Government Money Meant to Save Houses Is Being Used to Destroy Them

Photo: Eric Guinther

For most people, the Troubled Asset Relief Fund is probably best known for bailing out the nation's banks during the financial crisis. But TARP funds were used for other crisis-related purposes, as well - such as helping homeowners facing foreclosure in some of the areas of the country that suffered the most from the housing meltdown.

But TARP's Hardest Hit Fund did not live up to its charge. Now, money still in the fund's coffers is being used to demolish the very homes it was designed to save.

A 78% failure
An October 2013 report from the Special Inspector General for the Troubled Asset Relief Program noted the failings of the HHF, created in 2010 "to help prevent foreclosures and stabilize housing markets". By June 30, 2013, according to SIGTARP, the program had used only 35% of the $7.6 billion allocated at its inception. That's not all: of that percentage, only 22% actually went to assist troubled homeowners - the rest went to administrative expenses, or was set aside as "cash-on-hand".

Meanwhile, homes were abandoned, and became eyesores - or worse. Now, even though building demolition wasn't within the original mission of the HHF, money that was not spent as it was meant to be is being funneled toward removing ramshackle homes from now-blighted neighborhoods.

What went wrong?
According to SIGTARP, part of the reason so few homeowners were helped was due to a lack of goal-setting by the U.S. Treasury Department, which oversaw the program.

When the HHF money was first made available, the hardest-hit 18 states and the District of Columbia estimated more than 546,500 homeowners would be helped. By the end of last June, that estimate had dwindled to a little over 367,000 - the result of those states changing their programs and goals many times during the years 2011 to 2013, with Treasury's approval.

The report notes Treasury rejected SIGTARP's recommendations, which basically suggested the department and all states involved set clear and meaningful goals, and to develop a plan by which these goals could be carried out.

The new mission
Last spring, Detroit Mayor David Bling began lobbying to use HHF funds to tear down badly neglected homes that were bringing down property values in Detroit. The demolition has now begun, and the new Mayor, Mike Duggan, has created a Department of Neighborhoods to focus the demolition work to the areas of the city most in need. Other cities in Michigan, such as Flint and Grand Rapids, will also see problem properties removed using HHF funds.

Interestingly, SIGTARP notes , while Michigan was allotted nearly $500 million in HHF funds, it aided only 11,477 homeowners by June 30. According to Treasury, that number grew to about 15,000 by the end of September. By comparison, officials estimate that approximately 70,000 homes need demolition in the city of Detroit, for a cost of $52 million.

Other states, such as Ohio, are also using HHF funds to destroy former homes. While this may seem like an aberration, the current situation - unfortunately - seems to warrant such action. As time goes on, there is little doubt that more of this funding will be rerouted to this grim purpose, as public money meant to preserve American cities has become the unwitting sponsor of their destruction.

The long-term view is usually the best
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love.

The article Government Money Meant to Save Houses Is Being Used to Destroy Them originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.