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Wednesday, October 5, 2022

Beyond the Rhetoric: A Real Way To Save Our Mortgages

 

Harry C. Alford
Harry C. Alford

By Harry C. Alford

NNPA Columnist

It is now five years since the great financial crisis of 2008, which saw  housing markets plummet, the stock market swoon, and millions of Americans lose  their jobs in the wake of the recession that ensued.  While many sectors  have recovered – for example, the stock market has eclipsed pre-crisis levels  and we are once again creating new jobs, albeit at too slow a rate – one area  still lags woefully behind.  There are still tens of millions of homeowners  with underwater mortgages and millions of Americans struggling or unable to  afford the payments on their mortgage loans.  A very high number of them  are Black.

The effect is a drag on housing prices, neighborhoods pocketed by abandoned  homes and foreclosures, and consumers who can’t contribute to an economic  recovery by spending money on consumer goods, since they are burdened down by  mortgages they can’t afford.  America caught a cold and Black America  caught pneumonia.  In fact 34 percent of our total net worth evaporated  right before our eyes.

There are many factors that have contributed to this state of affairs.   Many of our largest mortgage servicers failed to even communicate with borrowers  who were unable to keep up on their mortgage payments, much less worked with  them to find ways to keep them in their homes.  The federal government set  up several programs to try to help distressed homeowners, but their impact has  been spotty, and few lenders have used them to reduce mortgage principal for  distressed, underwater borrowers to levels that are financially sustainable for  the homeowner.

An example of how the federal government has done some good, but not enough  is the Federal Housing Administration. The FHA, to its credit, has established  loan modification programs to help borrowers keep families in their homes by  modifying the payments to a level the homeowner can afford.  The FHA has  also required FHA servicers to explore whether borrowers are eligible for such  modifications.  FHA has even recognized that some servicers are not doing a  great job in helping defaulted FHA borrowers, and is exploring ways to put more  pressure on these servicers, including asking Congress for legal authority to  take servicing away from poor servicers.

Unfortunately, FHA has not taken the obvious step to make sure that all FHA  borrowers get a fair shake – by retaining qualified entities that do extensive  borrower outreach – actually going out to the homes and meeting with the  homeowner in person, to walk them through the process of seeing if  the  house can be saved.  FHA could quickly and easily test out the  effectiveness of such an approach by testing out a pilot program to do this for  50,000 to 100,000 defaulted FHA loans, to quickly determine its impact.

This is a practice that is commonly followed in the private sector.   Mortgage owners and private mortgage insurers of distressed mortgage loans are  hiring firms to do this “high touch” servicing and in-person borrower  outreach.  It is a win-win.  Reducing payments to an affordable level  can keep families in their home when otherwise foreclosure would be  inevitable.  This gives homeowners a fair second chance.

But it is also good for the owners of the mortgages.  The alternative –  foreclosure – is much more costly.  The lender recovers more from the  defaulted asset when the borrower can resume payments than it would ultimately  recover under foreclosure and the lender avoids the significant property  deterioration that commonly occurs during a long foreclosure period.

Of course, some homeowners will not qualify for a loan modification – for  some, there is no real way to keep them in the home.  But here again,  in-person outreach paves the way for a different type of win-win result, where  the  homeowner agrees to do a short sale, allowing the home to be sold at  the current market price.  This is much better for the homeowner’s credit  history than a foreclosure, and it provides a higher return for the owner of the  mortgage loan.

Finally, all this is better for our nation’s economy and our  neighborhoods.  These actions will address the backlog of defaulted homes  which are a drag on housing prices, alleviate the neighborhood deterioration  from having abandoned homes, and give homeowners a chance to get back on their  feet.  The housing crisis has been severe. Consequently, our actions to  address its impact must be equally strong.  It is without doubt that Black  homeowners were targeted with these sub-prime mortgages and the rules were  loosened to make a quick buck by mortgage brokers.  It became a dream  transformed into a night mare.  The suffering is more than a stock exchange  drop.  Real lives have been threaten or destroyed.  The cavalry did  not come for these victims.  Thus, we must come and save the American  Dream.

 Harry C. Alford is the co-founder, President/CEO of the National Black  Chamber of Commerce. 

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