Pelosi Says Obama's New $1.5bn Plan Will Stabilize Housing
[Update 2: adds program details; Treasury, HUD comments]
President Barack Obama is announcing a plan to allocate $1.5bn of Troubled Asset Relief Program (TARP) funds to aid homeowners in select states, to the support of the House Speaker. The funds are meant to compliment HAMP, according to the Treasury Department, and are being taken out of $50bn of funds already set aside for housing market stimulus.
Treasury Department policy adviser Sarah Apsel, in a posting on the White House blog, said the program will apply to states where house prices have fallen more than 20% from their peak.
William Apgar, Housing and Urban Development senior adviser for mortgage finance adds that the states were chosen because of these "precipitous house price declines" and holding a large number of "first and second mortgages underwater."
Apgar said related mortgage-backed securities investors are willing to take write-downs on the firsts, but want borrowers with a second, as is often the case, to be able to access federal funding. The industry recently sounded a warning against these so-called "silent seconds," as it relates to investors; “Lien priority dictates that the first mortgage cannot be written down until the second is extinguished,” Amherst Securities said in that report.
"Such price declines, coupled with the effects of high unemployment, means that many working and middle-class families in these areas are facing serious challenges," Apsel wrote. "The effort we are announcing today will provide support for state housing finance agencies (HFAs) to design programs tailored to the urgent needs of particular communities."
According to Apsel, the funds will support programs geared toward sustainable and affordable homeownership including efforts to help unemployed homeowners, borrowers in negative equity positions and borrowers pressured by second mortgages. The Treasury will announce maximum state level allocations over the next two weeks, she said.
The plan will support homeowners in in California, Nevada, Arizona, Florida and Michigan, according to a statement from Speaker of the House of Representatives Nancy Pelosi. All but Arizona voted for Obama in the 2008 Presidential election.
"President Obama's announcement is an encouraging step in the effort to stabilize our nation's housing markets, help unemployed homeowners, and bring relief to many families hardest hit by the recession," Pelosi said.
She indicated the plan focuses on local solutions, rewarding "innovative and effective" methods of helping distressed borrowers remain in their homes. During a conference call with the Treasury, assistant secretary Herb Allison echoed Pelosi's remarks saying creative local solutions deserve more focus even "while the housing crisis is national."
"What we are trying to do is to use this money to test additional approaches," Allison said.
Write to Diana Golobay.
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