Geithner Steps Up in Defense of Principal Reduction

Yesterday, Treasury Secretary Timothy Geithner took a bold step toward guarding families’ homes from unnecessary foreclosure. He wrote an open letter in defense of principal reductions—a vital option that reduces the original amount of a home loan for struggling homeowners. Last summer, partners of the Home for Good campaign called on Secretary Geithner to make lasting improvements to the mortgage market.  More than 10,000 concerned individuals sent postcards, and during a four-day call-to-action, nearly 400 people called the Treasury to urge a simple message:  stop needless foreclosures; support affordable rental housing; and revive a sustainable path to homeownership.  With his open letter, Secretary Geithner made a strong move in the right direction.

In an environment where the blame game is often the operative strategy for elected officials and housing stakeholders, there appears to be little that economists, advocates, big banks, and investors agree on.  However, principal reduction is a solution that has cut across ideology and is considered by many to be a win-win solution. At minimum, it is anevidence-based tool for reducing foreclosures that continues to be underused, even while so many other approaches come up short. Smart servicers and lenders are on board.  They use a calculation known as Net Present Value (NPV) to compare the costs associated with foreclosure to the costs of reducing principal.  As analysis released by the Treasury Department shows, there is a targeted group of loans on which investors can save money in the long run by cutting a troubled homeowner’s mortgage balance to a manageable level.

Unfortunately, Federal Housing Finance Agency (FHFA) Acting Director Ed DeMarco has time and again stood in the way of implementing principal reductions as a solution.  DeMarco is in charge of regulating Fannie Mae and Freddie Mac, where most of the nation’s home loans are held—and until he concedes, many families will continue to fall into needless foreclosure.  In his open letter, Geithner points out that a recent study by DeMarco’s own agency shows that principal reduction decreases the chances of redefault and actually saves money, rather than increasing risk and cost, as DeMarco claims.  Making the situation all the more frustrating, we—the taxpayers—are the investors in the case of loans serviced by Fannie Mae and Freddie Mac.  DeMarco does us all a disservice by rejecting a key tool that could reduce foreclosures while also saving money for taxpayers.

Geithner’s public statement in support of principal reduction is cause for celebration, but DeMarco has further entrenched himself as the major obstacle to taking principal reduction to scale.  The enduring housing crisis requires bold steps and true solutions.  We cannot afford to be impeded by purely ideological differences—five years of that experiment have cost millions of families their homes and neighborhoods.  Principal reduction is a proven and refreshing strategy for repairing the system, and DeMarco must no longer stand in the way.

Ready to see real solutions to our nation’s housing woes? Join the Home for Good campaign and tell the presidential candidates that you want their commitment to housing opportunities!

Originally posted on Rooflines.

Photo by Medill DC, CC BY

Don’t Quit the Dream: A Vision for Homeownership Beyond 2012

After years marked by stalemate and indecision, 2012 has delivered a glimmer of hope for families and the housing market.  The Department of Justice kicked off the year with a historic settlement with Bank of America regarding predatory loans made by Countrywide before the Bank acquired the company in 2008.  Not to be outdone, 49 state Attorneys General delivered the largest settlement made thus far on behalf of families who experienced wrongful foreclosure.  And just last week, California’s state legislature approved a bill to end the practice known as dual track—where a homeowner’s loan modification and foreclosure are processed at the same time.  Now servicers will have to suspend foreclosure while a family is being evaluated for a home-saving solution.  Our community’s skepticism is warranted as we’ve heard the promises before, only to be disappointed with one failed program after another.  But there is one reason to think that these latest efforts may be the precursor to true relief:  elected officials finally seem to have gotten the message that voters care about housing. 

In polls, voters often identify the troubled state of the economy as their top concern.  Most economists agree that housing remains the biggest drag on our recovery.  Eleven million homeowners owe more than their home is worth.  That’s 11 million people who are keeping themselves out of the consumer economy.  Some of this is a good thing; people are paying down their debt and padding their savings.  But for most, that negative equity looms large over the family finances.  Not only is household consumption down, but families are delaying purchases of major goods that drive our economy, such as cars and houses.

