Help for Homeowners Behind on Mortgage

The U.S. Department of Housing and Urban Development (HUD) has a new program to help homeowners prevent foreclosure. The Emergency Homeowners’ Loan Program (EHLP) provides mortgage payment assistance to eligible homeowners who have lost a job or are underemployed due to the economy or a medical condition resulting in a drop in income of at least 15%.

The mortgage assistance covers past-due mortgage payments, as well as a portion of the homeowner’s mortgage payment for up to 24 months (up to $50,000). The application deadline is July 22, 2011.

Interested homeowners can find more information by visiting http://www.findEHLP.org or by calling the toll-free EHLP hotline at 855-346-3345.

Collapse of Housing Market, Capturing New Markets, Overcoming Barriers to Career Success Focus of June 27 Economic Perspectives

 7 a.m. (Special edition of EP)

Gretchen Morgenson and Joshua Rossner, authors of Reckless Endangerment: How Outsized Greed, Ambition, and Corruption Led to Economic Armageddon – Morgenson, a Pulitzer prize winning New York Times business reporter and Rossner, a housing expert, trace the collapse of the housing market to the aggressive underwriting and greed of Fannie Mae executives.

 

 

 

5:30 p.m. – 6 p.m.

Stephen Wunker, author of Capturing New Markets: How Smart Companies Create Opportunities Others Don’t –  Wunker, a former strategy consultant and veteran of numerous start-ups including the first mobile internet device marketed outside of Japan, shares the key strategies for assessing new markets, shaping their formation, and profiting from their expansion.

 

Thomas DeLong, author of Flying Without a Net: Turn Fear of Change into Fuel for Success – DeLong, a professor of management practice at the Harvard Business School, illuminates the behaviors and strategies for overcoming them that high achieving professionals engage in that can stall or wreck their careers

Listen live online at kazifm.org.  If you would like to be automatically notified by email when new posts are added to the Economic Perspectives Blog go to econpers.com and click on subscribe at the very top of the web page.

The Challenges Facing Fannie Mae and Freddie Mac Focus of April 25 Economic Perspectives

Stijn Van Nieuwerburgh, co-author of Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance will be a guest on Economic Perspectives today at 5:30 p.m. central time. Stacy Dukes-Rhone, executive director of BiGAustin, will also be a guest and will discuss BiG Idea Day which is on April 29. Listen live online at kazifm.org.

Guaranteed to Fail opines how “poorly designed government guarantees” for Fannie Mae and Freddie Mac led to the debacle of mortgage finance in the United States, weighs different reform proposals, and provides recommendations. This book unravels the dizzyingly immense, highly interconnected businesses of Fannie and Freddie. It proposes a model of reform that emphasizes public-private partnership, one that can serve as a blueprint for better organizing and managing government-sponsored enterprises like Fannie Mae and Freddie Mac. In doing so, Guaranteed to Fail strikes a cautionary note about excessive government intervention in markets.

Congressional Oversight Panel Evaluates Progress of TARP Foreclosure Mitigation Programs

The Congressional Oversight Panel released its  oversight report, “Evaluating Progress of TARP Foreclosure Mitigation Programs,” on April 14.  The Panel commended recent changes to the mortgage modification program designed to reach more homeowners, but found that Treasury is still struggling to get its foreclosure programs off the ground even as the crisis continues unabated.

Elizabeth Warren, Chair, Congressional Oversight Panel

Since the Panel’s last examination of foreclosure mitigation efforts in October 2009, Treasury has taken steps to address concerns that the Home Affordable Modification Program (HAMP) did not adequately address foreclosures caused by unemployment or negative equity, including by establishing a voluntary principal reduction program. Despite these and other efforts, foreclosures continue at a rapid pace. In 2009, 2.8 million homeowners received a foreclosure notice, and nearly one in four homeowners with a mortgage currently has negative equity. While housing prices have begun to stabilize in many regions, home values in several metropolitan areas continue to fall sharply.

The Panel found that “Treasury’s response continues to lag well behind the pace of the crisis” and that, even when HAMP is fully operational, they “will not reach the overwhelming majority of homeowners in trouble.” The report raises three specific concerns with Treasury’s foreclosure programs:

Timeliness. Since early 2009, Treasury has initiated half a dozen foreclosure mitigation programs, gradually ramping up the incentives for participation by borrowers, lenders, and servicers. Although Treasury should be commended for trying new approaches, its pattern of providing ever more generous incentives might backfire, as lenders and servicers might opt to delay modifications in hopes of eventually receiving a better deal.

