California has delivered less than half of $2 billion in federal aid to help victims of the housing crash.
The fund, announced five years ago by the federal government, aimed to help homeowners in areas where home prices collapsed and unemployment soared. The Hardest Hit Fund, as the Treasury Department program is called, provided a total of $7.6 billion to 18 states and the District of Columbia, enabling them to customize relief for troubled communities.
"This program will allow housing finance agencies in the places hardest hit by the housing crisis to find innovative ways to help homeowners stay afloat," President Obama said in announcing the program.
The state's version, called Keep Your Home California, was announced with fanfare a year later. Its relief programs included an ambitious effort to help banks finance debt forgiveness by reducing mortgage principal.
It also made payments for the unemployed, helped delinquent owners catch up on payments and provided assistance in finding affordable housing to borrowers who lost homes in short sales.
"Our goal is to get the very most out of these federal dollars to assist California families," said Steven Spears, then executive director of the California Housing Finance Agency, which oversees the program. "With families struggling through a number of financial hardships and the disruption in the real estate market, these programs will help those in need while stabilizing neighborhoods and communities severely impacted by foreclosures."
But the state, after spending $100 million on administrative costs for Keep Your Home California, still has nearly $1 billion left to hand out.
The $920 million in relief that California has delivered is by far the most of any state. But that was expected, because California was granted nearly twice as much in federal funds as the runner-up, Florida, which was authorized to deliver about $1 billion.
California had delivered or committed 44.2% of its available funds as of Sept. 30, according to the Treasury Department's last survey of results. That put it in a tie with Mississippi for 12th place, out of the program's 19 participants, in the percentage of funds delivered. Oregon and Rhode Island, by contrast, had already delivered or committed more than 90% of the federal funds they were given. The slow pace of distributions has become a common complaint among advocates for people who have lost jobs or watched their home values plunge. Many still owe more on their mortgage than the home is worth.
The states have encountered problems working with banks and mortgage servicers, which have found it hard to coordinate with so many state programs. Each state has its own rules for who gets the money and how it gets distributed.
An audit of the program in 2012 by a special inspector general criticized the Treasury Department for rolling out the Hardest Hit Fund without advance notice in February 2010 — then taking seven months before meeting with the states, banks and mortgage giants Freddie Mac and Fannie Mae.
The Treasury Department said any delay was caused by the states' needs to hire housing counselors and staff to review applications. Setting up online programs also took time. The federal aid is nonetheless "creating long-lasting foreclosure prevention capabilities," the letter said.
Officials have attributed California's shortcomings to a number of problems, including the early emphasis on mortgage principal reduction. Most banks, along with Fannie Mae and Freddie Mac, declined to accept the program until the state agreed to shoulder its entire cost.
California had initially pushed the banks to pay for half of the cost of debt forgiveness. The goal of the program was to reduce homeowners' debt to match the reduced value of their homes.
Even so, in the third quarter of 2014, the number of homeowners approved for principal reduction amounted to just 15% of those assisted by Keep Your Home California. That compared with 25% who were aided in catching up on missed payments and 58% for whom the state made mortgage payments while they were collecting unemployment benefits.
A Keep Your Home spokesman, Steve Gallagher, said the program was initially hampered by a lack of participation from loan servicers. But now nearly 200 of them have signed on.
Caps on the amounts of assistance for individual homeowners have been raised, he said, and the pace of principal reduction has been picking up lately.
He said the agency expects to distribute all the federal funds by the end of 2017, when the program expires.
"The economy is getting better," Gallagher said. "But there are still a lot of people in real trouble, and in some areas of the state there are still quite a few underwater homeowners."
Another cause of delays was requirements that homeowners prove the factors causing their hardships — deaths, job losses, divorces. But last year, Keep Your Home California changed the rules to require only that homeowners show that their mortgage balance was at least 20% more than their home value.
Diane Richardson, legislative director for the housing agency, said she is satisfied the programs had achieved their goal of maintaining homeownership, since more than 90% of those helped are still in their homes after two years.
"I know people wish it would have gone faster, but this wasn't a race," Richardson said. "We had to make sure we were providing the tax dollars to people who really needed it ... and left them in a position to go forward with housing they can afford."
Richardson said Keep Your Home is planning to roll out a series of additional programs, starting with an effort announced this week to assist seniors with reverse mortgages who have fallen behind on their property tax and insurance payments.
The efforts to improve the program are welcome, but its performance so far has been disappointing, said Kevin Stein, associate director at the California Reinvestment Coalition in San Francisco.
"Whether this is due to servicer intransigence and unwillingness to participate in the program or bureaucratic challenges, the results for California families have been the same — too little, too late," he said.