   

On Monday, July 9, HUD Secretary Shaun Donovan and CFPB Director Richard Cordray will speak before hundreds of Hispanic leaders at the 2012 NCLR Annual Conference in Las Vegas at 6:00 p.m. ET/3:00 p.m. PT.  If you’re in town, you can join us at the Mandalay Bay (it’s free and open to the public).  If you can’t be there in person, you can watch it live here.  Our message is clear:  Don’t quit the dream.  The settlements secured earlier this year are a critical step forward, but their ultimate impact will only be realized if implemented well.  This town hall is part of the Home for Good Campaign—a venue for local voters to challenge our presidential candidates on their solutions to the persistent housing slump.

For as much consensus as there is around solutions, the lack of movement from Washington is shocking.  Principal reduction is widely recognized as the best way to head off an unnecessary foreclosure, thereby sparing the neighborhood one more abandoned property and keeping local taxes flowing to municipalities.  Analysis of the various methods servicers use to stave off foreclosure shows that homeowners are most successful when the principal balance is written down to a value closer to what the home is actually worth.  Perhaps the best evidence is that the banks and servicers are putting this strategy to work on the loans they hold on their books.

Republican candidate Mitt Romney’s solution is to let the housing market bottom out, and he and President Obama both support refinancing as way to help the market rebound.  These strategies have not worked so well for Latino families in hot foreclosure states like Florida, Nevada, California, and Arizona, where home values may be as little as 50% of what they were a few years ago.  During another session at the NCLR Annual Conference, we will share data that shows that Latinos accounted for only 4.2% of all refinancing loans originated in 2010 compared to 87% for White homeowners.  Meanwhile Fannie Mae and Freddie Mac overseer Ed DeMarco continues to be the major obstacle preventing implementation of the best tool for restoring housing stability—principal reduction. 

The hope is that with robust implementation of the 49-state AG settlement, the evidence for principal reduction will grow.  Most of us are not content to wait that long.  Voters in California showed they can persevere—the bill had failed three times before—when they stand up and let their elected officials know what they want.  Now it’s time to deliver that kind of success to other states.  Here is what you can do:  Tell the presidential candidates you want to see better solutions now.  Join us at the Don’t Quit the Dream town hall or follow us on Twitter at #NCLR12 to get your side of the story on the public record.  Together we can make 2012 the year to turn around the housing market. 

Celebrate with Us!

Happy Independence Day, everyone!  This week, we certainly appreciate the value of our democratic system at work.  On July 2, the California legislature passed the California Foreclosure Reduction Act (AB 278 / SB 900), which will finally put an end to the unfair “dual track” system—the counterproductive practice of processing foreclosure papers while also moving a family through a loan modification.  This historic step is a critical one in a series of those that will repair the housing market.

On April 19, the National Council of La Raza (NCLR), the Center for Responsible Lending, and other local partners rallied on the capitol lawn in Sacramento, California in support of the proposed Housing Bill of Rights under the foreclosure act.  By invitation from the California Attorney General Kamala Harris, NCLR President and CEO Janet Murguía testified later that day, detailing the importance of prohibiting dual track.  NCLR affiliates also helped generate 400 calls to Senator Ron Calderon letting him and other decision-makers know that this is exactly what the state needs to stop the flow of needless foreclosures.  These efforts have culminated in a great success.

We know that the banks fought this legislation very aggressively.  According to Americans for Financial Reform, lenders spent $70,000 a day on lobbyists and other efforts to prevent this bill from passing.  As informed voters and advocates, we fought back and won.  The following are some of our most important wins.  The new law:

• Prohibits dual tracking where a bank forecloses on a homeowner at the same time they are negotiating a modification
• Guarantees a single point of contact for struggling homeowners
• Creates civil penalties for fraudulently signing mortgage documents (robosigning)

We know that this law will deeply and positively impact communities of color in particular, as a disproportionate number have been held in limbo or unnecessarily lost their homes when they could have received a loan modification.  Many Californians will find relief as a result of the decision, and this commonsense legislation sets a strong precedent for states to follow suit. There is still much we as advocates, homeowners, and renters can do to fight for a sound housing system, but today we have many reasons to celebrate.

