Published: December 4, 2009
Dow Jones Newswire

HUD’s Donovan: Administration Looking At Ways To Aid Jobless Homeowners

By Jessica Holzer

WASHINGTON -(Dow Jones)- Department of Housing and Urban Development Secretary Shaun Donovan said the administration is looking at a 25-year-old Pennsylvania program as one of the models it might apply toward helping unemployed homeowners avoid foreclosure.

The Homeowners Emergency Assistance Program, or HEMAP, provides loans for up to three years to help the out-of-work meet their mortgage payments until they find a job. Homeowners pay no interest on the loans while they're unemployed.

"It is one of the models that we're looking at," Donovan told reporters after a speech in Washington Friday.

The administration "is looking at a set of models around unemployment and I think it's fair to say we'll expect to make an announcement fairly soon," he added.

Since it was established in 1984, HEMAP has helped more than 43,000 Pennsylvania homeowners at a cost of $236 million, according to John Dodds, the director of the Philadelphia Unemployment project.

The administration is facing pressure to do more to help homeowners as foreclosures have topped 300,000 for the third-straight month. Just 650,000 people have received trial modifications under the administration's foreclosure- prevention effort, which officials continue to claim will help up to 4 million people. The effort has been criticized as ill-suited to combating foreclosures, which are now being increasingly driven by unemployment rather than exploding subprime mortgages.

Treasury's assistant secretary for financial institutions, Michael Barr, said Thursday the administration is looking at options to help the unemployed avoid foreclosure, including principal forbearance and forgiveness.

The administration is facing pressure from some lawmakers in hard-hit housing markets to pursue a lending program like Pennsylvania's at the federal level using Troubled Asset Relief Program funds.

House Financial Services Chairman Barney Frank (D., Mass.) and Rep. Chaka Fattah (D., Pa.) have introduced legislation that would devote $2 billion in TARP funds to bridge loans of up to two years for people who are unable to make their mortgage payments because they've lost their jobs.

Such loans could help a group of people not being aided by the administration's foreclosure-prevention effort, Rep. Elijah Cummings (D., Md.) argued in a letter to Donovan earlier this week.

"Whether through grants or loans, the funding goes to the borrower (or the mortgage company directly), providing immediate relief against a pending delinquency or default," Cummings wrote.

Under the administration's program, out-of-work homeowners with at least nine months unemployment benefits can qualify for a loan modification. But as a practical matter, few of these people are getting them.

Donovan said Pennsylvania's program "has had some real success." He suggested the administration isn't considering models of helping unemployed homeowners in which the government shoulders some or all of the cost of a principal write down.

"I don't think it's responsible to spend hundreds of billions of dollars of public money to cover losses that really should be taken by private institutions," Donovan said.