in the burden being faced by homeowners," he said.
Despite his reservations with the funding, he emphasized that with millions facing foreclosure, the fragile economy and a slowing economic recovery, "anything that slows or stops foreclosures is good."
"It's targeted well toward people facing a temporary situation when they can't pay their mortgage because of unemployment," he said.
Still, the challenge is difficult as federal officials try to find ways to get the economy to turn the corner and pick up pace.
"No one piece is going to turn the tide," Abromowitz said. "But this certainly could help in the housing market."
Under the federal program, Treasury will direct the $2 billion to the "Hardest Hit Fund" created earlier this year, while HUD will create a new "Emergency Homeowners Loan Program" that will provide zero-interest loans of up to $50,000 for two years. The funding will be divided up among 17 states and the District of Columbia.
The funding allocation announced last week is the third payout for the housing program, pushing the cost of the program to $4.1 billion.
Nevada, Arizona and Florida posted the worst foreclosure rates in July, with Nevada reporting the nation's highest foreclosure rate for the 43rd straight month.
Five states accounted for more than 50 percent of national total — California, Florida, Illinois, Michigan and Arizona.
Four of those states will get part of $3 billion from the Treasury and Housing and Urban Development Department to help unemployed homeowners stave off foreclosure.
At $476 million, California gets the largest share while Florida will receive about $239 million, Illinois gets $166 million, Michigan $129 million and Nevada is set to receive $34 million under the program.
John Weicher, director of the Center for Housing and Financial Markets at the Hudson Institute, said "the most important thing is the strengthening of the economy overall."
"What's happened so far hasn't been very helpful," he said about the administration's past efforts.
The Obama administration had tried several different avenues to stem foreclosures but hasn't made much headway. About 530,000 homeowners, or more than 40 percent, have dropped out of the Making Home Affordable program.
"There's an open question of whether this will work particularly well," Weicher said.
He said just getting money to people to help them make their mortgage payments may be more successful than other programs.
Republicans have argued it puts taxpayer money at risk, and the special inspector general for the $700 billion Troubled Asset Relief Program is auditing the program.
"It’s troubling that just weeks after the SIGTARP assailed the administration for its lack of success and transparency in managing their signature mortgage-relief program, they have ignored the IG’s warnings and are committing even more money in a failed program that ultimately isn’t helping those who need it the most," Rep. Darrell Issa (R-Calif.) told The Hill.
Issa, ranking member on the House Oversight and Government Reform Committee, said, "If the administration were serious about helping the jobless keep their homes, they would be advancing policies that would create jobs and address the root causes of the housing crisis — Fannie Mae and Freddie Mac."