No More Excuses on Relief to American Homeowners

Read also: Home Opportunity Initiative

One by one, the excuses have fallen. Yet Edward DeMarco, acting head of FHFA, the agency that runs Fannie Mae and Freddie Mac, still fails to offer the most effective relief available to American homeowners struggling with mortgages held by those entities. Economists, housing experts, and members of DeMarco’s own staff have concluded that reducing to affordable levels the principal owed on at-risk mortgages is effective in reducing foreclosures and their destructive fallout. But, inexplicably, he’s been unmoved by the mounting evidence.

Two weeks ago, after hinting at a possible change of heart, DeMarco punted on the question, saying it needed more study and stating that such a policy question “should be determined by Congress.” But the evidence is too clear, and the stakes are too high, for further delay. It’s time for Mr. DeMarco to either act in the nation’s interest or get out of the way.

While many parts of our economy have gradually improved over the last several years, foreclosures are on the rise in regions around the country. The foreclosure data company RealtyTrac has predicted that one million American homes may enter foreclosure in 2012. An estimated 12 million Americans currently owe more on their mortgages than their homes are worth, meaning that millions more are at risk.

Fannie, Freddie, and DeMarco’s agency have an oversized role to play in addressing the crisis, since the entities are assumed to own or back roughly 3.3 million underwater mortgages and help set trends in the larger market. By including principal reduction among the tools they use, they could help millions of Americans save their homes while making sustainable payments toward the actual value of their property.

The American people essentially own Fannie and Freddie after a $150 billion bailout. Even before that, the entities were tasked with providing stability and affordability to the nation's mortgage finance market. FHFA’s mission similarly includes supporting housing finance, affordable housing, and a stable and liquid mortgage market, as well as promoting Fannie and Freddie’s safety and soundness.

The calls for principal reduction are growing louder, with evidence increasingly demonstrating that those interests all point toward principal reduction. It results in fewer foreclosures, as compared with alternatives like loan forbearance (delaying loan obligations) that FHFA has authorized. In addition to the obvious benefits to struggling homeowners, reducing foreclosures improves neighborhood home values, prevents abandoned and blighted properties, and saves cash-strapped municipalities the costs of upkeep and enforcement.

Many private lenders have been reducing principal obligations on their own, recognizing it’s often the best way for them to recoup their investment. Moreover, the strategy was a significant part of the Attorneys General settlement over “robo-signing” and related bank misconduct.

Reports have emerged that even FHFA’s own internal analyses show principal reduction is in the interest of both underwater homeowners and Fannie and Freddie. Documents recently obtained by the Congressional Progressive Caucus reportedly show that DeMarco’s agency studied the question in 2009, decided it was worth trying, worked with a major lender to develop a detailed pilot, and then abruptly canceled it in July of 2010 for what the Caucus says were ideological reasons.

To be sure, principal reduction is not a silver bullet. A range of aggressive solutions are necessary to address America’s foreclosure crisis, restore ravaged neighborhoods, and put our national economy back on track. Indeed, a coalition of housing and public interest groups that includes The Opportunity Agenda, National Council of La Raza, and the National Fair Housing Alliance has released a Compact for Home Opportunity highlighting over a dozen actions that government, private industry, and individuals can take to turn things around.

Principal reduction may be only one of those actions. But it’s an important one. With a million American homes at risk of foreclosure, the time for action is now.

Obama’s Wrong Note on Foreclosures

As Election Day nears, President Obama is regaining his populist mojo. His State of the Union speech was mostly pitch perfect, evoking core American themes of opportunity and optimism, and calling for “an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules.”

But the President has repeatedly hit a wrong note in talking about the foreclosure crisis. Not only is his story inaccurate, but he is promoting a harmful narrative that will make it harder to fix the problem.

The President said in his State of the Union address that “we’ve all paid the price for lenders who sold mortgages to people who couldn’t afford them and buyers who knew they couldn’t afford them.” He repeated that theme a week later at a speech in Falls Church, VA, contending that people who did the “right and the responsible thing” were hurt by “lenders who sold loans to people who they knew couldn’t afford the mortgages; and buyers who bought homes they knew they couldn’t afford; and banks that packaged those mortgages up and traded them to reap phantom profits, knowing that they were building a house of cards.”

