Arizona has failed to pass along millions of dollars given to the state from Washington to help struggling homeowners avoid foreclosure.
The Arizona Republic reports that Arizona spent only 6 percent of $268 million allocated to help Arizona homeowners from mid-2011 through the end of 2012, despite being one of the states hit hardest by the housing bust.
By comparison, the most successful of the 18 states, plus Washington, D.C., that received federal “Hardest Hit” funds to help homeowners had spent more than 45 percent of their federal government allocation by the end of last year.
Arizona Department of Housing officials say the program did not have better success early on because banks would not work with them to modify mortgages, and Arizona was slow to adopt more successful approaches tried in other states. As a result, many homeowners’ mortgages were foreclosed on while the homeowners waited for aid.
The money is part of a federal bailout package in the $750 billion Troubled Asset Relief Program — the portion intended to help homeowners rather than banks and financial institutions. Depending on the state, homeowners can qualify for mortgage modifications, principal reductions, short-sale assistance, second-lien reductions and unemployment assistance.
Through March 31, Arizona’s program had helped 1,550 homeowners statewide, chiefly through unemployment assistance and reductions in loan amounts. There were 46,135 foreclosures and 36,667 short sales in Maricopa County alone during the same period, according to Tom Ruff, real-estate analyst for the Information Market, a real-estate data firm.
The Republic also reported that a large portion of Arizona’s money was spent setting up the program — at one point making the state’s administrative costs the highest in the country.
The percentage spent on administration has declined from October through March — the latest date available — but it still accounts for about 30 percent of all the money Arizona spent. Arizona spent “so much on setting up their office that they weren’t able to get the money to homeowners,” said Christy Romero, federal special inspector general for the TARP program.
“That’s something that needs to be looked into,” Romero said.
Michael Trailor, director of the Arizona Department of Housing, criticized banks for refusing to work with the state on loan-principal reductions. Because the state Housing Department originally required a bank to match the amount of aid granted by the state for principal reductions, only eight were completed in the first year, he said.
Trailor said Arizona, unlike other states enrolled in the program, has never been willing to pay the past-due mortgage balances for struggling homeowners unless they had proof they could afford their mortgages in the future. He said the Arizona Housing Department considers the requirement to demonstrate future ability to make mortgage payments a matter of fiscal responsibility.
“These are taxpayer funds, and we take our responsibility for tax funds very seriously,” Trailor said.
Trailor acknowledged that Arizona should have focused more on unemployment assistance because that has proven to be the fastest way to aid struggling homeowners. But Trailor said it is unfair to compare Arizona’s assistance record with those of other states because each state designed its own program and was therefore unique.
In addition, Arizona initially decreed that homeowners could not receive assistance if they had refinanced their homes and pocketed cash because of their homes’ appreciated value — what is known as a “cash-out refinancing.”
Later, the state changed course to allow someone who took cash-out refinancing of up to 150 percent of a home’s value to be eligible for the program. Without the change, too few people qualified for aid, Trailor said.
“That was kicking so many people out of the program,” Trailor said. “Unfortunately, people in Arizona were using their homes as ATM machines.”