It’s Time for the Candidates to Get Specific on the Homeownership Crisis

Now that the presidential tickets are set, it’s time for the candidates to get specific about problems and solutions critical to our economic recovery and future prosperity. Along with job creation, they should start with Home Opportunity—the cluster of housing, homeownership, and fair lending issues that are so central to the American promise of opportunity for all.

America continues to face a Home Opportunity crisis, with 2 million foreclosure filings this year, and millions more families at risk. That’s millions of senior citizens losing their economic security, children and families uprooted, neighborhoods blighted with vacant properties, and a continued drag on our economy.

What’s more, unequal opportunity and the discriminatory targeting of communities of color by unscrupulous brokers and lenders means that minority families continue to be especially hard hit. Major discrimination settlements by the Justice Department against Countrywide, Wells Fargo, and other major lenders reveal that, despite the progress we’ve made as a nation, Americans of color have been especially unlikely to get a fair deal from the banks. That translates to a historic loss of community assets and wealth that hurts us all.

Unlike employment, however, Home Opportunity has received inadequate attention in the general election campaign, despite its undisputed political, as well as economic, importance. For swing states like Florida (with 25,534 new foreclosure filings in July alone) and Nevada (with 26,498 filings), these questions are especially pressing. Amazingly though, neither campaign’s homepage includes housing, homeownership or foreclosures among the featured issues.

Early in his campaign, Mitt Romney famously told the Las Vegas Review Journal, “Don’t try to stop the foreclosure process. Let it run its course and hit the bottom.” Months later, he appeared to shift position, saying in Florida: “The idea that somehow this is going to cure itself by itself is probably not real. There’s going to have to be a much more concerted effort to work with the lending institutions and help them take action, which is in their best interest and the best interest of the homeowners.”

Romney also said in a Republican debate that government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac—the historic guarantors of the 30-year fixed mortgage for generations of middle class Americans—“were a big part of why we have the housing crisis in the nation that we have.” In neither case, however, have specific solutions followed. Romney has, by contrast, called for eliminating the Consumer Financial Protection Bureau and the Dodd-Frank legislation that created it.

As incumbent, President Obama has implemented multiple measures, including the Bureau, the Making Home Affordable program, housing counseling, and joining 49 state attorneys general in a national mortgage settlement with five major banks. (Intriguingly, Republican VP candidate Paul Ryan’s constituent services site refers Wisconsans with homeownership woes to the latter three programs for assistance).

Yet, most analysts agree that Making Home Affordable has fallen short of Administration goals, and that the national mortgage settlement, while helpful, does not reach the majority of homeowners who could benefit from its terms. Many argue, in particular, that the President can do more to extend principal reduction—shrinking the principal owed on mortgages to reflect homes’ fair market value—to mortgages backed by Fannie and Freddie. And while the Administration outlined three options for the future of those enterprises over a year ago, the President’s preferred agenda for them remains unclear.

The Obama Justice Department has been aggressive in settling discrimination suits against major lenders, but Candidate Obama has not discussed the role of discrimination in creating the housing crisis, nor the role of future equal opportunity efforts in solving it.

In short, the candidates, as candidates, have yet to articulate to the American people their respective visions for the future of Home Opportunity. How will each address the lender misconduct and inadequate rules that led to the current crisis? How will each ensure that families with the resources to be successful homeowners are not thwarted by future misconduct, arbitrary restrictions, or a lack of sound information? How will each help rejuvenate neighborhoods devastated by predatory lending and mass foreclosures? And how will each ensure that people of all races, ethnicities, and communities have an equal opportunity to pursue the American Dream?

With the tickets now set, it’s the candidates’ responsibility to get specific on these questions, so critical to the nation’s choice of the next president. As voters, it’s our responsibility to demand that they do.

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No More Excuses on Relief to American Homeowners

Read also: Home Opportunity Initiative

One by one, the excuses have fallen. Yet Edward DeMarco, acting head of FHFA, the agency that runs Fannie Mae and Freddie Mac, still fails to offer the most effective relief available to American homeowners struggling with mortgages held by those entities. Economists, housing experts, and members of DeMarco’s own staff have concluded that reducing to affordable levels the principal owed on at-risk mortgages is effective in reducing foreclosures and their destructive fallout. But, inexplicably, he’s been unmoved by the mounting evidence.

Two weeks ago, after hinting at a possible change of heart, DeMarco punted on the question, saying it needed more study and stating that such a policy question “should be determined by Congress.” But the evidence is too clear, and the stakes are too high, for further delay. It’s time for Mr. DeMarco to either act in the nation’s interest or get out of the way.

While many parts of our economy have gradually improved over the last several years, foreclosures are on the rise in regions around the country. The foreclosure data company RealtyTrac has predicted that one million American homes may enter foreclosure in 2012. An estimated 12 million Americans currently owe more on their mortgages than their homes are worth, meaning that millions more are at risk.

Fannie, Freddie, and DeMarco’s agency have an oversized role to play in addressing the crisis, since the entities are assumed to own or back roughly 3.3 million underwater mortgages and help set trends in the larger market. By including principal reduction among the tools they use, they could help millions of Americans save their homes while making sustainable payments toward the actual value of their property.

The American people essentially own Fannie and Freddie after a $150 billion bailout. Even before that, the entities were tasked with providing stability and affordability to the nation's mortgage finance market. FHFA’s mission similarly includes supporting housing finance, affordable housing, and a stable and liquid mortgage market, as well as promoting Fannie and Freddie’s safety and soundness.

The calls for principal reduction are growing louder, with evidence increasingly demonstrating that those interests all point toward principal reduction. It results in fewer foreclosures, as compared with alternatives like loan forbearance (delaying loan obligations) that FHFA has authorized. In addition to the obvious benefits to struggling homeowners, reducing foreclosures improves neighborhood home values, prevents abandoned and blighted properties, and saves cash-strapped municipalities the costs of upkeep and enforcement.

Many private lenders have been reducing principal obligations on their own, recognizing it’s often the best way for them to recoup their investment. Moreover, the strategy was a significant part of the Attorneys General settlement over “robo-signing” and related bank misconduct.

Reports have emerged that even FHFA’s own internal analyses show principal reduction is in the interest of both underwater homeowners and Fannie and Freddie. Documents recently obtained by the Congressional Progressive Caucus reportedly show that DeMarco’s agency studied the question in 2009, decided it was worth trying, worked with a major lender to develop a detailed pilot, and then abruptly canceled it in July of 2010 for what the Caucus says were ideological reasons.

To be sure, principal reduction is not a silver bullet. A range of aggressive solutions are necessary to address America’s foreclosure crisis, restore ravaged neighborhoods, and put our national economy back on track. Indeed, a coalition of housing and public interest groups that includes The Opportunity Agenda, National Council of La Raza, and the National Fair Housing Alliance has released a Compact for Home Opportunity highlighting over a dozen actions that government, private industry, and individuals can take to turn things around.

Principal reduction may be only one of those actions. But it’s an important one. With a million American homes at risk of foreclosure, the time for action is now.


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