Another housing welfare scheme

Let’s start calling federal housing assistance and mortgage aid what they really are: debt-funded, vote-buying, special-interest welfare.

Washington has already flushed tens of billions of dollars down the toilet on the bogus promise that keeping people in homes they can’t afford will speed a housing recovery. Because it hasn’t worked, the conventional wisdom among Democrats holds that they’re just not spending enough money.

Sometime this month, Nevada will start the process of handing out tens of millions of more dollars, just in time for Senate Majority Leader Harry Reid’s stretch run toward re-election.

Back in February, President Obama visited Las Vegas to try to lift Reid’s then-sagging poll numbers. They announced a $1.5 billion “hardest-hit fund” for the five states most devastated by the housing market collapse — Nevada, Florida, Michigan, Arizona and California — aimed at preventing foreclosures. Nevada’s share ended up being about $103 million.

The money will be administered by the Nevada Affordable Housing Assistance Corporation (www.nahac.org), a nonprofit that’s overseen by the state and the U.S. Treasury Department. The office is supposed to start accepting applications within a couple of weeks for principal reduction, accelerated short sales and second-lien elimination. Homeowners accepted into the program will be eligible for subsides for appraisals and closing, legal and relocation expenses.

At first glance, it seems like a pork bonanza, the kind of largess the state should expect from the most powerful senator in Washington. No doubt, Reid will mention the money in a future campaign advertisement. More than $100 million to keep working families in their homes.

It’s a powerful pitch in a state that has suffered greatly. But a closer look at the numbers — and at the budget for the Nevada Affordable Housing Assistance Corporation — show how little that money will do, and how few it will help.

It turns out that Reid’s nine-figure gift is enough to help barely 5,000 Nevada homeowners, including just 3,800 in Clark County. That’s about a month’s worth of foreclosure filings.

Remember, while the majority of Nevada workers are fortunate enough to still have jobs — the state unemployment rate is marching toward 15 percent — the housing meltdown has affected everyone. Between 70 and 75 percent of Southern Nevada homeowners are underwater on their mortgages. Statewide, there is more than $25 billion in negative equity. Nationwide, about one in four homeowners owe lenders more money than their home is worth.

So how in the world will Nevada caseworkers determine which few thousand of the hundreds of thousands of hurting homeowners will get a taxpayer-sponsored golden ticket? NAHAC’s applicant screening questionnaire provides the most obvious answer: means testing.

If you have not experienced some kind of “financial hardship for reasons beyond your control,” don’t bother with the paperwork. And in Clark County, even if you have suffered hardship, you won’t make the cut if your annual household income exceeds $79,080. Two parents who made $40,000 apiece last year are too “rich” for this help.

The program is modeled very closely after President Obama’s $75 billion, stimulus-funded foreclosure prevention campaign — an initiative that has proved to be a near-complete failure.

About 1.3 million borrowers enrolled in the program to have their mortgages modified or refinanced (only 4,000 valley homeowners qualified), and already 530,000 of them — 40 percent — have been dropped. Only 30 percent have actually had their mortgage payments reduced, and some of them have already gone back into default.

These efforts are ineffective because elected Democrats refuse to acknowledge a nasty truth: It makes no sense to modify someone’s mortgage if they lack the means to make even a reduced payment. If you’re $100,000 underwater on your mortgage and you’ve been out of work for a year or more, there’s no point in trying to keep your house. It becomes an albatross.

To say nothing of the paperwork required by federal assistance programs. NAHAC’s eligibility criteria for each of its programs take pages to explain. Applications require days upon days of detailed review by caseworkers and underwriters.

And the 1,000 unemployed Clark County residents who are lucky enough to qualify for NAHAC’s short-sale acceleration program get an unusual reward: They can’t leave the state.

Once their short sale is complete, they must enter a lease of at least six months “in a rental property from the eligible list of participating properties provided.” I wonder whose palms are being greased to get on that gravy train.

So you have to be unemployed to qualify for the short-sale assistance. You’re abandoning your house because you can’t find a job, yet you’re being forced to remain in an area where there’s no work to speak of? Can you say boondoggle?

“Because the nature of this program is direct assistance through direct payment to vendors, the payments will not be structured as a loan,” NAHAC documents state. “Further, because the program will be focused exclusively on the unemployed, there is no expectation of any funds being repaid.”

It’s welfare, pure and simple. Politically motivated, juiced welfare.

There has been so much government meddling and subsidizing of housing over the past two years that economists can’t get a handle on where the market might be headed or how long it will take for the market to correct to actual values. Our politicians, led by Reid, have no idea what they’re doing.

At some point, maybe the political class will recognize that they need to rethink their approach. Maybe they’ll realize that the best way to help both the housing market and larger economy is to assist people with jobs who are paying their mortgage every month — and the taxes that subsidize schemes they can’t qualify for.

If underwater Nevadans could refinance their mortgages to today’s record-low rates, they’d have more money to spend every month, either at shops, restaurants and casinos, or paying down their mortgage principal more aggressively.

But that makes too much sense. It might benefit the “rich” — you know, households that make more than $80,000 a year. And banks might make a profit.

We can’t have that.

Glenn Cook (gcook@reviewjournal.com) is a Review-Journal editorial writer.

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