Nearly a year into his tenure as director of the agency that oversees Fannie Mae and Freddie Mac, Mel Watt is being urged again to end the policy of prohibiting mortgage modifications that reduce the balance of principal. In a joint letter delivered today, more than 200 housing, community, labor, civil rights and consumer groups call on Watt to reverse the Federal Housing Finance Agency’s longstanding ban on principal reduction – a policy put in place by his predecessor.
“Many economists and experts on the housing and securities markets have argued for principal reduction as a key element in addressing the housing crisis,” the letter points out, noting that principal reduction still has the potential to play an important part in preventing foreclosures and stabilizing neighborhoods.
Despite widespread talk of a housing recovery, some 9.1 million households (about 17 percent of those with mortgages) owe more on their loans than the current value of their properties, according to the most recent RealtyTrac data. The proportion is far higher in parts of the country – 37 percent in Lakeland, Fla.; 35 percent in Las Vegas and Cleveland; 32 percent in Palm Bay-Melbourne-Titusville, Fla.; and 30 percent in Chicago.
It’s higher still among lower-wealth homeowners and in communities of color. Nationwide, 28.2 percent of the least expensive third of all mortgaged homes are underwater, compared to 15.8 percent of middle-third homes and 9.2 percent of top-third homes. And in two-thirds of the hardest-hit zip codes, African-Americans and Latinos account for at least half the residents.
Community leaders around the country are continuing to speak out on the importance of principal reduction in righting the balance for struggling homeowners and stabilizing hard-hit communities.
“Foreclosures devastate families and their communities,” said Staci Berger, president and chief executive officer of the Housing and Community Development Network of New Jersey. “In New Jersey, where we top the nation in foreclosures, the lack of counseling resources and limited principal reduction activity continues to hold our economy back.”
“I’ve paid for my home of 30 years five times over because I was the victim of a predatory loan. But Freddie Mac tried to evict me because Mel Watt won’t allow principal reduction,” said Jaymie Kelly of Occupy Our Homes Minnesota, who successfully fought off her eviction last year with the help of 200 community members. “I am not asking for that much. I’m asking for a negotiation at fair market value. And I’m not leaving.”
“Six years after the financial crisis, it’s well past time to help families with underwater mortgages – through principal reduction,” said LeeAnn Hall, executive director of the Seattle-based Alliance for a Just Society. “We have the tools. We know how to do it. The only thing missing is action. It’s time for FHFA to lead.”
“More than six years since Wall Street’s recklessness crashed the mortgage market, Black, Asian American, Latino, and working class communities continue to lose their homes and wealth,” said Ana Maria Archila, Co-Executive Director of the Center for Popular Democracy.
“It’s past time for Mel Watt, President Obama’s appointee to oversee much of the American housing market, to reverse a mean-spirited policy that wastes taxpayer dollars in order to needlessly drive families from their homes.”
“Principal reduction will revitalize communities, create sustainability and healthy lives while reducing homelessness in Chicago and nationwide,” said Bobbi Ball, Executive Director of Partners in Community Building, Inc. in Chicago.
“New York homeowners facing foreclosure deserve to have every option on the table to avoid losing their homes,” said Christie Peale, Executive Director of the Center for New York City Neighborhoods. “The ability to reduce the principal owed on mortgages is one of the most effective ways to do this. We are hopeful that Director Watt will reverse the decision to ban the use of principal reduction for mortgages guaranteed by Fannie Mae and Freddie Mac.”
“FHFA’s ongoing refusal to allow principal reductions has very real consequences for families,” said David Mandel of the Sacramento Foreclosure Action Team. “I’m reminded of a family of five, from Woodland, California, who were first-time homeowners and who had a reduction in their income. They lost their home because their lender refused to reduce principal on $268,000 loan. Their lenders later sold the same home to investors for $100,000 less. Many more families throughout California are still at risk unless FHFA and the big banks allow principal reductions now.”
“Principal reductions are critical to stabilization of impacted neighborhoods, thus reducing the disproportionate impact of foreclosures and foreclosure-related vacancies on African American and Latino homeowners and neighborhoods,” said Ruhi Maker, Senior Staff Attorney at the Empire Justice Center in Rochester, N.Y. “Banks and servicers would not be losing anything – rather, they would just be recognizing the lost value of their assets that had already occurred.”
“We worked with a 75-year-old widower whose income was greatly reduced when her husband passed away,” said Elaine Brooks-Cox, a housing counselor at Neighborhood Housing Services of Silicon Valley, in San Jose, California. “We were able to secure a principal reduction that allowed her to stay in her family home, keep paying her mortgage, and stay active in her community where she had lived for 19 years. This was a success story, and we know there are thousands of other potential success stories out there, but that requires FHFA to act now and allow principal reductions on Fannie and Freddie loans.”
“A husband and wife we worked with struggled to pay their mortgage because the husband was out of work on disability for six months,” said Carmel Crowther, another counselor at Neighborhood Housing Services. “With a modification that included a principal reduction the homeowners were able to stay in their home with a predictable mortgage payment they could afford. This was incredibly important for the family because it meant their 13 year old was able to stay in his school. Housing counselors know principal reductions work to keep people in their homes and stop foreclosures- now it’s time for Washington DC to act!”
“We urge Director Watt to stop this destructive policy that is stopping families from receiving sustainable loan modifications,” said Kevin Stein, Associate Director at the California Reinvestment Coalition. “This policy pushes families out of their homes and destabilizes communities. It also costs taxpayers money because of unnecessary foreclosures that are more expensive than offering sustainable modifications with principal reductions.”
“It is ironic that Fannie Mae and Freddie Mac were not the forerunners in programs established to preserve homeownership,” said Ben Garcia, Community Relations Manager at Inland Fair Housing and Mediation Board in southern California. “As GSEs they should have been the leaders of programs designed to promote sustainable home retention.”
“Regulators sat on the sidelines and watched as millions of homeowners had their homes and dreams foreclosed upon by lenders engaged in discriminatory and predatory lending,” said Sharon Kinlaw, executive director of the Fair Housing Council of San Fernando Valley. “For those still struggling to hold on, principal reductions are standing in between the homeowner and the auction block. Mel Watt needs to make a conscious and moral decision to allow principal reductions.”
“The principal reduction component is critical because most Americans bought into the American dream of home ownership blindly and faithfully,” said Patricia Gilmore-Watkins, Executive Director of Greater Kansas City Housing Information Center. “Then it quickly became an American nightmare as their homes lost value through no fault of theirs. PR will add to neighborhood stabilization, by renewing hope to the hopeless and allowing them to keep their homes, especially in the lower income communities.”
“Principal reduction is crucial to allowing our struggling communities, including hard-hit communities of color, to put the foreclosure crisis behind us,” said Rachel Goodman, Staff Attorney with the ACLU’s Racial Justice Program. “It will give families a chance to get back on their feet and our nation a chance to begin closing the racial wealth gap that has widened dramatically since that crisis begin.”