Changing the Way We Help Underwater Homeowners

This opinion piece by LeeAnn Hall originally appeared in the Seattle Times.

By LeeAnn Hall and Will Pittz

While the recession officially ended in 2009, there are still over 9 million households across the country with homes worth less than the value of their mortgage. There are still neighborhoods in Seattle where more than 20 percent of homes are underwater.

How many more Seattle families need to lose their homes in the foreclosure crisis that continues year after year? There are solutions, but they need champions, and leadership – both locally and nationally.

Advocates are pushing the Seattle City Council to pursue a local principal reduction program to reset the value of mortgages based on their current market value. That local action can help thousands of homeowners in Seattle, but it must include strong buy-in from the City Council and include mechanisms to encourage big banks to participate. Proposals are outlined in a recent report by Reset Seattle and the Alliance for a Just Society.

Thankfully, members of the City Council are making progress. The council commissioned a short study on the feasibility of principal reduction in Seattle, and council members have publically expressed their intent to pursue a program similar to one in Oregon. This action comes too late for homeowners who have already lost their homes, but it can still help many families throughout the city with underwater mortgages.

While Seattle is making slow progress, other families throughout the country also need champions. Leadership was expected from Mel Watt, the recently appointed director of the Federal Housing Finance Agency (FHFA).

For more than 20 years, Mel Watt served the people of North Carolina as a member of Congress. During that time, he earned a reputation of being on the side of working families in his district, including those who were struggling to make ends meet. Watt advocated for struggling homeowners, co-sponsored mortgage reform, and promoted affordable housing.

However, as director of FHFA, Watt has done an about-face. While he once urged the president to enact principal reduction, he has done nothing to take steps within his power to make that assistance a reality. Such steps would not even require congressional approval.

It’s too late for millions of homeowners across the country, it’s not too late for leaders at the local and national level to step up and take action for those homeowners still struggling.

The foreclosure problem hasn’t gone away; the need for assistance remains critical in Seattle and nationally, especially in urban neighborhoods and among people of color. In many cases, these mortgages were the result of predatory lending practices in the years leading up to the market’s collapse.

By not acting, Watt is making matters worse. Local leaders on the Seattle City Council are considering a great step to help homeowners in Seattle and especially communities of color, as in the International District and Delridge, that still have high rates of underwater mortgages. However, both local and national action must happen soon before more families lose their homes.

It’s time for Seattle to move quickly toward a local principal reduction program, and it is well past time for FHFA Director Watt to remember the work that landed him in the nation’s capital and take action to help homeowners.

LeeAnn Hall is executive director of the Seattle-based Alliance for a Just Society. Will Pittz is executive director of Washington Community Action Network

Bank of America Settlement Could Fund Principal Reduction Programs

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Reset Seattle members listen as homeowners facing foreclosure ask Seattle City Council members to enact a principal reduction program to help them save their underwater homes from foreclosure. Photo: Reset Seattle

It has taken six years and dozens of lawsuits and settlements after the largest housing collapse since the Great Depression – and finally we may have a way to set up and implement local principal reduction programs in cities across the country.

September has brought us what is expected to be the last of the big settlements by the Justice Department against the big banks. The good news is that the settlements have grown progressively larger each time, with more and more specificity regarding how the banks must comply.

On the flip side, however, there are the murky oversight mechanisms that present challenges for municipalities and community groups looking for a handle.

In the latest settlement Bank of America is required to provide $2.5 billion in principal reduction where foreclosure is not pursued. Additionally, they’re required to pay $50 million to capitalize local programs administered by local governments, Community Development Financial Institutions or other community organizations.

This is ready-made for the proposal the Reset Seattle coalition is working to implement. Reset Seattle is an alliance of hundreds of individuals and more than 30 faith, community, and labor groups in Seattle dedicated to stopping the foreclosure crisis.

The Bank of America settlement money could create a revolving loan fund that is designed purchase underwater homes in zip codes that are particularly hard hit – such as those in southeast Seattle where 15 -20 percent of homes are underwater and homeowners haven’t felt the recovery the way parts of the city have.Screen shot 2014-09-22 at 12.02.24 PM

Seattle must seize this opportunity to demand Chase, Bank of America and Citibank meet their settlement obligations by funding principal reduction proposals, like the one proposed in Seattle. This seems like a perfect fit for everyone – the banks meet their obligations, the city doesn’t have to issue bonds to capitalize the program and underwater homeowners in the city get their principal reduced saving hundreds of dollars every month.

In her latest brief on principal reduction, Alliance Policy Associate Allyson Fredericksen writes that “many other cities are already taking action to give banks the incentive to renegotiate mortgages and work with homeowners to avoid foreclosure”

Some of those incentives, according to Fredericksen, include instituting fees to encourage mediation, to issuing fines for blight on foreclosed homes, to releasing reports on banks’ actions in the community. Such actions put the responsibility on banks to act without putting additional pressure on homeowners.

Seattle should learn from other cities, and lead the way in helping homeowners, without requiring those stretched and stressed homeowners to negotiate with banks on their own.

Unfortunately as we’ve seen time and again since the housing market collapsed, common sense rarely wins out and unnecessary suffering is inflicted to score an ideological point. Hopefully the stars have finally aligned

You can read the Bank of America settlement here.

You can read the details of the Community Relief section here.