Sustainability. Although HAMP modifications reduce a homeowner’s mortgage payments, many borrowers continue to experience severe financial strain. HAMP typically does not reduce the total principal balance of a mortgage, meaning that a borrower who was underwater before receiving a HAMP modification will likely remain underwater afterward. Many borrowers will eventually redefault and face foreclosure. Redefaults signal the worst form of failure of the HAMP program: billions of taxpayer dollars will have been spent to delay rather than prevent foreclosures.

Accountability. The Panel is concerned that the sum total of announced funding for Treasury’s individual foreclosure programs exceeds the total amount set aside for foreclosure prevention. Treasury must be clearer about how much taxpayer money it intends to spend. Additionally, it must thoroughly monitor the activities of participating lenders and servicers, audit them, and enforce program rules with strong penalties for failure to follow the requirements.

The full report is available at cop.senate.gov.

The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are: former Securities and Exchange Commissioner Paul S. Atkins; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.

Nonprofit That Helps Low Income Families with Housing and Financial Management Focus of March 1 Economic Perspectives

Walter Moreau, executive director of Foundation Communities, will be the March 1 guest on Economic Perspectives on KAZI 88.7 FM, 5:30 p.m. – 6 p.m. central time.  Listen to the interview live online at kazifm.org.  Foundation Communities is an Austin nonprofit organization which creates and manages affordable for low income families.  It provides a wide variety of services to the residents of its housing and other low income families to help break the cycle of poverty.  With real estate holdings valued at $67 million and a $4 million capital fund, it is one of the 10 largest nonprofits in Austin.

The support programs operated by Foundation Communities include:

Walter Moreau

• Community Learning Centers, located right in the center of its housing communities, which are open daytime and evenings providing free services includings computer lab, pre-school classes, after-school programs, teen clubs and ESL classes,
• Free tax preparation for low income families in Austin through its Community Tax Centers which prepare 17,000 tax returns annually,
• Financial literacy education and support including matched savings accounts, and financial coaching.

Moreau has a Masters Degree in Public Administration from the LBJ School of Public Affairs at the University of Texas at Austin.  During his 20-year career, he has secured subsidy financing of more than $100 million to create more than 2,400 units of service-enriched, nonprofit-owned affordable housing.

Financial Services Committee to Consider the Future of Housing Finance

The U.S. House of Representatives Financial Services Committee Chairman Barney Frank (D-MA) announced the

Rep. Barney Frank

committee will hold a hearing on March 2 to begin the process of considering the future of housing finance.  The hearing will focus on all the private and public entities that support the mortgage market, which include the Federal Housing Administration, Ginnie Mae, Fannie Mae, Freddie Mac, Federal Home Loan Banks, and private lenders and securitizers. It is the first step in a legislative process to determine the future of housing finance and the federal government’s role in responsible homeownership and the supply of affordable rental housing. Chairman Frank has invited Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan to present the Administration’s perspective, as well as representatives of the advocacy community, academia, and industry to present their ideas on the future of housing finance.  Witnesses will be announced at a later date.

NY Times Economics Reporter to Discuss Life Inside the Great Mortgage Meltdown on KAZI News Magazine June 28

Edmund Andrews, economics reporter for the New York Times and author of Busted: Life Inside the Great Mortgage Meltdown will be interviewed on KAZI News Magazine Sunday on June 28, 1 p.m. – 1:30 p.m. on KAZI 88.7 FM.  Busted weaves together the author’s own ride to the edge of bankruptcy with the tragicomic stories of his lenders, the Wall Street pros behind them, and the policymakers in Washington who were oblivious until it was too late.  TO LISTEN TO THIS INTERVIEW CLICK HERE: Edmund Andrews Interview

In a startling confession in his book, Andrews admits that while in the midst of an interview with former Federal Reserve System chairman Alan Greenspan about the causes of the mortgage meltdown, he felt “an irresistible urge to spill my guts.”

The story takes Andrews to the offices of Alan Greenspan, the mansions of subprime-mortgage millionaires in southern California, a despondent deal makers’ convention in Las Vegas, and Wall Street.

