Unfinished Business

How to Fix the Housing Market

The New York Times breaks down why the federal government’s foreclosure prevention isn’t working:

Since the problems in housing are not self-curing, a government fix is in order. But the Obama administration’s main antiforeclosure effort has fallen far short of its goal to modify three million to four million troubled loans.

Its basic flaw is that participation by the banks is voluntary. Most have joined the program but face no real pressure to meet its goals. Another big problem is that banks often do not own the troubled loans; rather, they service the loans for investors who own them. As servicers — in charge of collecting payments and managing defaults — banks can make more from fees and charges on defaulted loans than on modifications. Not surprisingly, defaults proceed and modifications lag. Banks win. Homeowners and investors lose. The economy suffers.

It is hard to underestimate just how devastating the collapse of the housing market really was, especially for low-income and minority homeowners who are bearing a disproportionate share of the burden.

A 2008 report by the United for a Fair Economy found that Black and Latino families lost between $164 billon and $213 billion as a result of foreclosures.  The Center for Responsible Lending found that between 2009 and 2012, African-American and Latino communities will lose $194 billion and $177 billion, respectively, as a result of depreciated property values alone.

So, yea, it’s hard to understand why the federal response continues to be so inadequate.  It’s not like the civil rights community and others didn’t say stuff like:

“As a steady stream of information about growing foreclosures and softening property values continues to flow in, and with growing uncertainties about our economy, it is clear that Congress must take a swift, pragmatic, multifaceted approach to restore homeowner confidence and preserve the communities that we have all worked so hard to develop.”

That was Wade Henderson, president and CEO of our sister organization, The Leadership Conference on Civil and Human Rights before the full Senate Banking Committee in January 2008.

Or take Michael Calhoun of the Center for Responsible Lending, who said in November 2009: “Lenders have insisted for almost three years now that they will voluntarily address the foreclosure crisis, but the record shows they’ve made too few long-term modifications.”

And yet, two years later, Neil Barofsky, the head of TARP, tells Congress that the foreclosure prevention program “has been beset by problems from the outset and, despite frequent retooling, continues to fall dramatically short of any meaningful standard of success.”

We gotta do better.

The country has many things that need to be addressed – education reform, crumbling infrastructure, criminal justice – but the foreclosure crisis is just as important.  The truth is that the economy collapsed because the housing bubble burst.  Addressing the foreclosure crisis in a big, comprehensive way would help millions of families, but it would also go a long way toward rebuilding the economy.