More Than Two Years into the Foreclosure Crisis, Homeowners Are Faced With the Good, the Bad, and the Ugly

By Janis Bowdler

In his State of the Union address, President Obama said, "It's time to get serious about fixing the problems that are hampering our growth. One place to start is financial reform." While we wholeheartedly agree, financial reform is only one piece of the puzzle needed to move us beyond the foreclosure crisis and return us to a place where homeownership serves as a stepping stone to financial security. An estimated 1.3 million Latino families will lose their homes to foreclosure between 2009 and 2012. This represents a shocking loss of wealth and a major blow to community stability. To prevent these statistics from becoming reality, Americans need three things: a way to save their home even if they're out of work, opportunities for credit-worthy families to buy a home, and additional accountability measures to ensure that we never face this kind of crisis again.
The president only mentioned one of the three key elements of resuscitating the fragile housing market. As we forge ahead with strained hope, we reflect on how gridlocked politics and a damaged economy stifled progress on these core aspects of recovery and left us with the good, the bad, and the ugly.
The Good
In the wake of the bursting housing bubble, the flow of credit―once a rushing river―has slowed to a trickle at best. Had the Federal Housing Administration (FHA) not stepped in to keep mortgage credit available, eligible homebuyers would likely have been unable to seize low interest rates and homeownership opportunities in the newly affordable market. Last year, 50% of Latinos who purchased a home did so with FHA-backed financing.

Responding to concerns from the National Council of La Raza (NCLR) and others, the Department of the Treasury just this week released welcome changes to streamline loan modifications under the Making Home Affordable (MHA) program-the most important of which is making it easier for families to convert their trial modifications into permanent modifications.
The Bad
The public outcry for a new era of accountability, transparency, and responsibility within our banking system was heard by some while ignored by others. In the face of fierce industry opposition and untold sums of campaign contributions, the House passed legislation that would go a long way to curb some of the worst industry practices. While not perfect, it's further than the Senate has gotten, where consumer protections are rumored to be on the chopping block. Without this legislation, consumers will lose their chance to have an essential defense against lenders' deceptive behavior.

While NCLR applauds the administration for its ongoing efforts to improve MHA, design flaws were evident early on. Since the program's launch, thousands of families have been stalled in loan servicing purgatory, waiting to hear whether they will receive a loan modification or suffer the fate of many others and lose their homes.
The Ugly
Hope for Homeowners was designed to offer as much as300 billion in government-guaranteed home loans to borrowers whose current mortgages exceed the value of their houses. Thus far, the program has reached a mere 96 households―a far cry from the original goal of helping 400,000 underwater homeowners.

There has been little federal action to protect struggling families against foreclosure rescue scams. Many families are feeling increasingly desperate as foreclosure programs continue to lag, making these ubiquitous offers seem even more attractive. Scammers convince families to sink their last dollars, as much as8,000, into fees for services that either were never completed or resulted in unaffordable and unsustainable mortgage payments.

Unemployment in Latino and Black communities has been hovering around 13% for the last year, three percentage points higher than the national average. While the nation's workers search for their next paycheck, millions are also scrambling to pay for their mortgage. Without an income, families in need will not qualify for MHA-a problem that will likely mushroom as savings and unemployment benefits are exhausted.
A rocky path for recovery lies ahead. While there are rays of light in the administration's vision for 2010, the nation is cautious. Decision-makers have fallen short in delivering our families from the ongoing effects of the economic meltdown. Congress and the administration cannot stop with the vision of reform set forth by President Obama last night but must finish the work they started on preventing foreclosures and stabilizing communities. Truly, our families have not a minute to spare.