* White House anxious for settlement with servicers
* Gov't has set aside $1.52 bln to help reduce home loans
* Nearly quarter of U.S. homeowners are under water
* Republicans likely to block costly remedies
By Rachelle Younglai
WASHINGTON, June 7 The Obama administration has
grown increasingly frustrated with the country's struggling
housing sector and is exploring ways to keep it from weakening
further, two sources familiar with the administration's
The White House has already set aside nearly $50 billion in
taxpayer funds to help distressed homeowners keep their homes
and stem the flow of foreclosures.
But with a surplus of homes for sale, declining home
prices, little demand and high unemployment, the efforts have
foundered and only a small portion of available funds has been
put to use.
There is no obvious solution to the country's housing woes.
The administration could try to address the problem by tweaking
existing foreclosure prevention programs, introducing another
tax credit for first-time homebuyers or taking steps to ensure
the government can continue to guarantee bigger mortgages.
But with Republicans controlling the House of
Representatives, any solutions that would require a significant
amount of new money are unlikely to gain much traction.
More than 3.5 million homes have been foreclosed on since
the beginning of 2007, when the housing market entered its
freefall, according to real estate data firm RealtyTrac.
Home prices in March slumped to lows not seen since March
2003, and 10.9 million, or 22.7 percent, of homeowners are
under water, meaning they owe more than their home is worth.
For months, the Obama administration has been throwing
money at the housing sector and pondering other measures. But
the recent bout of dreary economic data has prompted a new look
at potential fixes, the sources said.
The sources requested anonymity because the talks are
private and no decisions on new steps have been taken.
"It is imperative that the administration look hard at
whether there is more they can do to jump-start the housing
market and deal with the overhang of foreclosed properties and
underwater borrowers," said Sarah Wartell, executive vice
president with a progressive think tank, the Center for
One of the biggest barriers to the housing recovery is that
nearly one-quarter of all homeowners owe more than their homes
are worth, and many will likely default on loan payments and
lose their homes.
"You are not going to get housing moving through the
country unless you solve the foreclosure program," said Ira
Rheingold, executive director with the non-profit consumer
group, the National Association of Consumer Advocates.
The administration has been anxiously waiting for states,
federal authorities and the biggest housing lenders to reach a
settlement over mortgage servicing problems, including cases in
which foreclosure documents were rubber-stamped, or handled
without following proper procedures.
It is seen as one way to extract financial penalties from
the mortgage companies that could then be used to help cut the
amount Americans owe on their troubled mortgages.
"Principal reduction is really important. That is probably
where we have the greatest margin in making a difference," said
Jared Bernstein, who until recently served as an economic
adviser to Vice President Joe Biden.
With billions already set aside from the U.S. Treasury's
bank bailout fund to help homeowners, the likelihood of
infusion of federal dollars is slim.
Federal and state officials are seeking billions of
dollars from Bank of America (BAC.N), JPMorgan Chase (JPM.N),
Citigroup (C.N), Wells Fargo (WFC.N) and Ally Financial to help
with principal write-downs.
Under one of the administration's foreclosure prevention
programs, the hardest-hit states will be allowed to use $1.52
billion to reduce mortgage principal, an amount analysts say is
far too small to have much impact.
The bulk of the taxpayer funds has been set aside for the
government's main housing rescue program, which aims to
permanently modify loans. But the program has been widely
criticized as ineffective. Only $1.85 billion has been put to
use so far.
When it was launched, the administration said it expected 3
million to 4 million homeowners to benefit from the program. To
date, only 670,000 homeowners have won lower payments.
(Additional reporting by Leah Schnurr in New York; Editing by