Blogger Carnival: Reducing Inequality Starts in the Home

June and thus National Homeownership Month has come to a close and folks are gearing up to celebrate Independence Day. Before moving onto the 4th, though, we wanted to emphasize the importance of housing reform and market challenges by posting the great entries we received from our blog carnival. These posts celebrate National Homeownership Month and echo the main messages behind our Home for Good campaign: that we must 1) put an end to the needless foreclosures happening in some of the most vulnerable communities in the country and 2) remind our presidential candidates and other leaders to share with the nation their solutions.

This housing crisis exposed weaknesses in the housing system that have long affected low-income families and communities of color. It is estimated that 25% of Black and Hispanic borrowers in the U.S. lost homes or are at serious risk of losing their homes, compared to 12% of White borrowers. In our town hall tour, we have encountered many people who embody that statistic. They are struggling with a system that all too often is built to work against them. Through our Home for Good campaign, we aim to reduce that inequality and help keep more homeowners in their homes!

Thank you to everyone who participated, and enjoy these featured blog posts! (Originally posted on nclr.org June 29 2012)

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Loss of homes by Latino homeowners signals an erosion of equality in the nation, Marisa Treviño, Founder and Publisher, Latina Lista

LatinaLista — As June, otherwise known as National Homeownership Month, draws to an end so does the American Dream for many Americans, especially Latino and black home owners. RealtyTrac reports that banks took back 54,844 properties last month, up 7 percent from April. This is a discouraging sign in an economy where Latino homeowners have already lost 60 percent of their wealth since the onset of the housing collapse in 2008.

Puerto Rico success in homeownership, foreclosure prevention programs, Rocío González, Voxxi.com 

In an economy where foreclosures are the item of the day and minorities are bearing the brunt of it, the need to adopt successful policies is critical to help both Latinos and African Americans who are about to lose their homes. The U.S. Department of Housing and Urban Development, commonly known as HUD, is responsible for creating policies and programs to assist homeowners. However, HUD’s efforts have had difficulty taking off. 

Vacant properties in Latino communities: a discouraging irony, Julianna Gonzalez-Crussi, Policy Analyst & Housing Outreach Coordinator, Latino Policy Forum, Connector 

Take a walk down a block in any predominately-Latino neighborhood and you’ll be confronted with one the United States’ greatest present-day ironies: As one household is overcrowded, its space stretched to accommodate extended family or friends who have fallen on hard times, the home next door sits vacant, its windows covered with plywood and its yard untended. 

Out of the Spotlight: Housing Struggles Faced by Minority Populations, Spotlight on Poverty and Opportunity

Housing struggles in America often become pervasive problems in people’s lives, particularly in minority communities. Spotlight has covered these issues as well, most notably in last winter’s exclusive commentary series, “How Housing Matters to Families and Communities,” undertaken in partnership with the MacArthur Foundation. 

Homeowners Can't Afford Another Missed Opportunity, Janis Bowdler, NCLR, Huffington Post, Latino Voices

When the housing bubble burst more than four years ago, many banks and federal regulators argued that the impact would be limited and the damage contained to the subprime market. Famous last words. 

Vote and Move the Needle on Housing Challenges

By Nancy Wilberg Ricks, The National Council of La Raza,

2012 is the year of the voter.  After many months of chaos, Americans continue to seek no-nonsense solutions to a floundering housing market.  Indeed, we are tired of Washington’s antics but still have confidence that we can change the status quo.  Being informed is critical to understanding the current state of the housing market and what true long-term solutions look like.

Just today, I attended The Atlantic’s Economy Summit and someone noted how astounding it was that despite the enormous number of educated Americans, many of us do not have a firm understanding of our own financial investments, the very foundation of our family’s economic livelihood.  While this statement is a bit simplistic—and, to be fair, understanding one’s own mortgage terms is no small feat—she had a point.  The biggest investment most families will make is purchasing a home, yet many families do not obtain sufficient information before diving in.  That knowledge gap increases when it comes to understanding how broader housing policy affects our day-to-day lives.  Greater education in this area is imperative, though, because despite claims that our economic health is improving, the housing market continues to struggle and we can expect further deterioration.

