Foreclosures continue to drag down our economy. The subprime lending boom – which particularly targeted communities of color for unaffordable home loans – was a leading cause of our national fiscal crisis. The resulting foreclosure epidemic has devastated families and neighborhoods. It continues to burden the housing market and limit the potential for economic recovery. In light of these facts, foreclosure prevention and mitigation is plainly a cost-effective investment that benefits all Americans.
Yet, not enough is being done to help prevent families from losing their homes unnecessarily. The Brennan Center and many others have documented the enormous hurdles that struggling homeowners face, especially when they don’t have access to a lawyer to help them. Horror stories abound of lenders losing homeowners’ documents, mishandling requests for assistance, or denying solutions without explanation. These bank practices are responsible for at least 800,000 unnecessary foreclosures, according to one new study.
This new analysis of the Home Affordable Modification Program (commonly known as HAMP), the Obama Administration’s main response to the foreclosure crisis, concludes that adequately staffed and trained bank offices should have provided an additional 800,000 loan modifications.
President Obama promised that HAMP would keep 3 to 4 million American families in their homes. The program is only on pace to record about 1.2 million modifications by year’s end. This new study (whose authors hail from the Federal Reserve Bank of Chicago, the Office of the Comptroller of the Currency, Ohio State University, Columbia Business School, and the University of Chicago) estimates that the failure of many of the nation’s largest loan servicers to administer HAMP effectively is part of the reason for that shortfall.
The report shows that there is a notable disparity in how loan servicers helped households in need. Some banks provided significant relief to homeowners, while others missed the mark. The authors take this as evidence that HAMP created adequate incentives to help homeowners. But they overlooked an important fact known to homeowners and their advocates: without meaningful government oversight or penalties, banks who failed to implement HAMP properly were left unaccountable when they failed to do the right thing for homeowners or communities.
When it comes to requiring such accountability, the most notable step federal and state governments have taken is entering into a $25 billion settlement with the nation’s five largest mortgage servicers over “robo-signing” and other unlawful foreclosure practices. Government negotiators promised that the settlement would transform how banks treat struggling homeowners—and in particular, set the stage for a greater investment in helping “underwater” homeowners (who owe their banks more than their homes are worth). But so far, as The New York Times editorialized recently, the results have been disappointing.
Once again, a measure announced with great promise threatens to leave too many homeowners in foreclosure, at great cost to America’s families and communities. The office that has been established to monitor the settlement agreement must ensure that these banks step up their efforts to help families save their homes. That includes demanding that banks release data on the race, ethnicity and neighborhood of borrowers being helped by the national mortgage settlement.
The foreclosure crisis hurts all Americans – but the burden is particularly severe in communities of color, which bore the brunt of predatory lending. The racism that infused the predatory lending boom has been well documented. Now, we need greater transparency and accountability to make sure these communities receive the assistance they need.
As President Obama told the Democratic National Convention last week, “when a family can no longer be tricked into signing a mortgage they can’t afford, that family is protected, but so is the value of other people’s homes, and so is the entire economy.” He is right: ending predatory lending and fighting foreclosure will lift up the nation’s economy and help us all.