Jul 07

The Federal Government announced plans to distribute $1.5 billon in federal funds to assist unemployed and underwater homeowners in the nation’s five states hardest hit during the recession.  On Wednesday, June 23rd, the Treasury Department approved housing funds for California, Florida, Arizona, Nevada and Michigan.


Another $2.1 billion is slated for Treasury Department approval in August for five other states; North Carolina, South Carolina, Rhode Island, Ohio and Oregon.  The funds will be administered by the housing departments in each state.  The states all have innovative housing bailout plans.


The five states will use the money to assist existing state programs designed to help troubled homeowners with mortgage payments, to reduce principal amounts of underwater mortgages or to assist in the completion of short sales.  The funds cannot be used to assist homeowners who are fighting foreclosures through the court system.


One tricky stipulation calls for the lender to match the government’s contribution.  This amendment has several repercussions because Freddie Mac and Fannie Mae do not permit principal reductions on their mortgages.  The Treasury Department is negotiating with the government lenders to find a way to implement a waiver for certain principal reductions.


Basically the end result is that if Florida uses government or state funds to assist a homeowner, the lender must agree to equal the contribution.  At the heart of the matter is the belief that lenders and homeowners are better served with a compromise than by foreclosure.


Opponents of the federal assistance plan say that the program actually encourages homeowners to stay out of work and to default on loans.  The Treasury Department has reviewed the state plans in the first five states to receive money and believe there are proper safety controls to assure the integrity of the funding.


Real estate investors must stay abreast of these developments.  Wherever there is federal money, there is opportunity.  Much of this money will be used to encourage short sales.  This can only strengthen the investor’s position in a short sale.

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