Give the Developments a Chance

A Stalled Housing Development (Image Source: Washington Post)

The Washington Post’s new expose that purports to reveal to the public the widespread incompetence affecting the Department of Housing and Urban Development has engendered much controversy. The series ostensibly addresses only a single program within HUD, the HOME Investment Partnership Program, which administers funding to local government and private entities to develop affordable housing projects. In stentorian fashion, the opening sentence of an article titled, “A trail of stalled or abandoned HUD projects,” (part of the multi-article investigative series titled, “Million Dollar Wasteland”), declares, “ the federal government’s largest housing construction program for the poor has squandered hundreds of millions of dollars…and routinely failed to crack down on derelict property developers or the local housing agencies that funded them.” The Post goes onto report that some 700 projects, totaling “nearly $400 million” have been stalled for years, some even for decades, causing widespread blight. The article then lists widespread deficiencies in oversight and accountability within HUD, contending that the agency doles out cash without properly vetting recipients, that money was delivered when projects were only in an inchoate phase, and that HUD should have imposed more regulations on funding recipients, whether they be housing agencies, non-profit organizations, or the partnered developers. Needless to say, we were surprised.

Perhaps the main reason the article surprised us, however, was what appeared to be the intentional misrepresentations of the available housing statistics, most of which were pointed out lucidly by Secretary Donovan. In a response published on June 10, Donovan rebutted the Post by indicating out that HUD has received numerous acclaim in recent years as well introducing his own stats:

Although HUD provided data and information to The Post for more than a year, the paper has not shared with us the list of projects it generated. So after the articles ran, we conducted our own project-by-project review using The Post’s parameters. We determined that more than half of 797 projects that could have been flagged as “stalled” based on The Post’s criteria are finished.

Of the remaining projects, 97 have been canceled and their funding moved to viable projects, while 154 are progressing toward completion. The final 85 properties are experiencing delays, but in the vast majority of cases there is a simple reason for this: the recession.

Donovan goes on to state the conclusions of HUD’s internal study: only four percent of the more that 5,000 Home projects are “delayed” or “cancelled” (employing the metrics used by the Post). Moreover, the Post misleadingly gives the impression that funds were squandered, when in fact HUD policy stipulates that “[if] there are delays, money can be moved to other viable projects or must be returned if it is not used within five years.” Donovan then goes on to defend the decentralized nature of the HUD grants, which give large discretion to local communities and their governments, by suggesting that this framework is a preferable to a “one-size-fits-all” federal mandate.

In addition to what could be blatant misrepresentations or mistakes, the article is unfair in a number of other respects. For starters, it assumes more regulations and requirements are a solution, while ignoring the fact that these could quite possibly further stifle such developments. Moreover, it completely neglects to contrast the HUD programs with the ways in which the private sector has aimed to deliver affordable housing in recent years. While this phenomenon also resulted from public-private partnerships, namely government policies encouraging homeownership and many private entities vying to advantage from government guarantees by engaging in the lucrative process of securitizing credit, the private sector likewise failed, resulting in the financial crisis. The HUD developments, which involve the government to a greater extent than most other housing developments, are one of the few bright spots of economic creation in the housing industry, which many commentators have pointed out is crucial to broader economic recovery. Let’s keep this in mind, and give the developments a chance.

We at St. Ambrose were also particularly chagrined about the fact that the article seemingly attempts to paint the entire Department of Housing and Urban Development in a negative light. The Post does this in part by implying that HUD is a single-faceted organization aimed at the development of new properties for low-income citizens. While it is true that this area comprises a major part of HUD’s activity, the organization also provides other, far different services, many of which remain crucial to mitigating the widespread financial pain incurred by the current financial crisis. These services include both mortgage and foreclosure prevention counseling—we believe that the former type of assistance needs to be implemented on a large scale, as mortgage counseling is often key to ensuring that families understand their commitments, the terms of their mortgages, and what it will take to keep above water over the long term. As for the latter, we know that foreclosure prevention assistance is paramount in enabling families to stay in their homes longer. Take for example our unique study on foreclosure prevention conducted earlier this month, which among other things found that 70% of homeowners that underwent counseling in 2007 reported positive outcomes, and that homeowners who utilized counseling services were 79% more likely to experience a positive outcome. (More insight on the study will appear here next week).

