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Working In These Times

Tuesday, Oct 27, 2009, 1:50 pm

After Chicago: Forcing a Real Response to Foreclosure Crisis

BY Art Levine

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The protesters who gathered today outside the bankers conference in Chicago demanding a crackdown on taxpayer-salvaged financial institutions could help spur grass-roots actions for financial reforms.

But efforts to fix a key component of the ongoing crisis—rising foreclosure rates that have led nearly two million people this year alone to lose their homes—remain stalled in Washington and haven't become a top priority of progressives so far.

Neither the administration's "Home Affordable Program (HAMP)" nor the notoriously flawed 2008 HUD "Hope for Homeowners" legislation has had much of an impact. Both have been voluntary plans that proved too costly for homeowners and too cumbersome for all parties involved. As Kathleen Day, a spokesperson for the Center for Responsible Lending, observes of the HAMP initiative aimed primarily at renegotiating mortgages, "The plan is better than what we had before, but it's being dwarfed by the pace of foreclosures."

"Realistically, the foreclosure crisis is not getting any attention," observes Liz Ryan-Murray, policy coordinator for National People's Action, a national community advocacy group that played a major role in organizing the "Showdown in Chicago." Ran-Murray declares, "Foreclosures are having a devastaing effect in families and neigobhorhoods, and until we solve the foreclosure crisis we won't solve the economic crisis."

Last April, a "cram down" bill to force banks to accept judicially-renegotiated mortgages died in the Senate after intensive financial industry lobbying, spurring Sen. Dick Durbin to declare, "Frankly, they own the place." 

In the wake of failed government programs, there's a burgeoning new industry in home mortgage scams that pretend to be linked to government efforts.

Since the failed cram-down initiative, other reform bills to promote mortgage modification have languished in both houses of Congress, with a new reform bill introduced just last month, co-sponsored by Senator Jack Reed of Oregon:

“In the last year, the federal government has taken decisive action and devoted substantial financial resources to shoring up financial markets, averting a potential national and global financial meltdown.  Despite federal efforts, the number of foreclosures continues to rise at an alarming rate on pace to surpass last year’s foreclosures by a third.  The Preserving Homes and Communities Act will ensure that we are taking similarly aggressive actions to address the housing crisis, which has devastated families, crippled local communities, and dragged down the broader economy,” said Reed. 

“More and more households are finding that even with a fixed-rate mortgage that they could afford before the recession, they are just one pink slip away from losing their biggest investment.  My bill provides targeted relief to qualified homeowners so that more families can keep their homes, protects communities from suffering even greater financial losses, and sets us on the path to stabilizing the housing sector as a foundation for lasting economic recovery.”

Unfortunately, the bill hasn't yet generated much interest or attention.

With broader financial reforms that could prevent future abusive lending and health care reform higher on the progressives' must-pass list, the immediate problems facing people like retiree Erma Hall- Wood, who lost her home after her savings evaporated simply aren't being meaningfully addressed.

On Monday, protesters and Sen. Dick Durbin asked executives at Goldman Sachs to give the $23 billion in bonuses to help Americans facing foreclosure stay in their homes.

While of course the investment bankers are unlikely to comply with that request, there's almost as little interest among banks and mortgage "servicers" to carry out the refinancing or renegotiated mortgages promoted by the Obama administration's HAMP effort.

In a devastating report on the Obama administration's primary tool to keep people in their homes, Elizabeth Warren's congressional oversight panel on the bailout reported that it wouldn't even help half the people, at best, it's targeting. Even though the Treasury Department boasted that 500,000 people have already had their mortgage terms modified, The New York Times reported recently:

A day after the Obama administration proclaimed significant progress in its effort to spare troubled homeowners from foreclosure, an oversight panel on Friday sharply criticized the program and declared it would leave millions of Americans vulnerable to losing their homes.

In a report mild in language but pointed in substance, the Congressional Oversight Panel — a watchdog created last year to keep tabs on taxpayer bailout funds — said the administration’s program would, “in the best case,” prevent “fewer than half of the predicted foreclosures.”

The report rebuked the administration for failing to shape a program that addressed the most significant engines of the foreclosure crisis — soaring joblessness and exotic mortgages with low introductory interest rates that give way to sharply higher payments over the next three years. Many of those mortgages are too large to qualify for modification under the administration’s plan. People who lose their jobs often lack enough income to qualify for relief.

The administration’s plan appears “targeted at the housing crisis as it existed six months ago, rather than as it exists now,” asserted the oversight panel in its report. “The panel urges Treasury to reconsider the scope, scalability and permanence of the programs designed to minimize the economic impact of foreclosures and consider whether new programs or program enhancements could be adopted.”

In a telephone briefing with reporters, the oversight panel’s chairwoman, Elizabeth Warren, said the administration’s housing program was so limited that it was unlikely to keep pace with the growing wave of foreclosures.

