Instead, the Housing and Urban Development department’s Emergency Homeowner Loan Program has been delayed at least until April 1, and questions remain about how the funds will be administered and how effective the program will be.
Critics of other government efforts to address the foreclosure crisis say this is just the latest example of programs that have fallen far short of expectations.
Signed into law by President Obama last July, the program was among the many provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The idea was to provide a total of $1 billion for bridge loans to homeowners nationwide who have fallen behind on mortgage payments after losing their jobs.
HUD announced the state allocations in October, with Colorado set to receive the 10th largest amount of $41,286,747. HUD intended to roll the program out by the end of 2010, but a variety of issues have prevented the money from being dispersed.
“This program would go a long way to prevent people from needing our services,” said Erin Taylor, development director of Partners in Housing, a Springs-based transitional housing non-profit organization. “Because of the number of foreclosures and evictions related to job losses, we’ve seen the highest demand for our services in our 20-year history.”
Over the last two years El Paso County has seen the highest number of foreclosures on record, and in November the unemployment rate hit 9.5-percent, the highest in a decade. As such, counseling agencies here and elsewhere in Colorado are expecting a high volume of applicants for the foreclosure relief program.
“We’re trying to figure out how to administer this because we’re expecting an onslaught of people who will be seeking help,” said Adams County Housing Authority Director Zachary Urban. “I think the federal government has a different definition of urgency than do the folks on the ground.”
According to HUD spokesman Brian Sullivan, the program has taken longer to implement because of the “complexities involved with ramping up a brand-new federal program.”
Some of those complexities include determining whether the funds will be available for a second mortgage, a determination of whether counseling agencies will need to become licensed mortgage originators, and figuring out how lenders will credit payments made from separate parties on the same account.
“Each week we’re asking the national headquarters about (these issues) and they keep telling us that updates are imminent,” said HUD Denver Regional Office Communications Director Jane Goin. “This is the regular process. (The national office) will make a huge announcement and then it takes a while to work through all of the regulation that surrounds it.”
Shannon Peer, the director of Brothers Redevelopment Housing, a Denver-based counseling agency that will be handling applications for the program in his area, said it’s better for HUD to fully vet a program before turning it loose.
“They made changes to the Home Affordable Modification Program mid-stream, and that can be very detrimental to those of us on the front lines administering the program,” he said. “I don’t want them to implement it before its ready. I just wish the announcement had been better timed.”
On the other hand, the program was meant to be an emergency response and now, as a consequence of the delays, some of the people who the program could help may be out of their homes by the time funds are available.
It will take about 30 days from the start of the program before the first payments go out.
“When HAMP came out, it was a good program for addressing adjustable rates, predatory loans and bad mortgage products in general,” Peer said. “But by the time it rolled out, the problem had shifted to unemployment and foreclosures. That’s what this measure will hopefully address.”
There is still a lot to be determined in how the funds will be administered within Colorado. In states that already have a similar program up and running, that state’s housing and finance agency will manage the program.
But the Colorado legislature never passed a bill to help unemployed homeowners facing foreclosure, so the Colorado Housing and Finance Agency could not apply to be the program’s administrator.
Instead, that responsibility will likely fall to NeighborWorks America, a national network of housing counseling agencies that will work with HUD-approved local organizations to approve distressed borrowers for the program.
Local housing counseling agencies are already taking steps to prepare for the moment when the program goes live. Both Peer and Urban said their agencies are reviewing program bulletins as they become available so that agents are schooled on the guidelines
“We’re also working on a website and setting up phone numbers so we can adequately handle the significant number of people we’re expecting to apply,” Urban said.
But even when the funds finally become available, questions remain as to how effective the program will be.
“We’re expecting over 10,000 applications, so the funds will run out very quickly,” Urban said. “If that’s the case, will it revert to a lottery system? I have no idea.”
With loans up to $50,000 and only $41 million to go around, it already sounds like a lottery system.
“We don’t know how they want this allocated, if it will be first-come, first-served,” Peer said. “But if you do the math, there’s the potential that this money might only reach 700-odd homeowners in Colorado.”
Another criticism of the program is that nothing is required of the lenders.
The banks will be direct recipients of the government subsidy, but will be under no obligation to meet with the borrower about a loan modification or alternative arrangement after the bridge loan expires.
“What’s the goal of this program?” asked Urban. “This is more of a stopgap than anything. It doesn’t get to the root of the home ownership problems.”
Peer is telling his clients not to get their hopes up.
“Considering that HUD hoped to have this program out in December, we’re already getting a lot of calls about this,” he said. “We can’t tell these borrowers that we’ll just put them in line; if the money’s not there, you can’t spend it. We’re trying to get them to look at other options, as if this program doesn’t even exist.”