Understanding Government

Four years after the housing bubble burst, all levels of government are getting their bearings in addressing the foreclosure crisis. A mix of programs are either being started or revived that might actually address specific payment problems homeowners face.

Illinois announced on Friday that it will use $100 million in federal money to start a Mortgage Resolution Fund, where a public-private partnership will buy “underwater mortgages” — those where delinquent payments are worth more than the mortgage itself — from homeowners in the Chicago area. Lorene Yue of Crain’s Chicago Business reports that this federal money comes from the Hardest Hit Fund, a program started in February 2010 that gives $7.6 billion in economic and homeowner assistance to 18 states hit particularly hard by the recession.

Following the money here, the Hardest Hit Fund is underwritten by the $700 billion financial bailout of October 2008. The bailout was administered by the Treasury Department, but some money was sent to the Federal Housing Administration to set up initiatives that would help underwater homeowners.

The Mortgage Resolution Fund is starting as the federal government is trying to revive two other, more expensive programs intended to stem home foreclosures. The biggest of these is the Home Affordable Modification Program, or HAMP, which was intended to help about 4 million homeowners when it was rolled out in March 2009, but has only assisted about 700,000. In belated response, the Treasury Department has announced that it will withhold government subsidies to mortgage servicers who don’t agree to modify loans. These servicers — Bank of America, Wells Fargo, JPMorgan Chase — are some of the biggest beneficiaries of the $700 billion bailout.

Another critical component in the federal-state effort to fix the foreclosure crisis is Housing and Urban Development’s Emergency Homeowner’s Loan Program, which gives 27 states $1 billion. States are supposed to spend this money on homeowners who are behind on mortgage payments because they lost their job or had unexpected medical bills. And because the program was late to roll out, states only have until Sept. 30 to spend this money.

There are certainly many homeowners with problems making mortgage payments in Chicago. The Chicago metropolitan area had 119,000 foreclosures in May 2011 alone, according to RealtyTrac. But if I am a distressed Chicago homeowner, to which government program do I turn? The federal-state “better late than never” response to the foreclosure crisis will only work if the government, and mortgage servicers, actively provide education and outreach to homeowners.