Andrews has been a reporter for the Hew York Times for 16 years.

Needed for America: A New Commitment to National Financial Literacy

Enclosed is an excerpt from testimony given on May 13, 2009 by Susan Keating, president and CEO of the National Foundation for Credit Counseling to the U.S. House of Representatives Committee on Financial Services Subcommittee on Housing and Community Opportunity calling for increased congressional support of financial literacy.

…Today, we are focused largely on damage control. But looking beyond the current crisis, the NFCC feels strongly that we need to do a better job of preventing personal financial problems through financial literacy programs that provide consumers with basic money management skills and the financial know-how to take charge of their personal finances and use credit responsibly. While good money management cannot offset the impact of external events such as losing a job or a costly health problem, it can help consumers to better weather economic ups and downs and enable them to avoid the types of financial mistakes that lead to mortgage defaults, bankruptcy, and general problems with credit. Better outcomes for individuals and families will collectively add strength to our national economy. 

Susan Keating

A recent Wall Street Journal article speculated that people tend to think they understand money because they’ve been handling it since grade school. “More likely,” the Journal added, “they have a basic understanding of spending, which is why so many households are in such dire straits these days.”

 Whatever the reason, it is clear to us, from both our counseling experience and the NFCC’s Financial Literacy Survey, that too many Americans lack the financial skills they need and too few are stepping forward to get help. 

For example, our recent Financial Literacy Survey found that 41 percent of Americans grade themselves as a C, D, or F on personal financial knowledge; only 42 percent keep close track of their spending; and more than quarter say they do not pay their bills on time. As noted earlier, 28 percent of mortgage holders admit that their mortgages have turned out to be different than expected when they took out the loan. Numbers like these scream of the need for better financial education.

Toward that end, the NFCC believes that basic finance and money management should become a mandatory part of the standard school curricula in every state. Surveys show that financially literate consumers are more likely to make their loan payments on time and less likely to default. That should be a powerful incentive to everyone, especially creditors, to promote financial education. At a time when lenders are trying to reduce their risk, it is a good time for them to promote proven risk-reduction strategies such as financial education by offering incentives such as better credit terms to consumers who have completed such programs. Consumers, too, would certainly avoid problems if they took part in financial education before their finances deteriorated.

A number of organizations, including the NFCC, have been working on financial literacy for some time. Collectively, we’ve developed effective and relevant course materials and other education tools. What we don’t have is a true national strategy or a national delivery system. If we are serious about financial education, we need to provide consumers as well as lenders and other third-parties involved with incentives to attend classes, secure funding to support education services, and also find a way to measure results so we know what works and what doesn’t.

We are further convinced that the federal government can and must provide leadership in this area. Both Congress and the President support legislation to extend consumer protection by requiring new disclosure requirements for credit cards and restricting some practices that have made it easier for consumers to accumulate excessive debt and harder to pay it back. But no legislation can do more for consumers than they are willing to do for themselves. That is why we feel so strongly about financial education. Ultimately, financial education IS consumer protection, and it must be a priority.

To read the entire tesimony click here.

The Bank Regulator’s View of the Mortgage Crisis and the Community Reinvestment Act

Barry Wides, Deputy Comptroller for Community Affairs for the Office of the Comptroller of the Currency (OCC) will discuss the erroneous connection that has been made between the mortgage crisis and the Community Renivestment Act (CRA) on the May 18 edition of Economic Perspectives, 5:30 p.m. – 6 p.m. on KAZI 88.7 FM.  Enclosed below are selected excerpts from a statement on the mortgage crisis and CRA given by Deputy Comptroller Wides at the public briefing of the United States Commission on Civil Rights on March 20, 2009.

…Let me start off by assuring you, unequivocally, that CRA is not the culprit behind the abuses in subprime mortgage lending nor the broader credit quality issues in the marketplace, as some have suggested. CRA lending and investment has been responsibly underwritten and conducted in a safe and sound manner. The CRA was enacted by Congress in 1977 to encourage banks and thrifts to increase their lending and services to low- and moderate-income persons and areas in their communities consistent with safe and sound banking.  It also requires the federal financial supervisory agencies to assess the record of each covered institution in helping to meet the credit needs of its entire community, including low- and moderate-income individuals and neighborhoods.

