The newest foreclosure prevention scheme to come out of the White House is a $3 billion loan program that’s intended to help unemployed homeowners avoid foreclosure. But some homeowner and consumer advocate groups are crying foul saying that the only people guaranteed to benefit will be the banks. Right now, the government is targeting states hardest hit by the foreclosure crisis (Texas is not currently included on that list) for a program that would offer loans of up to $50,000 over the course of two years to unemployed homeowners facing foreclosure. This money would be given to the banks to issue loans to unemployed homeowners facing foreclosure but the banks would not be required to provide matching funds, modify the mortgages or any other concessions that would further aid the homeowners. However, the banks would benefit once the loans are repaid with interest. Furthermore, many housing advocates are saying that because the banks are not required to make any type of beneficial changes to the mortgages which are often underwater, many of the homeowners still won’t have any equity in their homes at the end of two years leaving them once again vulnerable to foreclosure.
Housing advocates have a very good point. At this point the way the unemployed homeowner loan program is designed banks don’t really have any skin in the game. They get to control who gets the loan and they get the benefits when the loan is paid back; but they are not required to modify mortgages which have balances significantly above the real value of the home. Also, it is the homeowner once again who is taking on all of the risk as they will need to repay the loans in two years regardless of the home’s value and whether or not they have found employment. Also, there is a great risk that many people will opt for these loans instead of filing bankruptcy even if their financial situation clearly indicates that a bankruptcy filing is necessary.