According to the President’s narrative, then, large numbers of Americans who are struggling beneath unsustainable mortgages willfully chose that fate and deserve roughly equal blame as do the lending and financial giants who cooked up the subprime scheme, targeted vulnerable communities, engaged in deceptive and discriminatory practices, chopped up and distributed faulty loans, and forced fraudulent foreclosures. A different class of “innocent, hard-working” people are the only ones paying the price in this narrative.

Let’s be clear. The foreclosure crisis was caused by reckless misconduct by the lending and financial industries, inadequate rules and enforcement, and staggering long-term unemployment. America’s long history of overwhelmingly successful homeownership went to pot because regulators looked the other way and unscrupulous corporations took advantage, not because working Americans suddenly became wildly irresponsible. Indeed, conscientious lenders like Self-Help Credit Union in North Carolina successfully made loans to the same group of working Americans over the same period with negligible default rates.

Am I saying that no American homeowner ever applied for a mortgage without a realistic plan to repay it? Of course not. A key purpose of proper underwriting standards and regulations is to help lenders and buyers determine what’s mutually sustainable. But to divide American homeowners into “responsible” ones who’ve managed to stay current on their payments and supposedly “irresponsible” ones who’ve fallen behind is inaccurate and harmful.

After confessing that he and the First Lady—two Harvard-trained lawyers—had trouble deciphering their own first mortgage, the President has nonetheless failed to convey how many Americans were victimized by deceptive and predatory practices; how many families sacrificed all to pay the mortgage after one or both parents lost a job; and how many people facing foreclosure today would be successful homeowners if fair rules and vigilant regulators had been in place. He also leaves out how much each of us benefits when we help our neighbors avoid foreclosure, even if we’ve personally managed to stay current on our own mortgages.

The President’s flawed story erodes the public will to aid struggling homeowners and bolsters those who say that the foreclosure crisis should be allowed to “run its course”—why rally to help people you’ve told us are irresponsible? Yet, without a more ambitious policy agenda than we have now, we’ll see millions more Americans lose their economic security, families uprooted from schools and communities, senior citizens thrown into uncertainty or destitution, and the economy in continued chaos.

The President’s current story is also deepening the feelings of shame that keep too many Americans from seeking the advice that could help them save their homes or, at least, make a successful transition. Housing counselors say the stigma attached to foreclosure keeps many people in the shadows instead of accessing the services that exist. It doesn’t help when the Commander in Chief labels them irresponsible.

It’s time for a new, accurate story about homeownership, opportunity, and the American Dream. It’s a story that places blame where it belongs while recognizing that we each have economic and moral responsibilities. It’s a story about the solutions to the crisis that exist, including many that the Administration can take without any action from Congress. And it’s a story about why, in this crisis as in so many others, we are all in it together. As communicator-in-chief, the President should take the lead in telling that story.

Read also:

He Doesn’t Feel Our Pain

After listening to the President’s State of the Union address I couldn’t help but to feel a sense of loss. I understand that this was a political speech in a lot of ways and will surely be the kick-off speech to his 2012 run for re-election, but with all of its platitudes and feel good rhetoric there was something missing. Could it have been that unemployment was not mentioned? Or that the poor and the middle-class were conspicuously absent? I don’t know about the state of your union, but in my union these issues are still alive and well. I have yet to hear this President connect to the pain that so many Americans are suffering from, especially black Americans.

One of the troubling aspects of the speech was how the President basically threw American manufacturing under the bus as a consequence of globalization. He stated that the American worker had to raise their game to compete for the future. That’s funny everything I read says that the American worker is one of the most productive workers in the world. Maybe instead of prodding the worker the President should have mentioned how the worker’s boss’ have outsourced all of their jobs overseas as China’s and India’s economies are the fastest growing in the world because they are making the things we used to make. The challenge should not have been that we have to give up manufacturing to these other nations but how American manufacturing can return and compete against these other nations.

This speech is named the state of the union for a reason; instead we got the state of globalization. The President should have been imploring this nation to support and rebuild our manufacturing base and buying our products. I don’t understand how promoting one’s own nation today is now considered un-American. I guess that’s because it is no longer what is good for America it is what is good for America’s multinationals. The truth be told as we found out during the gilded age is that what is good for Standard Oil is not always what’s good for America. I know there are those who will defend this President no matter what he says and does and I understand their fierce loyalty, but this is not about personality it should be about principles.

