Yesterday, President Obama announced that he would take $1.5 billion from the bank bail out fund and target it to save homes in the five states hardest hit by the foreclosure crisis, Nevada, California, Michigan, Florida and Arizona; where average home prices have dropped more than 20%. The money will be shared based on a formula that factors in the number of unemployed residents and the net drop in home prices.
It will be distributed directly to state governments to encourage innovation such as by:
- Giving servicers incentives to rewrite underwater mortgages. In Las Vegas where one out of every 82 mortgagors is facing foreclosure, 70% of the borrowers owe more than their home is worth.
- Providing loans to the unemployed to help them pay their mortgages until they find work.
- Offering incentives to rewrite second mortgages, a frequent snag in mortgage modification.
The President made the announcement before 1800 people at a town meeting in Henderson, Nevada, the state that consistently has had the nation’s highest foreclosure rate for the past 37 months. Mr. Obama was in the state to boost the election chances of Senate Majority Leader Harry Reid (N-NV) who is in a tough fight with an angry electorate. Earlier this month, Obama offended Nevadans when he told an audience in New Hampshire, “When times are tough, you tighten your belts. … You don’t blow a bunch of cash in Vegas when you’re trying to save for college.”
Evidently a lot of Americans have been taking this common sense approach to discretionary spending. For only the second time in history, Nevada’s casinos took a loss in fiscal year 2009. Yesterday the state Gaming Control Board announced the 260 major casinos in Nevada hemorrhaged a record $6.7 billion in red ink. The state’s unemployment rate is at 13% second only to Michigan.
Nevada’s anticipated $100 million in assistance will go to the state’s Housing Division, which is charged with providing housing counseling, low income loans and down payment assistance to first time homebuyers, and borrowers with limited incomes.
At the event, Senator Reid said the $100 million heading to Nevada “will go a long way toward helping to keep people in their homes and assisting those who are underwater.”
“Government alone can’t solve this problem,” President Obama stated. “And it shouldn’t. But government can make a difference. It can’t stop every foreclosure. … But what we can do is help families who have done everything right stay in their homes whenever possible.” After his announcement, the president got a standing ovation.
Meanwhile, the Mortgage Bankers Association, MBA, announced that overall the nation’s delinquency rate fell to 9.47% in the fourth quarter of 2009. It’s still higher than the year before, but dropped compared to the third quarter. The decline is notable, because fewer cut back on home loan payments in the last months of the year, as the demand for heating and holiday presents grew. Mississippi led the country in loan delinquencies with a rate of 14.92%. Florida had the biggest foreclosure inventory with 13.44%. The delinquency rate includes loans that are at least one payment past due, however it does not include mortgages where the foreclosure process has actually begun.
According to MBA’s chief economist, Jay Brinkmann, “We are likely seeing the beginning of the end of the unprecedented wave of mortgage delinquencies and foreclosures that started with the subprime defaults in early 2007, continued with the meltdown of the California and Florida housing markets due to overbuilding and the weak loan underwriting that supported that overbuilding, and culminated with a recession that saw 8.5 million people lose their jobs.”