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Bridge Loans Coming Soon For Unemployed Homeowners

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October 14^th, 2009

 

Washington – The Obama administration is considering a new program using taxpayer funds to keep unemployed homeowners in their homes until they are able to find a job.

 

Elizabeth Warren who is chairwoman of the Congressional Oversight Panel which oversees the usage of the TARP funds used to bail out financial institutions is proposing the idea to the Treasury Department in using some of the funds from the modification program to issue government bridge loans to aid recently unemployed homeowners. These loans will not accrue any interest until the unemployed homeowner has found a job and experience an income recovery.

 

Richard Neiman, a member of the panel is warning that a 2^nd wave of foreclosure is already on its way as a result of income loss and unemployment experienced by many homeowners. He said that the housing crisis developed from the notorious sub-prime or exotic loans has now spread and infecting a growing population of homeowners with conventional prime loans due to the prolonged recession of scarce jobs coupled with increasing unemployment.

 

As of December 2007, the unemployment rate has doubled with the lost of 7.2 million jobs in the United States. The unemployment problem is forecasted to remain high into 2010.

 

Following Pennslyvania

 

The consideration of the new program to aid unemployed homeowners borrows examples from the current Pennslyvania’s Homeowners Emergency Mortgage Assistance Program or better known as HEMAP.

 

HEMAP was developed in 1984 where Pennsylvania state officials offer 2 or 3 year loans to struggling unemployed homeowners depending on individual’s unique financial situation. The program allows homeowners to obtain the loan and there is no need to repay the majority of the principle and interest until he or she eventually finds a job.

 

Pennslyvania’s program requires the unemployed homeowner to pay a token of $25 per month until they land a new job and experience an income that surpasses 35% of their monthly living expenses (mortgage, utilities and housing costs). In some unique situations, when the household starts to generate some income, payments will partly be made by the homeowner and state.

 

John Dodds, director of the Philadelphia Unemployment Project is suggesting for the administration to provide these loans until jobless homeowners are able to find work. He recommends focusing on the root of the problem by taking care of the unemployed homeowners. He said that if these people can’t pay their mortgages, their homes will end up in foreclosure and thus negatively impacting the neighborhoods and the overall economy.

 

Officials from the Housing Urban Development (HUD) have recently met with Pennslyvania’s officials who developed HEMAP to discuss and explore options of expanding the state program nationally. According to sources familiar with the Obama administration’s mortgage modification program, HUD officials responded positively to the presentation and are exploring all options.

 

Neiman revealed that he was going to discuss the works of the HEMAP program with key Treasury officials including HUD secretary, Shaun Donovan. He is proposing for Treasury to utilize TARP funds to finance current and future state emergency mortgage assistance programs.

 

A spokeswoman for the Treasury, Meg Reilly said that they are determined to find new ways to aid jobless homeowners. According to Ms. Reilly, the Treasury has already taken giant steps including the provision of 79 weeks of unemployed benefits, an increase of $25 per week in benefits and a subsidy for COBRA health insurance. She concluded that the Treasury’s $50 billion modification program called Home Affordable Modification Program (HAMP) is accessible to unemployed homeowners.

 

Mr. Dodd criticized the Home Affordable Modification Program saying that although the program is available to unemployed homeowners, it is not used effectively. He mentioned that many servicers fear of lawsuits from investors who purchased mortgage-backed-securities through lenders if they went ahead and modified mortgage payments. By offering a government bridge loan to unemployed homeowners, this should help avert lawsuits and backlash from investors and lenders.

 

Philadelphia Legal Assistance Center’s attorney, Irwin Trauss sees that the bridge loan to unemployed homeowners can be used in combination with the HAMP modification or on a stand-alone basis.

 

If Treasury decides not to install a similar program to HEMAP, a congressional legislation for consideration of the program may force it into implementation.

 

Show Me The Money

 

Barney Frank who is House Financial Services Committee Chairman proposed to use $2 billion, an amount that was repaid by TARP bank bail-out recipients to fund states and establish an Emergency Mortgage Relief Fund for recently unemployed homeowners.

 

Jack Reed, Senate Banking subcommittee on Securities and Investment Chairman, brought forward a bill that would help fund $6.5 billion to directly help states setup delayed interest loan programs for struggling and unemployed homeowners.

 

John Dodds, director of the Philadelphia Unemployment Project is keen for Treasury and HUD to move quickly in installing the program rather than waiting for a congressional legislation. He warns that it takes time for 50 states to implement this program and is afraid that by the time it is up and running, we would have been far deeply hit by another tidal wave of foreclosures.

 

 

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