Barry Wides

The CRA applies only to banks and savings associations whose deposits are insured by the Federal Deposit Insurance Corporation. Affiliates of insured depositories that are not themselves insured depository institutions are not directly subject to the CRA, nor are credit unions or independent mortgage companies. ..

There has been much public discussion over the past several months concerning whether CRA may have contributed to the mortgage crisis. This discussion has focused on the connection between CRA-related lending to low- and moderate-income borrowers and what some allege to be a disproportionate representation in failing subprime loans.

The OCC and other Federal banking regulatory agencies have been looking at this question in some detail, and all four agencies have concluded that CRA was not responsible for the current mortgage crisis. 3 In analyzing independent studies and comprehensive home lending data sets, we have concluded that only a small portion of subprime mortgage originations are related to the CRA.

CRA-related loans appear to perform comparable to or better than other types of subprime loans. For example, single-family CRA-related mortgages offered in conjunction with NeighborWorks organizations have performed on par with standard conventional mortgages.  Foreclosure rates within the NeighborWorks network were just 0.21 percent in the second quarter of 2008, compared to 4.26 percent of subprime loans and 0.61 percent for conventional conforming mortgages. Similar conclusions were reached in a study by the University of North Carolina’s Center for Community Capital, which indicates that high-cost subprime mortgage borrowers default at much higher rates than those who take out loans made for CRA purposes.  Overwhelmingly, CRA lending has been safe and sound.

The Federal Reserve Board (FRB) has reported extensively on these findings for all CRA loans. A FRB study of 2005 – 2006 Home Mortgage Disclosure Act data showed that banks subject to CRA and their affiliates originated or purchased only six percent of the reported higher-priced loans made to lower-income borrowers within their CRA assessment areas.6 The FRB also found that less than 2 percent of the higher-priced and CRA credit-eligible mortgage originations sold by independent mortgage companies in 2006 were purchased by CRA-covered institutions. FRB loan data analysis also found that 60 percent of higher-priced loan originations went to middle- or higher-income borrowers or neighborhoods and, further, that more than 20 percent of the higher-priced loans extended to lower-income borrowers or borrowers in lower-income areas were made by independent non-bank institutions that are not covered by CRA.

OCC analysis of the lending of banks that we regulate also confirms that the vast majority of subprime loans were not originated by national banks supervised by the OCC. In 2006, subprime lending by national banks amounted roughly to 10 percent of the total of subprime mortgage originations by all lenders.8 Further, our analysis also shows that subprime and Alt-A loans originated by national banks defaulted at a lower rate than those originated by non-bank lenders.9 Our analysis compared the foreclosure start rates for loans originated between 2005 and 2007 that were placed in subprime and Alt-A securities. The loans originated by OCC-regulated institutions defaulted at roughly two-thirds the rate of comparable loans originated by non-bank lenders.

In conclusion, I want to reiterate my belief that CRA has made a positive contribution to community revitalization across the country and has generally encouraged sound community development lending, investment, and service initiatives by regulated banking organizations. Only a small percentage of higher priced loans were originated by CRA-regulated lenders to either lower-income borrowers or in neighborhoods in the banks’ CRA assessment areas. Similarly, banks purchased only a small percentage of higher-priced, CRA-eligible loans originated by independent mortgage companies. Finally, the performance of higher-cost loans originated by national banks is markedly better than loans originated by non-bank institutions…

For the full text of the statement click here.

The Community Reinvestment Act Did Not Cause the Subprime Mortgage Meltdown

By Hopeton Hay

With the crisis in the American banking and finance system, there is a growing chorus of voices attempting to lay some of the blame for the subprime mortgage meltdown at the feet of the Community Reinvestment Act (CRA) and efforts to promote homeownership for low income and minority families.  Last October in a column on the financial crisis called The Roots of Our Disaster in the Austin American Statesman, columnist Scott Burns referred to the Community Reinvestment Act as one of the “Four Horseman of Our Apocalypse.”   He blamed “innovations to mortgages to comply with CRA” charging that it forced “the institutional reduction of lending standards.”

