Treasury allocates $600 million to avert foreclosures in states with high unemployment

The Treasury Department announced a new $600 million effort to help alleviate foreclosures in five states that have a disproportionate rate of residents living in areas with high levels of unemployment.

North Carolina, Ohio, Oregon, Rhode Island and South Carolina are eligible to receive the funding. They were selected because they were among the states that had the highest percentage of residents living in counties with unemployment rates exceeding 12 percent, Treasury officials said during a conference call with the reporters.

"What we're trying to do is look at areas hardest hit by the problem," said Herbert Allison, who oversees TARP at Treasury.

Monday's announcement was the second round of funding in the administration's Help for the Hardest-Hit Housing Markets program. Last month, the administration announced a plan to use $1.5 billion of TARP money to assist homeowners in states where the average home price has fallen by more than 20 percent from its peak: California, Florida, Nevada, Arizona and Michigan. Those states also lead the nation in foreclosure rates.

The funds are designed to be used by states to assist unemployed homeowners, borrowers who are underwater people who have taken out second mortgages.

Treasury officials noted the states targeted in the first round got more funding than those in the second because they are more populous. Funding is equal on a per capita basis.

The Help for the Hardest-Hit Housing Markets program provides funding to state housing finance agencies, who are tasked with developing programs that meet the federal government's requirements for the program.

The administration has said the funding can be used to launch programs to help unemployed homeowners until they secure jobs, assist underwater borrowers in negotiations with lenders to write down mortgages, pay incentives to second mortgage holders to help reduce principal; or promote alternatives to foreclosure such as short sales.

Treasury officials declined to say exactly how states included in the first round of funding will use the money since those decisions have not yet been finalized.

Some have questioned how states were selected for the most recent round of funding. Although the program is designed to address areas with high unemployment, the five states included in the program do not have the worst unemployment rates in the country.

For example, Washington D.C., Illinois, Mississippi, Alabama, and Kentucky, which are not included in the program, currently have higher unemployment rates than Ohio and Oregon, which are in the program. And aid is not solely reserved for unemployed homeowners - rather, it can go to employed residents who happen to live in states that have high concentrations of unemployment, Treasury officials told BailoutSleuth.

Treasury officials explained the decision like this: even though Illinois has a higher unemployment rate than Ohio, only 6 percent of residents there live in counties with high concentrations of unemployment, compared to 22 percent of Ohio residents.

"The impact of the housing crisis is more concentrated in some places than others," Allison said. "The (fund) is designed to provide programs tailored to the needs of each participating state."

The department also indicated that proposals that "respond to problems caused by concentrated economic distress will be particularly welcomed."

The program would allocate a maximum of $159 million to North Carolina; $172 million to Ohio; $88 million to Oregon; $43 million to Rhode Island; and $138 million to South Carolina.

Treasury officials also added that the $600 million effort is just a fraction of the sum the administration has allocated for foreclosure prevention. Last week - amid criticism of the effectiveness of its $75 million Home Affordable Modifications Program -- officials announced popular changes such as further efforts to promote principal reduction.

Treasury Assistant Secretary Alan Krueger said the program would help keep property values in affected communities from falling and prevent property crimes and other blight brought on by foreclosures.

Allison added that states would be required to develop metrics that would allow the federal government to determine whether their efforts are working.