California plans $2 Billion program to help distressed homeowners

The Keep Your Home California program could help more than 100,000 struggling homeowners, including about 25,000 borrowers with underwater mortgages.

It “could” but we all know it won’t.

All that comes to my mind when I read this headline is why?

This is just a waste of time and more money thrown at the banks and politico’s who’ll run these programs that in the end won’t result in any meaningful change or progress.  How hard is it to figure out the BANKS DON’T CARE.  It’s just a line on a spreadsheet.  There is no concern for the individuals caught up in this nightmare.  The bankers are only concerned with their bottom line.  Wait Larry I hear you saying, the banks are run by people like you and me, they can’t be all that cold and heartless.  Well I can’t speak to their hearts and I’m sure there are some really good people working for these institutions but therein lies the key – they are working and want to keep working, getting a paycheck and paying their own mortgages.  The real power brokers in the financial institutions are the ones who call the shots and they aren’t affected by this crisis the way Joe Six Pack and the majority of American’s are.  The large banks don’t give a hoot.  They know they screwed up however they are still going to get paid and they just want to put it behind them and the sooner the better.  Why are we throwing more money at their feet.  The only logical conclusion I can come to is for political posturing and election cycle “look what I did for you” sound bites.

I have a better solution how California can use the money and actually help homeowners and the local/state economy.  Take the money and assist the homeowner in short selling their home.  To the distressed homeowners who have incomes or enough cash flow to make a mortgage payment the government can offer a nice new low interest loan with a much lower principal amount.  To those who unfortunately can’t make a monthly payment they’ll be rescued from debtory hell for the rest of their lives by getting the upside down mortgage off their backs and the gov can also continue to pitch in a few grand to help them relocate like they’ve been doing with the HAFA program.  Seems pretty simple and straightforward to me which is probably why the government won’t do it.  It makes sense and actually will accomplish something meaningful in peoples lives.  Sorry to sound so cynical but how can you not be when you live in California and have the government we’ve lowered ourselves into.

You’re right, I know the answer to my question “why” above.  It’s all about politics and not about helping people and the economy.  The banks will continue to stall, resist and complain.  They will get more of OUR MONEY, that’s right, you and me the taxpayers’ hard earned cashola going right into their pockets and the politicians will get nice big donations from the bankers come election time and they’ll have some nice stories to tell us about how they tried to help us but just couldn’t overpower the evil banks into capitulating.  Doesn’t that just piss you off?

Here’s the story as reported in the Los Angeles Times:

By Alejandro Lazo, Los Angeles Times

February 10, 2011

More than 100,000 struggling homeowners could get help from a $2-billion program that California is launching, including about 25,000 borrowers who owe more than their properties are worth and could see their mortgages shrink.
The Keep Your Home California program, which uses federal funds reserved for the 2008 rescue of the financial system, has the potential to make a sizable dent in California’s foreclosure crisis and help the general housing market. State officials hope to fend off foreclosure for about 95,000 borrowers and provide moving assistance to about 6,500 people who do lose their homes.

Consumer advocates have criticized other attempts at foreclosure prevention as falling short, particularly the Obama administration’s $75-billion program to help troubled borrowers. They were heartened by the scope of California’s effort but concerned it would be hampered if the state can’t get major banks on board.

Out of the five major mortgage servicers — Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Ally Financial and Citigroup Inc. — only Ally has formally signed on to a key part of the plan: reducing mortgage principal on homes that are “underwater,” or worth less than the size of the mortgage. A Bank of America spokesman said the bank intends to participate but hasn’t yet reached a formal agreement with the California Housing Finance Agency, which designed the program.

Said Paul Leonard, California director for the Center for Responsible Lending, “Two billion dollars in total for the state to provide assistance to help borrowers avoid foreclosure is a substantial amount of money, and we hope that it will have some significant impacts in achieving its goals.

