Foreclosure Assistance Deadline Nears: How Will the Market React?
One of the primary goals of the Obama administration over the last two years has been to shore up the fractured and falling real estate market and help millions of Americans prevent foreclosures – the same foreclosures that have helped to sink housing prices year over year since 2007.
One program toward that solution – the Emergency Homeowners’ Loan Program – is set to end shortly, with the July 22nd deadline for pre-applicant screening worksheets merely one day away.
The program was designed to offer a zero-interest bridge loan for distressed property owners that is ultimately forgivable - which basically amounts to free money up to $50,000 to pay mortgage loans provided the homeowner meets the rules of the program. (A small percentage, based on income and other considerations, has to be repaid for two years.)
It sounds nice in theory, but the funds were only appropriated for a certain period of time. The deadline for applying is July 22nd – tomorrow – and there is no indication that the money will come close to being entirely allocated, due to a lack of knowledge and, in some areas, interest in the program.
How will the market handle the ramifications of this deadline and the program itself?
It is true that loan modification programs do provide some sort of tangible assistance to distressed property owners, which helps in delaying or preventing foreclosures. This in theory translates into a boost for the economy and the market because fewer foreclosures mean higher home prices (because foreclosures tend to depress surrounding home values).
Of course, the impact of EHLP will be marginal because it is not as expansive or widespread as it needs to be. Analysts expect only 1,500 homeowners to take advantage of the program, with an average loan of approximately $35,000. That is not enough of an impact to substantially change the status quo.
In fact, because EHLP will ultimately fail to cause the broad, substantive impact on the housing market that was intended, it could perversely dissuade buyers from entering the market at all – which would only serve to make the housing market worse.
With low home prices, an abundance of discounted foreclosures, REOs, and short sales, and rock-bottom interest rates, buyers have all the incentives in the world to enter the market and create a position. The presence of EHLP is too limited to make much of a difference to the market, so buyers should not worry themselves about any possible negative effects.
The market is primed for an influx of buyers and investors looking to stake out a profitable position with tremendous upside, and that time is now.