97 California Organizations Demand Immediate Foreclosure Policy Changes from FHFA
By Kevin Stein
California Reinvestment Coalition
As public frustration with the Federal Housing Finance Agency builds, 97 community groups have submitted a detailed comment letter to Acting Director Ed DeMarco demanding changes to FHFA’s foreclosure policies, or his immediate resignation. The 97 groups are united in their concern about homeowners and tenants being displaced by FHFA’s damaging policies. Yesterday, the United States Senate Banking Committee heard more flawed justifications about these policies from Mr. DeMarco. Mr. DeMarco should drop his script, and start listening to the collective voice of his critics.
The Federal Housing Finance Agency, under the guidance of Acting Director Ed DeMarco, has failed to prioritize the needs of homeowners who are struggling to make their mortgage payments. As the conservator of Fannie Mae and Freddie Mac, FHFA controls nearly 60% of all home loans in the United States. The $26 billion Attorneys General settlement requires banks to provide $18 billion in principal reduction, HAMP has incentivized principal reduction, but until Fannie Mae and Freddie Mac start allowing principal reduction, the majority of American homeowners will be left out to dry. It’s up to Mr. DeMarco to help them.
Nearly a quarter of all American households are underwater. That number is even higher in California, where over a third of all mortgaged households are underwater. Mr. DeMarco recently admitted that he has never spoken to a foreclosure victim or someone at risk of foreclosure. This damning admission reveals how out of touch he is with the communities who are suffering from the foreclosure crisis.
In the letter, the 97 groups urge Mr. DeMarco to put a pause on Fannie Mae and Freddie Mac foreclosures until FHFA formalizes policies to:
1. Reduce Principal. FHFA should allow Fannie Mae and Freddie Mac to offer loan modifications containing principal reduction down to market value. In the California Reinvestment Coalition’s February 2012 survey of 75 housing counselors who assist thousands of Californians a month, over 40% of respondents noted that banks sometimes or often reduce principal where they own the loan in question. Although the banks see the utility of principal reduction, the GSEs never reduce principal.
2. Stop the Dual Track. Affected homeowners and their advocates continue to rank dual track as one of the most pernicious and prevalent practices that frustrates efforts to halt avoidable foreclosures. FHFA should refuse to allow Fannie Mae and Freddie Mac servicers from continuing the foreclosure process while borrowers are negotiating for a loan modification.
3. Offer Tenants Long-Term Leases. According to Tenants Together, tenants make up approximately 38% of California households impacted by the foreclosure crisis. Tenants living in homes that go into foreclosure are perhaps the most vulnerable of stakeholders. These families are often completely unaware that their landlord is unable to pay the mortgage and at risk of foreclosure. FHFA should require Fannie Mae and Freddie Mac to offer tenants residing in foreclosed properties the option of a two-year lease if they wish to remain in their homes.
The recent $26 billion Attorneys General settlement provides some relief for homeowners, but Fannie and Freddie borrowers are completely on their own. The majority of the loans in distress in California are owned by FHFA, and until they change their policies, more Californians will continue to suffer. This calls for immediate changes to FHFA policies, and strong state legislation that protects and relieves California homeowners from irresponsible practices.
If Mr. DeMarco cannot commit to making these policy changes, the groups have called for his immediate resignation.
Kevin Stein is Associate Director of the California Reinvestment Coalition (CRC). CRC advocates for the right of low-income communities and communities of color to have fair and equal access to banking and other financial services. CRC has a membership of more than 300 nonprofit organizations and public agencies across the State.