05 July 2011
A day doesn’t pass without a friend, neighbor, reporter, Congressional or regulatory staffer asking me – so –what are we going to solve the housing crisis? Sometimes, if I’m particularly angry at the banks that day, I first offer a glib, “I’m just a consumer advocate – why don’t you just ask the financial and legal ‘geniuses’ who created this mess what we should be doing” response - but then I realize – much to my disappointment, that that is exactly what the administration and Congress seem to be doing! And in many ways, that’s the reason why we remain in the housing morass we’re in – we’re doing what’s best for the banks, but not what’s best for average American homeowners and investors.
Unfortunately, there are no magic bullets that are immediately going to restore a vibrant housing market. This crisis has been long time coming and it’s going to take awhile before we have a real housing recovery. There are however, some fundamental realities that we will all need to come to grips with if we really want to move our nation forward:
- Housing prices and values have to reflect what people can actually afford. The housing values that we saw in the run up to the collapse were almost all illusory. I’m no economist, but when people’s income remains static or actually drops (because of lower wages and the rising costs of healthcare, pension contributions and education), and housing prices nonetheless continue to significantly rise, something has got to give – and that’s what unfortunately happened! Prices won’t rise again until we have a real increase in families’ income and assets.
- Foreclosures damage homeowners, their neighbors and investors (apparently the only people who aren’t harmed are the big bank servicers).
- The foreclosures we are seeing today are different from the foreclosures we saw a year or two ago. What once was a crisis driven by predatory, unsustainable loans, is now a crisis being driven by under and unemployment.
So with this understanding, the short and long-term solution becomes much clearer and here are some things that we really have to do:
- Mandate that servicers evaluate homeowners and offer loan modifications in any instance when this option is advantageous to the homeowner, community and investor. This decision making process must be transparent and appealable to a neutral party.
- Require principal reduction in every instance where this will lead to a sustainable modification. This means that when a servicer is also the owner of a second lien – they need to get out of the way, and take a significant reduction on their typically unsecured lien.
- Force servicers to complete this process before they properly proceed to take a foreclosure action.
- Expand programs for unemployed homeowners. The Dodd-Frank mandated EHLP program is a good start (now that it is FINALLY getting off the ground), but more programs like this need to be funded. Additionally, Fannie and Freddie and HAMP servicers must offer much longer forbearance agreements to reflect the reality of today’s unemployment.
None of these solutions are a panacea, but they will mitigate the enormous damage we’re seeing today and begin the process of stabilizing our housing market. Of course, we won’t have a real recovery until we solve our unemployment problem and put people back to work at sustainable jobs that pay a real, living wage.