President Barack Obama announced today that the administration will pump $1.5 billion into programs to address housing problems in states with the highest unemployment rates and the greatest drop in home values.

The program, which will use funds set aside for housing under the Emergency Economic Stabilization Act (EESA) of 2008, will be directed at states where the average home price has fallen more than 20 percent from the peak and where high unemployment is also an issue.  The President announced the program during a speech this afternoon in Nevada which has had one of the highest foreclosure rates in the country, among the highest rates of "underwater" mortgages, and an unemployment rate of 13 percent. 

Funds will be directed to housing agencies in the individual states which will be able to use the funds to prevent foreclosures among unemployed homeowners and to assist those who cannot refinance because of mortgages larger than the value of their homes or because of junior liens. 

The White House did not specify the exact states that would be eligible for the program, but we did pull these charts from the MBA and BLS to provide an idea of what states might see Federal support.

States with the highest rates of foreclosure: California, Nevada, Arizona, Illinois, Ohio, Florida, and New Jersey

States with the highest unemployment rate: California, Nevada, Oregon, Illinois, Michigan, Ohio, Kentucky, New Jersey, and the entire Southeast region.

The White House said that state and local Housing Finance Agencies (HFAs) in each state are already familiar with the urgent challenges facing their communities and have demonstrated the ability to address these challenges, and that the HFAs will determine the priorities facing their local markets.

Under the new program, dubbed 4HM or Help for the Hardest-Hit Housing Markets, HFAs can submit their own program designs to Treasury.  The proposals must meet funding requirements of EESA which include that the recipient of funds must be an eligible financial institution and that the funds must be used to pay for mortgage modifications or for other permitted uses. Treasury will announce maximum state level allocations and rules governing the submission of programs within the next two weeks.

The White House said that the kinds of programs that HFAs might design could include programs to help unemployed homeowners until they could find a job since, in earlier periods of high unemployment, people could sell their homes and use the funds to "tide them over."  Today, in the targeted states, those homeowners with negative equity do not have this option.

The HFAs could also experiment with programs that would assist underwater borrowers to negotiate with lenders to write down mortgages which would allow them to refinance. Modification programs such as the Treasury Departments HAMP program have encountered real reluctance on the part of lenders to reduce principal balances.

Other programs might assist in situations where a home equity loan or second mortgage is preventing a borrower from obtaining a loan modification by offering incentives to the second mortgage holder to negotiate or release a junior lien.  

The White House said that all of the programs that are funded will be posted on-line and that standards for individual program results will be set and programs measured against these standards with the results also published on-line.

HERE is the press release