More than anything, in light of Donovan’s straightforward statistics, which serve to debunk much of the Post’s shocking data, we wonder how the Post could have come up with numbers that contrast so sharply with HUD’s. As far as we know, the Post is yet to respond to Donovan, and on this point we think it may be fair to take a hint from one of Baltimore’s great social critics, David Simon. In Season 5 of The Wire, the city’s local paper runs into some problems with balancing sensationalism with thorough, honest journalism. And while we certainly don’t equate the Post series with Scott Templeton, it’s reasonable to suspect that the Post may be guilty of a similar, all too common imbalance.

The Importance of Consumer Protection

President Obama with Elizabeth Warren, Prospective Head of the New Consumer Financial Protection Bureau

To many of us, developing greater consumer protection measures is common sense: every day, we see families foreclosed out of their homes or evicted from their rental units because they did not (or in fact could not) understand the financial product they purchased.  On the lending side, which we see much more commonly at St. Ambrose, these products often come in the form of adjustable-rate-mortgages.  In such a loan, the initial interest rate often starts low but rapidly increases over time, leading the mortgage holder to believe that they are getting a deal at first only to find out later that they will be unable to make payments and may end up in foreclosure.

We’ve come across situations in which homeowners were not told that the interest rates would rise over time or where banks have misrepresented the product entirely, suggesting that the interest rate is fixed.  The latter scenario happens frequently when banks market products to buyers whose first language is not English.  Sometimes, we even see direct credit lenders selling products to low-income, under-resourced clients in order to “help” them purchase a home.  Often times, hidden fees are imbedded in the loan product, whereby the buyer is penalized substantially for late payments.

These stories are common among housing counselors. Beyond the housing world, other industries have long played the same game.  Credit cards, for instance, often fail to clearly disclose the interest rate for buyers intending to pay a lower-end monthly installment.  Rent-to-Own schemes are another classis example. Companies that engage in International Money Transfers—or companies that help Americans transfer money to family members and friends over seas (a multi-billion dollar industry)—often fail to disclose remittance fees, or transaction fees they charge customers.  Likewise, these companies frequently do not notify their customers of the exchange rates on transfers, which, for obvious reasons, can be crucial to the amount of money a customer is willing to send and the commensurate fee they will owe.

These situations are the reason for the creation of the new Consumer Financial Protection Bureau, for which the White House has selected Professor Elizabeth Warren to head.  As the CFPB’s excellent website explains, before the financial crisis, the federal government could not adequately monitor the market for unfair (and perhaps illegal) practices because too many different agencies existed with varying roles; inevitably, cracks emerged, and sleazy companies slipped through them.  The CFPB intends to rectify this problem by functioning as a centralized agency that monitors predatory scams across industries.

Beyond its importance to consumers, the Bureau is crucial on a systemic level.  Perhaps the main cause of the financial crisis was the proliferation of securitized loan products, (many of which were backed mainly by home mortgages).  Investors (and the Wall Street banks that facilitated their purchases) demanded these products highly, incentivizing main street banks to continue to hand out credit, even when buyers were less-than-credit-worthy.  Eventually, this chain, coupled with the lack of government oversight, poor public policy, and failed public-private partnerships, collapsed, leading to the recession.

The CFPB would ensure that products like poor loans do not pervade the market like they once did, which would lead to significant economic consequences.  Moreover, Ms. Warren, a Harvard law professor with an unimpeachable record of standing up for Average Joes, is the woman for the job.

However, Congress must confirm her first, and backed by special interests, the confirmation may not materialize.  (For the latest example of crude opposition, see here). Whatever happens, we know that kick starting the CFPB, a project that his been on the drawing board for years now, would make the job of St. Ambrose and similar non-profits around the country much, much easier.

