(Adds Farrell, Litvak quote, analysts, background)
By Corbett B. Daly
WASHINGTON, March 29 (Reuters) - The Obama administration on Monday unveiled another bailout program for troubled homeowners, pledging to divert $600 million in housing rescue funds to five more states on its list of “hardest-hit” markets.
The funding is an expansion of its previously announced $1.5 billion fund for state housing agencies in states that have suffered severe home price declines and high unemployment, the U.S. Treasury Department said in a statement.
The second round of funding, which comes from the Troubled Asset Relief Program (TARP), will go to North Carolina, Ohio, Oregon, Rhode Island and South Carolina, the Treasury said.
President Barack Obama announced the creation of the hardest hit fund in February with California, Nevada, Arizona, Florida and Michigan, states where home prices have fallen more than 20 percent from their peak.
The latest announcement comes after Friday’s blockbuster announcement that the government would begin providing lenders with incentives to write-off some principal of borrowers who owe more than their home is worth.
No new funds would be used for these programs, but would rather be taken from a $50 billion fund already allocated to Obama’s Home Affordable Modification Program (HAMP), the housing component of TARP.
Rather than focusing on locations where prices have fallen hardest, the second set of five states aims to help states that have pockets of high unemployment.
The administration chose to include five states with the highest share of population living with unemployment above 12 percent in 2009.
Asked about some states that might have higher overall rates of unemployment than the chosen states but would not receive funds under the latest program, officials said the aim was to focus on areas with highly concentrated unemployment.
“This is in no way a measure of who is deserving or not,” said Diana Farrell, a top White House economic adviser, noting that the hardest hit fund is a small fraction of the administration’s overall efforts on housing, which are available to all states.
Jesse Litvak, a managing director in mortgage trading at Jefferies & Co in New York, suggested the expansion of the hardest hit fund was political payback for lawmakers who backed the White House in its year-long fight over changes to the U.S healthcare system.
Just days after Obama’s high-profile Nevada announcement of the original hardest hit fund, Democratic Representative Dennis Kucinich pointedly asked “What about Ohio?” at a hearing where lawmakers from both parties slammed the administration’s response to the housing crisis.
Obama traveled to hard-hit Ohio just ahead of the healthcare vote, with Kucinich aboard the presidential jet, Air Force One. Kucinich, who opposed the healthcare bill in November, voted in favor of the bill in March.
Additional reporting by David Lawder and David Alexander, Editing by Kenneth Barry