Stopping the 13 Second Clock: ACORN and Leading Mayors Join Together in Fighting Foreclosures

California’s economy can’t really stabilize until the foreclosure crisis is resolved.

Yesterday I was honored to be on a call with America’s leading mayors and the US Conference of Mayors to talk about a huge problem affecting cities from coast to coast: the foreclosure crisis.

I’ve been talking about how a family is losing their home every 13 seconds for awhile now and the recent failure by Congress to enact bankruptcy reform to protect homeowners because of industry pressure was a real blow to stopping that clock.  

But the failure in Washington isn’t going to stand in the way of ACORN’s push to address the crisis at the heart of the economic meltdown and teaming up with some of the leading mayors in the United States is a major way we’re moving forward to help families stay in their homes.

Let’s set the record straight about one thing – mayors and ACORN tried to stop this crisis before it began, only to be preempted by federal regulators who did the industry’s bidding, and now we are left to clean up the mess.  It took the election of Barack Obama for the federal government to start helping families, but even his excellent Making Home Affordable program only aims to prevent 3 to 4 million foreclosures out of the expected 9 million over the next four years.

So it’s up to us – regular folks, community organizations, and local community leaders.  We cannot sit on the sidelines while 5 to 6 million families lose their homes.

Luckily there is a tremendously successful model already in existence in the city of Philadelphia. Called “mandatory mediation” it is based on one simple technique: having borrowers and lenders sit down and talk. The success rate is astounding.  As we have shown in our recent report, “Road to Rescue: How the Philadelphia Model Can Reduce Foreclosures Across the Country“,  fully 78 percent of homeowners who have participated in mediation are still in their homes today. 78 percent! Imagine if we could replicate that across the nation!  

The Philadelphia program works because it incorporates four pillars: (1) It is mandatory. (2) It involves extensive community outreach to struggling borrowers. (3) It has an easy threshold for participation. (4) It makes use of housing counselors to ensure affordability of workouts.  

On yesterday’s call, we heard from Philadelphia Mayor Michael Nutter, whose office now coordinates this highly effective program.  He has raised money from the private sector to join city funds, but he needs more help, including from the federal government, especially as the foreclosure crisis lays at the heart of our recession.

President Obama himself understands this, and in his February speech laying out the foreclosure plan, said, “We are going to award $2 billion in competitive grants to communities that are bringing together stakeholders and testing new and innovative ways to prevent foreclosures. Communities have shown a lot of initiative, taking responsibility for this crisis when many others have not. Supporting these neighborhood efforts is exactly what we should be doing.”

Unfortunately, no such support for local foreclosure prevention yet exists.  ACORN will join mayors in fighting to make sure the federal government does as President Obama promised and funds these initiatives.  Despite a recent unanimous Senate vote on an amendment offered by Senators Casey and Gillibrand to open up some of the Neighborhood Stabilization Program funds for foreclosure prevention, rather than just buying properties after they’re foreclosed, the amendment died in the House.

Across the country, ACORN Housing counselors are waging daily battles just to get reasonable modifications and save homes, but the industry is still foreclosing on hundreds of thousands of families that could be helped but don’t live in a city with a mediation program. The efforts of mayors and ACORN to facilitate more affordable loan modifications will be critical in halting the national housing and economic downfall.  

Mayor Bloomberg is joining us in pressuring Albany to improve the state’s mediation law, Mayors Villaraigosa and Dellums are working with us to get needed changes out of Sacramento, and Mayors Slay (St. Louis) and Diaz (Miami) also committed to working with us locally, statewide, and nationally to help save homes.  

With millions more foreclosures staring us in the face, we have to act now to create sensible local solutions that will improve our communities, safeguard families, stabilize tax bases, and revive the economy.  With leading mayors stepping up yesterday, we’re starting to get the ball rolling.

2 thoughts on “Stopping the 13 Second Clock: ACORN and Leading Mayors Join Together in Fighting Foreclosures”

  1. While it’s certainly humane to help a family stay in a home where the ongoing costs make sense as calculated by a fully amortizing 30-year loan, let’s also remember that many people are facing foreclosure because they bought into the lie that real estate always appreciates and/or withdrew money over time via HELOCs to spend beyond their means.

    I’d like to point out that 40% of Californian’s don’t own homes.  I’d also like to point out that renters are somewhat poorer (in income terms) than owners.  Thus, it’s likely that near 50% of the working class are not homeowners.  If a goal is to help responsible working Californians, I’d argue that lower home prices actually favor working-class renters who may wish to move to an ownership position in the future.

    Homes are still overvalued in most of California, and the continued decline in home values is necessary in order to bring costs in line with both historical averages and what working Californians can afford.

    Every homeowner who overpaid, acted irresponsibly, and HELOCed him/herself beyond their means who gets mortgage modifications unfairly takes away housing supply from those who responsibly rented over the last 5 years.  

    Foreclosures are not always a bad thing.  Many people could rent the same home for much less per month.  This not only would reduce their monthly outflow for housing, it would also free up cash to be spent in the real economy.  Housing is a non-productive asset.  Once you buy it, it does not contribute to job growth or even tax receipts for the state (which I know is a favorite issue here in California).  The sooner we flush the foreclosures from the system, the sooner we can stabilize home values at lower, more affordable prices.  

    Lower housing costs would generate more sales tax revenue for the state as housing/rent payments are non taxed, but the resulting additional household cashflow would be, in part, spent on taxable goods.  If anything, progressives (which I don’t claim to be, fiscally speaking), should lobby for lower (not higher) home values.  

    Most loan mods are smoke and mirrors that extend the payment duration — or offer short-term rate reductions.  These moves effectively keep “owners” as debt slaves until the inevitable rate reset again tests their ability to pay.  60-70% of modified loans are back in default within one year.  Unless you can offer principal reduction, the whole program makes little sense.  Principal reduction, paradoxically, only encourages more bad behavior (pay less by not performing as agreed) and is a great example of moral hazard.

    My proposed solution is as follows:

    1.  Banks should sit down with non-performing owners and talk.  If the owner can’t pay as agreed, either the bank writes down the balance owed to a reasonable amount or immediately takes ownership and rents the property to the current owner.  There should be a clear guideline, such as no more than 31% of income to PITI.  Those who can’t pay this amount should convert to renters immediately.

    2.  REO properties should be taxed at 0.5% per month in order to force banks to quickly unload these assets.  Banks currently hold back this inventory because they don’t need to write off the value of the asset until they sell it.  This is Enron-style accounting at its best.

    3.  Government should not be subsidizing mortgage rates or home-ownership via tax breaks and Fannie/Freddie loan backstops.  The mortgage deduction should be phased out, with corresponding equal offsetting decreases in other taxes.  Fannie/Freddie are financial time bombs that will continue to cost taxpayers billions.  They should be phased out.

    4.  Legislation should mandate no purchases without 10% down.  Statistics show that percent down (“skin in the game”  ) is a much stronger predictor of default probability than FICO scores and other credit history data.  The ability to buy with no money down was a major cause of the biggest asset bubble in economic history.  

    5.  FHA’s 3.5% down (with your $8k refund as the down) is creating this same problem and is a huge future liability for taxpayers.  That program should be eliminated immediately.

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