“Cal HFA went out of its way to meet the needs of the financial industry in terms of providing a generous incentive to get them to participate, and even after taking their extensive input into the design, the banks are still not stepping up to participate in what is really a critical element of the program.”

Preeti Vissa, community reinvestment director for the Greenlining Institute, called lender involvement “pretty dismal.”

“The key to this program is how much the banks are willing to participate and be flexible toward homeowners’ needs,” Vissa said.

The size of the Golden State’s foreclosure problem was underscored by data slated to be released Thursday, showing 15,893 California homes seized by big banks last month, the third-worst performance in the nation.

January’s tally was a 32% increase from the previous month, though still down 7% from January 2010, according to RealtyTrac of Irvine. Nationwide, lenders took back 78,133 properties in January, up 12% from the previous month but down 11% from January 2010.

“We are not out of the woods by a long shot,” said Rick Sharga, RealtyTrac senior vice president. “Economic factors are what are driving most foreclosures right now, and so the state’s economy being what it is, it doesn’t appear that there is going to be a near-term correction either.”

The state’s new program, which officials plan on detailing in Sacramento on Thursday, aims to address the two central issues facing California’s beleaguered housing market: the state’s stubborn joblessness problem and the massive number of underwater homeowners.

By keeping some cheap foreclosed properties from reaching the market, the program could give a boost to home values in general.

“If they can actually stave off foreclosures and the people stay in the homes, then that is a great thing for the market,” said Stan Humphries, chief economist at Zillow.com. “It would be great because the continuing flow of foreclosures on the marketplace exerts downward pressure on home prices, and it also creates more supply of inventory on the marketplace, so foreclosures are really a double whammy.”

The biggest of the plan’s four parts allocates $875 million as temporary financial help to people who have seen their paychecks cut or have lost their jobs, providing as much as $3,000 a month for six months to cover home payments and associated costs. The second-largest chunk of money, $790 million, is slated for a principal reduction program that would write down the value of an estimated 25,135 underwater mortgages.

Another piece would use $129 million to provide as much as $15,000 apiece to help homeowners get current on their mortgages, and another would take $32 million to provide moving assistance for people who can’t afford to remain in their homes.

The program is aimed at helping low- and moderate-income people who own only one property. To qualify in Los Angeles County, for instance, a family couldn’t earn more than $75,600 a year. The maximum benefit for any household participating in the program is $50,000. Homeowners who refinanced their homes to take cash out of their properties won’t be allowed to participate.

The principal-reduction component would pay lenders $1 for every dollar of mortgage debt forgiven. Many experts have said reducing principal on such underwater loans would go far toward reducing foreclosures because home values have fallen so steeply that homeowners are tempted to walk away from their obligations.

But banks have been reluctant to significantly reduce principal on loans other than on certain kinds of risky mortgages that are now seen as having been highly imprudent.

“You hear a lot of people calling for it, but there are not a lot of people in the mortgage industry who favor it,” said Guy Cecala, publisher of Inside Mortgage Finance. “There are a lot of issues around who deserves principal forgiveness.”

The nation’s largest mortgage investors, Fannie Mae and Freddie Mac, also aren’t taking part in the principal-reduction program. That’s not surprising, Cecala said, because the two are in government conservatorship and billions of taxpayer dollars already have been spent rescuing them.

Diane Richardson, director of legislation for the state’s housing finance agency, said she expects other lenders to join the principal-reduction program.

“We are continuing to have conversations with other lenders about coming on board,” she said. “So if somebody sees their lender, and it doesn’t show them participating, they shouldn’t assume that they won’t be.” Money will be reallocated to other parts of the program if it isn’t spent on principal reduction.

Even as the state struggles to get big lenders to sign on, the program has prompted complaints that it’s a giveaway to the banks. Critics have said that property values have fallen so steeply that much troubled mortgage debt is not worth what the banks would be paid. Foreclosures on the homes are so costly that the banks will come out ahead financially by writing down loan balances to keep borrowers in the homes, they contend.

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