“Even when Treasury’s programs are running at full speed, foreclosures are estimated to outpace modifications by about two to one,” Ms. Warren said. “It simply isn’t clear that the programs in place will do enough to tame the crisis and have a significant impact on the broader economy.”

On top of that, a related program in the Treasury Department designed to help people get new, refinanced mortgages has also flopped. As The Washington Post reported last week:

A seven-month-old government program to help homeowners with little or no equity refinance their mortgages has so far reached fewer than 3 percent of those targeted, with many struggling borrowers deciding that the benefits of a new loan aren't worth the closing costs.

This lackluster performance reflects the difficulty of helping the growing segment of "underwater" homeowners -- those who owe more than their home is worth.

The program is a key component of the Obama administration's efforts to stabilize the housing market and arrest the nation's growing foreclosure rate. But the initiative has received far less public attention than its companion, a loan modification program that pays lenders to lower the payments of delinquent borrowers who are in imminent danger of losing their homes.

The refinancing program targets borrowers who are not in trouble on their mortgage now but, because they are underwater, are at risk of falling into trouble later. By suspending the traditional refinancing requirement that borrowers have equity, officials hope to make them less vulnerable to foreclosure. Homeowners whose loans are backed by mortgage financiers Fannie Mae or Freddie Mac are eligible.

This effort has so far helped about 130,000 of the up to 5 million borrowers the Obama administration has said are potentially eligible, according to government data.

"We would have liked to move at a faster pace, but it does take time to ramp up," said Seth Wheeler, counselor to the secretary at the Treasury Department. But "it has been a substantial help to those that have been able to refinance."

The National People's Action and the Center for Responsible Lending, among others, have called for stronger actions to mandate and promote refinanced and modified mortgages. Unfortunately, there has been relatively little response to such reforms. And the new Consumer Financial Protection Agency that's passed a House committee contains too many exemptions for smaller community banks—98% of all banks in the country—and was stripped of deceptive-language provisions.

At the Save the American Dream website, National People's Action has outlined the basic principles of reform. Few of them appear to be on their way  to being effectively implemented:

IMMEDIATE RELIEF TO KEEP FAMILIES IN THEIR HOMES
Mortgage industry must:
• Disclose ownership of loans before foreclosure;
• Modify loans to be permanently affordable;
• Halt massive interest rate hikes;
• Allow servicers the greatest flexibility to modify these loans;
• Create a refinance loan for homeowners stuck in unaffordable loans;
• Employ salaried loan officers, not commissioned-based loan officers.

STOP ABUSIVE LENDING PRACTICES

Congress and the President must:
• Enact comprehensive homeowner protections that do not preempt state and local laws;
• Hold brokers and lenders accountable for knowingly engaging in abusive lending practices;
• Regulate and license mortgage brokers;
• Require all mortgage lending institutions to seriously address foreclosure prevention.

As Liz Ryan-Murray points out, with even more foreclosures expected next year as adjustable rate mortgages blow up, "we will not recover from this economic mess unless we stop the catastrophic loss of people's homes."

UPDATE: The NPA group has outlined steps the Obama administration could do now, without needing new legislation, to reform its floundering HAMP program, but so far, Ryan-Murray reports, they  haven't done so. Maybe if Treasury Secretary Tim Geithner listened more to the message of the protesters in the streets of Chicago rather than chatting frequently with his informal inner circle of  Wall Street CEOs there might be more action along these lines:

Reform the Home Affordable Mortgage Program

 The Administrations foreclosure prevention program administered by the Treasury is proving to be too slow and too ineffective to have a real impact on the foreclosure crisis.  While the program is nearing the Treasury’s internal goal, there is no cause for celebration.  Less than 20% of homeowners who have requested help have been put in even a temporary modification.  On average servicers are offering trail modifications to only 16% of eligible homeowners.  And the numbers of those going into permanent modification to achieve a long-term solution are frightening – only 1%.  The HAMP program needs immediate improvement – families and neighborhoods are on the line.  

 

The Treasury Department Must Dramatically Improve HAMP

 ·      Servicers must be pressured to increase dramatically the number of permanent modifications being made

 ·      Treasury must mandate principal reduction as a primary tool to solve foreclosures, not just as a last resort.

 ·      HAMP cannot be a ‘one-strike’ program.  Families need the ability to reapply to the program if and when their situations change.

 ·      Treasury must make the HAMP process more transparent and implement a true appeals process so families in foreclosure can see how to qualify and have recourse if they are rejected by their servicer. 

 



 

Art Levine, a contributing editor of The Washington Monthly, has written for Mother Jones, The American Prospect, The New Republic, The Atlantic, Slate.com, Salon.com and numerous other publications.

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