My fear is that in an attempt to appease the wing-nuts this administration is going to cave in some form on Social Security. We will either raise the retirement age or cut some benefits to show their seriousness in cutting the deficit. What is not being discussed is that Social Security was created by taxes that we all pay throughout our working lives for the benefits we receive. This isn’t some government give away where we take general tax dollars to support the weak, aged, and affirmed. There are less draconian ways to shore up Social Security but none of this is being mentioned or even part of the discussions. The problem with negotiating with folks who want to destroy what you are negotiating is that their aim is not to salvage it but to undermine it. I think Congressman Ryan made that point crystal clear last night.

This is a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency. - Paul Ryan's remarks

So on the one hand we have the President telling American workers they have to stop whining and on the other hand we have the wing-nuts telling the American workers that they are lazy and complacent. I don’t know about you but my answer to Republicanism is not Republican lite. Just once I would like this President to speak to the pain of those folks on Main Street as eloquently as he spoke to the folks in Tucson. He should give a voice to the voiceless instead of vocalizing the talking points of the opposition. I am not naïve to the process of negotiation and it is important to throw meat to the opposition to appear open to compromise, but what has been missing from this equation is the suffering of the poor and the middle-class and the enunciation of their concerns.

Last night the President spoke to Wall Street and the business communities letting them know loud and clear that this administration is open for business. The problem with this is that they aren’t the ones suffering. The Dow is approaching 12,000, the banks are sitting on boat loads of cash, and businesses are doing likewise. These folks need signals like the millionaires and billionaires need a tax-cut. The message the President should be sending is to Main Street that this administration is serious about creating equal opportunity and securing workers rights. The problem is not the American worker it is the greed of the American corporation.

“What does labor want? We want more schoolhouses and less jails; more books and less arsenals; more learning and less vice; more leisure and less greed; more justice and less revenge; in fact, more of the opportunities to cultivate our better natures,” - Samuel Gompers (1st President of AFL-CIO)

The Disputed Truth

He Doesn’t Feel Our Pain

After listening to the President’s State of the Union address I couldn’t help but to feel a sense of loss. I understand that this was a political speech in a lot of ways and will surely be the kick-off speech to his 2012 run for re-election, but with all of its platitudes and feel good rhetoric there was something missing. Could it have been that unemployment was not mentioned? Or that the poor and the middle-class were conspicuously absent? I don’t know about the state of your union, but in my union these issues are still alive and well. I have yet to hear this President connect to the pain that so many Americans are suffering from, especially black Americans.

One of the troubling aspects of the speech was how the President basically threw American manufacturing under the bus as a consequence of globalization. He stated that the American worker had to raise their game to compete for the future. That’s funny everything I read says that the American worker is one of the most productive workers in the world. Maybe instead of prodding the worker the President should have mentioned how the worker’s boss’ have outsourced all of their jobs overseas as China’s and India’s economies are the fastest growing in the world because they are making the things we used to make. The challenge should not have been that we have to give up manufacturing to these other nations but how American manufacturing can return and compete against these other nations.

This speech is named the state of the union for a reason; instead we got the state of globalization. The President should have been imploring this nation to support and rebuild our manufacturing base and buying our products. I don’t understand how promoting one’s own nation today is now considered un-American. I guess that’s because it is no longer what is good for America it is what is good for America’s multinationals. The truth be told as we found out during the gilded age is that what is good for Standard Oil is not always what’s good for America. I know there are those who will defend this President no matter what he says and does and I understand their fierce loyalty, but this is not about personality it should be about principles.

My fear is that in an attempt to appease the wing-nuts this administration is going to cave in some form on Social Security. We will either raise the retirement age or cut some benefits to show their seriousness in cutting the deficit. What is not being discussed is that Social Security was created by taxes that we all pay throughout our working lives for the benefits we receive. This isn’t some government give away where we take general tax dollars to support the weak, aged, and affirmed. There are less draconian ways to shore up Social Security but none of this is being mentioned or even part of the discussions. The problem with negotiating with folks who want to destroy what you are negotiating is that their aim is not to salvage it but to undermine it. I think Congressman Ryan made that point crystal clear last night.