The National Council of La Raza (NCLR) has assembled a voter guide—2012 Election Spotlight:  See How Your Congressional Members Voted on Jobs and the Economy (Spanish version)—which will help explain economic decisions made on Capitol Hill.  The guide indicates how congressional members voted on several pieces of legislation—two Senate bills and two House bills—which deal with consumer protections, housing market improvements, and job creation.  This guide is a simple place to start and can help voters understand key political decisions that impact the economy.

In this election year, we must sharpen our understanding of what true accountability looks like in the market and why the fate of many is tied to that of Fannie Mae and Freddie Mac and other market aspects.  Strong community engagement and voter education can absolutely move the needle in overcoming barriers to a stable mortgage market.

Remaining Hurdles Dampen Positive Changes to the Housing Market

By Janis Bowdler, Director, Wealth-Building Policy Project

Over the past month, the Obama administration has achieved several Home for Good victories for homeowners and consumers. Among them was the bold move Obama made to appoint the director of the Consumer Financial Protection Bureau to defend consumers from abusive financial services and scams. NCLR commends the president for making this recess appointment particularly at a time when noxious politics fly in the face of strong policy. Obama also advanced provisions that will help unemployed homeowners remain in their homes for up to 12 months while they secure a new job; this is a vast improvement from previous three- and six-month time frames allotted. Finally, the administration announced the creation of a new working group that will investigate and take on offenders and abusers of the housing crisis.

Each of these incremental changes rebuilds a better financial future for those struggling to make ends meet; however, the president has been slow to offer a reform strategy for Fannie Mae and Freddie Mac. While the administration made a significant move to break open the yet untouchable loans in Fannie and Freddie—they tripled incentives for granting homeowners principal reductions—there remains a fly in the ointment. The adoption of principal reductions for Fannie and Freddie lies in the hands of Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA). DeMarco has refused to write down these mortgages. Since placed in his temporary FHFA position, he has become known for his narrow view of Fannie and Freddie’s role in aiding the recovery of our housing market. The added incentives remove one of the arguments he has made against principal reduction.

Principal writedowns have proven to be one of the most effective methods of helping underwater families hold onto their homes and preserve our neighborhoods. When compared with the holding costs and the loss of selling a home for pennies on the dollar at a sheriff sale, it is not difficult to see that principal reduction is a win for investors, neighborhoods, and families. The new incentives for principal reduction are not wholesale solutions; they are promising course corrections that can rebuild the housing market. If DeMarco does not seize this new opportunity to help families, the White House must relieve DeMarco of his position and permanently appoint a new director.

Photo of Edward DeMarco courtesy of FHFA. 

This was first posted to the Shelterforce blog, Rooflines

NCLR Fights to Keep Latinos in Their Homes

Stop wrongful foreclosures. Protect affordable housing. Keep responsible homeownership opportunities available. These three simple demands are at the heart of our Home for Good campaign, which was launched last April. Every day, more Americans join the ranks of those who have had their homes foreclosed upon and who have lost their jobs. In the Latino community, one in six is either at imminent risk of losing their home or has already lost it. This disturbing national crisis must be addressed immediately. 

Treasury Secretary Timothy Geithner has been the focus of Home for Good. We put out a national call to Americans to sign a petition demanding that Sec. Geithner make the foreclosure crisis a top priority. Since making the call, we have gathered signatures through online petitions, postcards, and our mobile action network; NCLR’s supporters and allies worked diligently to spread the word. The work paid off today when the Home for Good campaign team delivered more than 10,000 signatures to Sec. Geithner’s office.

Of course, we’re not finished yet. In many ways, the hard work is just beginning. Now that Sec. Geithner has heard you loud and clear, we must continue to spread the message telling the administration and Congress to stop wrongful foreclosures and restore homeownership opportunities. Soon, NCLR will bring Home for Good to your neighborhood. We will be holding a series of town halls in communities across America to hear more about the struggles that everyday Americans are facing in this terrible economy, and we’ll focus on solutions for putting an end to the foreclosure crisis. Stay tuned, and visit back here often for news about these upcoming town halls.

Finally, be sure to check out Home for Good online, and visit us on Facebook and Twitter for the latest Home for Good news. And, if you haven’t done so, text HOME or HOGAR to 62571 to join our Home for Good mobile action network.