Hopeton Hay

Others have argued that the efforts by Congress, the U.S. Department of Housing and Urban Development (HUD), Fannie Mae, and others to increase homeownership in low income and minority communities played a significant role in the subprime mortgage debacle.  At the same time however, CRA advocates expressed strong concern about the growth of subprime lending in low income and minority communities

If CRA and promoting increased homeownership in the minority community played major role in the subprime disaster, why did that occur now?  CRA has been around since 1977, enforced in earnest since 1989, and enjoyed unprecedented federal support during the Clinton Administration. It was in 1989 that Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), which amended the CRA, giving it more teeth, and required collection of data on home loans by race.  In 1994 HUD launched the National Homeownership Strategy. 

When one reviews the rules of CRA and the concerns expressed by CRA advocates with subprime mortgage lending to minorities it renders those arguments baseless.

So what is CRA and does it require financial institutions to loosen underwriting standards loans to comply?  According to the Community Reinvestment Act and Interstate Deposit Production Regulations, CRA requires federal financial supervisory agencies “to assess an institution’s record of helping to meet the credit needs of the local communities in which the institution is chartered, consistent with the safe and sound operation of the institution, and to take this record into account in the agency’s evaluation of an application for a deposit facility by the institution.”

Well the first thing of note is that CRA applies to depository institutions. According to testimony on CRA provided to the U.S. House of Representatives Financial Services Committee on February 8, 2008 by University of Michigan Law Professor Michael Barr, more than half the subprime mortgages were originated by independent mortgage companies in 2005.  That is half the subprime mortgages were made by lenders not being examined for compliance to CRA. 

The second important fact from the CRA rules is the expectation that credit needs are met in a safe and sound manner.  Now the rules do encourage some underwriting flexibility.  The rules state that “Banks are permitted and encouraged to develop and apply flexible underwriting standards for loans that benefit low- or moderate-income geographies or individuals only if consistent with safe and sound operations.”   Yes, flexibility is encouraged, but not mandated, but it still must be done in a safe and sound manner.  There is a section in CRA rules called safe and sound operations that says “the CRA does not require a bank to make loans or investments or to provide services that are inconsistent with safe and sound operations. “ 

Some of the leading CRA advocates expressed concern about the use of subprime loans long before the meltdown.  Many of them felt that racial minorities and low income communities were being disproportionately targeted by subprime lenders.  In 2002, the Center for Community Change’s Neighborhood Revitalization Project published a report, Risk or Race? Racial Disparities and the Subprime Refinance Market.  In the executive summary of the report, the Center for Community Change declares its concern that “high foreclosure rates for subprime loans indicate that many subprime borrowers are entering into mortgage loans they cannot afford.”

Also in 2002, the Southwest Regional Office of Consumers Union published the report, Minority Subprime Borrowers.  Like the report from the Center for Community Change, the report focused on the disproportionate number of subprime loans being made in minority communities, but examined it from a Texas perspective and looked only at home refinancing. The report recognized the danger of subprime lending saying that,  “Subprime lending can have disastrous consequences for low income and minority communities.”  Consumers Union went even further recommending state legislation that would “require loan counseling for any borrower getting a high cost loan during the existing 12 day waiting period before the loan closes” and “prohibit lending without due regard to repayment ability.”

In the 2005 report by the National Community Reinvestment Coalition (NCRC), The 2005 Fair Lending Disparities: Stubborn and Persistent II, concern about the impact of subprime lending was again the major focus. “Our analysis revealed a disproportionate amount of high-cost lending targeted to vulnerable borrowers and communities…,” wrote NCRC.

“Further,” comments NCRC, “ the pervasiveness of subprime lending in communities of color, in all regions and in metropolitan areas of all sizes, raises important public policy concerns about possible adverse implications stemming from these heavy geographic concentrations.”

As the information above clearly reveals, CRA advocates identified the threat of subprime lending long before it threatened the financial stability of our banking industry and were concerned about its heavy concentration in low income and minority communities.  They clearly did not support market driven subprime lending with little regulation.  Also, while CRA did give banks permission to modify underwriting to meet the lending needs of low to moderate income communities, it was not a requirement, and the regulators made it plain that it should be done in a safe and sound manner.  As articles written recently in the New York Times document, it was the desire for quick and easy profits more than anything that drove many of the decisions that led to the subprime meltdown.

Hopeton Hay is editor and publisher of the Economic Perspectives blog and chairman of the Economic Development Committee of the Texas NAACP.  He also spent 5 1/2 years working for the NAACP Community Development Resource Center, a CRA partnership between the NAACP and Bank of America.