WASHINGTON — The Obama administration announced Wednesday it will send a $3 billion lifeline to jobless homeowners struggling to make mortgage payments.
Tapping into resources from the $700 billion Wall Street bailout, the Treasury Department will add $2 billion to its existing Hardest Hit Fund, assisting the 17 states that have unemployment rates higher than the national average.
In addition, a new $1 billion program led by the U.S. Department of Housing and Urban Development will give loans to homeowners who are at risk of foreclosure because of involuntary unemployment, underemployment or a medical condition. The loans, for as much as $50,000, will be interest-free for up to two years.
The two programs “will ultimately impact a broad group of struggling borrowers across the country and in doing so further contribute to the administration’s efforts to stabilize housing markets and communities across the country,” said Bill Apgar, HUD senior adviser for mortgage finance.
Officials said they will not have an estimate of how many people will benefit from the programs until next month. But given the grim housing forecast, Campbell Harvey, a professor of international business at Duke University, said the latest efforts were unlikely to make much of a difference.
“It’s a drop in the bucket,” he said. “It will certainly help the people that actually get the loan. But in terms of the overall situation, it’s so small that it’s not going to have an economywide impact, and that’s the sort of thing people are looking for.”
HUD is still determining which areas will receive its share of the funds. Under the Treasury’s Hardest Hit Fund, California will receive $476 million, the most of any state. Florida and Illinois also top the list with almost $239 million and $166 million, respectively. Funds were allocated among the hardest-hit states based on population size.
The financial-reform bill signed into law by President Barack Obama last month paved the way for the launch of HUD’s Emergency Homeowners Loan Program.
Working with state and nonprofit groups, the program will give “bridge loans” to borrowers who are at least three months delinquent in their payments but likely to begin repaying their mortgage within two years. To be eligible, borrowers must show a strong repayment record before the loss or drop in income. The loans will help them pay their mortgage principal, interest, mortgage insurance, taxes or hazard insurance.
