One of the biggest controversies surrounding the use of TARP funds (aka bailout money) has been that none of that money was used to directly benefit homeowners facing foreclosure. Proponents of funneling money into the banking industry as opposed to homeowners claimed that the benefits of the bailout would trickle down to homeowners facing foreclosure. However, many months later we have found that claim to be untrue. Foreclosures have risen over the past year and the reluctance of mortgage lenders to help homeowners avoid foreclosure is evident by the low numbers of homeowners receiving permanent loan modifications. But some legislators are pushing to change the dynamics of how TARP funds are used.
House Democrats are seeking to tap the government’s massive bailout fund to help homeowners who have lost their jobs and are struggling to make their mortgage payments. House Financial Services Committee Chairman Barney Frank (D-Mass.) on Monday signed on to a proposal by Rep. Maxine Waters (D-Calif.) that would channel $3 billion from the federal Troubled Assets Relief Program (TARP) toward mortgage relief for jobless Americans. The measure would designate another $1 billion for a program that gives grants to state and local governments to purchase foreclosed properties and use them for more productive purposes.
But legislators may be in for a difficult fight. Proponents of bank bailouts say that giving TARP funds directly to homeowners would amount to wasteful spending and wouldn’t do much to curb the foreclosure crisis. But homeowner advocates highlight the fact that mortgage lenders have been slow to respond to homeowner’s pleas for help during this foreclosure crisis. Many homeowners facing foreclosure receive no response from lenders despite the fact that they have submitted paperwork several times and called repeatedly. Some homeowners suspect that mortgage lenders have no real interest in preventing foreclosure and that they are just stalling. If the new proposal is passed homeowners could be given more power and funds to fight foreclosure directly.