Back in February, the Obama administration laid the foundation for a $1.5 billion program aimed at helping homeowners who live in the states most affected by the housing crisis. Tabbed the “Hardest Hit Fund,” the resources are coming from the Troubled Asset Relief Program (TARP). The initiative specifically targets financially strapped homeowners who are unemployed, underwater on their mortgage or both, to avoid foreclosure in Arizona, California, Florida, Michigan and Nevada. These five states witnessed home values drop by more than 20 percent from their highest point. Now, a second round of five states – North Carolina, Ohio, Oregon, Rhode Island and South Carolina – are in the midst of receiving approximately $600 million in additional TARP funds to help embattled homeowners.
From the onset, the Obama administration has left the details of the program up to the individual states. Unfortunately, as home values continue to decline, foreclosure figures continue to climb. With this in mind, at least some of these 10 states are considering paying off the mortgage debt for homeowners who meet criteria that has yet to be completely disclosed by each individual state.
On the surface, paying off a mortgage for homeowners in financial distress seems like the right thing to do. However, there are always loopholes that are inevitably exposed for all the wrong reasons. While the economy is on an upswing and unemployment figures are somehwat more promising each month, paying off a mortgage for someone who is unemployed may dissuade unemployed homeowners in these states from seeking employment.
To combat this problematic scenario, it is anticipated the states who engage in this practice will only incorporate a relatively small number homeowners who are unemployed and underwater. All in all, it’s an innovative approach the federal government was and remains hopeful of.
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