This is a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency. - Paul Ryan's remarks

So on the one hand we have the President telling American workers they have to stop whining and on the other hand we have the wing-nuts telling the American workers that they are lazy and complacent. I don’t know about you but my answer to Republicanism is not Republican lite. Just once I would like this President to speak to the pain of those folks on Main Street as eloquently as he spoke to the folks in Tucson. He should give a voice to the voiceless instead of vocalizing the talking points of the opposition. I am not naïve to the process of negotiation and it is important to throw meat to the opposition to appear open to compromise, but what has been missing from this equation is the suffering of the poor and the middle-class and the enunciation of their concerns.

Last night the President spoke to Wall Street and the business communities letting them know loud and clear that this administration is open for business. The problem with this is that they aren’t the ones suffering. The Dow is approaching 12,000, the banks are sitting on boat loads of cash, and businesses are doing likewise. These folks need signals like the millionaires and billionaires need a tax-cut. The message the President should be sending is to Main Street that this administration is serious about creating equal opportunity and securing workers rights. The problem is not the American worker it is the greed of the American corporation.

“What does labor want? We want more schoolhouses and less jails; more books and less arsenals; more learning and less vice; more leisure and less greed; more justice and less revenge; in fact, more of the opportunities to cultivate our better natures,” - Samuel Gompers (1st President of AFL-CIO)

The Disputed Truth

State of the Union - GOP Response(s)

Even More Silly Party Bachmann Response: The tyranny of lightbulbs!  Stop telling us which lightbulbs to buy!  Unless we repeal health care, we won't be able to keep the status quo!  Turn back 132 regulations that will cost $100 million or more, also, again, repeal Obamacare.  Something about miracles and "maintenance of liberties" through angry letters to the editor.

Silly Party GOP Response: Paul "Roadmap" Ryan is up. Crushing burden of debt, eclipsing economy, catastrophic future.  Talking about debt or The Rapture?  Health care costs are going up, so we should repeal everything.  Bankruptcy!  Republicans pledge to do [something, we'll get back to you] responsibly.  We risk "transforming our safety net into a hammock."  His roadmap would turn it into a wet Kleenex.  Post Ryan, Wolf Blitzer is noticeably giddy over Bachmann response.

10:18: Have to confess, Twitter distracted me.  How did it end?  Did Climate Change even get a mention? 

9:59: Still "building a partnership" in Afghanistan, troops out next July.  Revitalizing NATO.  "America's standing is restored..." declaration begs a few questions.  DADT, "No American will be forbidden from serving the country they love, because of who they love."

9:51: Spending.  "We have to stop pretending cutting this type of spending alone will be enough.  It won't."  Before we take money from schools, "ask millionaires to give up their tax breaks."  Rough budget mentions: cut military spending by 1/2, raise taxes on top 2%, close tax loopholes.  No big applause for five year spending freeze.  POTUS cracks a smoked salmon joke.

9:45: Health Care. "You have ideas?  I'm eager to work with you."  Start with 1099.  "Not willing to go back to denials for pre-existing conditions. Fix what needs fixing, and move forward."  W/that, President now looks reasonable, GOP petulant. 

9:40: Infrastructure, education, tax reform... global trade agreements?  The WTF moment of the speech.

9:35: "Ended unwarranted taxpayer subsidies to banks." But gave them everything else they wanted.  Yay, taxpayers!

9:30: Revisiting clean energy pledges/phrases from the 2008 SOTU.  After two years of talk, little progress, plays more like closure on 2008 excitement than a renewed commitment.

9:24: "Invest" is the new "Stimulus."  Finally getting the messaging right.  "This is our Sputnik moment" will be the line of this speech in tomorrow's headlines.

9:22: And there it is, "Take responsibility for our deficit."  Let's leave it at that for now, Mr. President.  (See, jobs)

9:20: Obama striving for a positive tone, American innovation, education, jobs... Yeah, jobs. 

9:12: "Mindful of the empty chair." Giffords tribute.  "Recognition won't usher in a new era of cooperation."  I think Boehner visibly winced when POTUS reminds governing now a "shared responsibility."

I'll be quasi-live blogging the speech here.  WaPo has the full text.

The Sunlight Foundation is covering the speeches "with context" via Sunlight Live, check it out.  Slate has the seating chart.

Consider this an open thread.

 

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