Harvard Study: Housing Slump is Severe, but Outlook May be Optimistic?

Harvard’s Famous Business School

Let me rephrase: the outlook isn’t optimistic, per se, but rather, it may be more optimistic than what we may be thinking or than what our worst nightmares suggest.  That’s about what I can discern from the new study by the Joint Center for Housing Studies at Harvard, “The State of the Nation’s Housing.” Evidently, the study does not aim to be conclusive.  Rather, it compiles a broad array of metrics and empirically gathered data that address America’s housing crisis.

The study is significant on at least two fronts: for starters, it provides much needed in-depth data concerning widely observed phenomena in the housing market, such as a the “rental rebound,” or the rapid rise in demand for rental properties as a result of buyers’ shift towards a preference for renting, which strongly contrasts with consumer behavior from the early part of the decade.  The study also presents detailed figures on the affordability problem for would-be buyers as well as graphs depicting the unfortunate acceleration in vacant properties nationwide.

Beyond these trends, which housing experts had widely discovered before the study’s publication, the study also succeeds in extrapolating upon less examined factors and less obvious residual effects of the housing crisis.  For instance, the authors look at the ways in which demographic trends have exacerbated the housing crisis, a theme that is not often considered in housing discussions.

Here, the authors point out the severe deficit in buying from the generation they deem as “echo boomers,” or those Americans born in the year 1986 and afterward.  (This would put the oldest echo boomer at twenty-five).  Apparently, while this generation is “entering their peak household formation years,” household growth plummeted among this group in the second part of the last decade.  (As an echo boomer myself, I can think of only one peer of mine who owns a mortgage).  The authors, while pointing out that the huge influx of young adults will likely harm the housing market further, also speculate that the effect will be more pronounced when coupled with the retirement of the baby boomers, who will no longer contribute to the market.

The authors also provide a handy graph demonstrating the strong effect that the expiration of the first-time homebuyer tax credit had on the market (see the graph below).  According to the authors, once the timeframe for the tax credit lapsed, many “would-be homeowners were locked out at the top of the market.  And were then scared away as both home prices and employment plummeted.  The question now is whether, without the incentive provided by tax credits, first-timers will have the will to buy.”  Other topics examined include the rising utilities costs for low-income tenants, the decreasing supply of low-income housing, and the financing habits of homeowners from various income groups, to name just a few,

However, the tone of the study’s conclusory “Outlook” section contrasts sharply with virtually all of the previous data presented.  The authors state, “while still under the shadow of the foreclosure crisis, the housing market may be starting—however slowly—to turn the corner.”  They then introduces merely a single statistic to back this bold and frankly bizarre contention: that the amount of loans at least ninety days delinquent but not in foreclosure are falling.  Are you convinced?

While I can’t possibly summarize everything in this detailed analysis, I would encourage readers to the take a look at the study here.

“As Goes Housing, So Goes the Economy?”

Last week, the Paper of Record published an editorial prompting the question “as goes housing, so goes the economy?”  While this maxim may be axiomatic for some, it is important to understand why the interrelationship between housing, the financial system, and the broader economy is not only close but also tremendous.  As the Times points out, the unceasing depression in the housing market “isn’t just bad news for homeowners.  Selling and buying houses are one of the economy’s most powerful engines.  Until the market recovers, the entire recovery is imperiled.  Falling equity dents consumer confidence, making things even worse”

The Times correctly indicates that the touted seven-month drop in foreclosure filings caters to falsely optimistic prognostication.  Optimists see the drop as a sign of greater job stability nationwide, less income fluctuation, and more consumer confidence.  However, the more palatable reason for the decline may be banks’ recent practice of slowing down the foreclosure process, a practice that in part signals a greater incentive for lenders to comply with federal regulation, something painfully lacking over the past few years.  However, the slowdown is also the direct result of banks’ increasing unwillingness to deliver properties back to the market, as the prospects of a sale remain brutally grim.

As for the answer to this apparent problem, the Times editorial staff states, again correctly, that the “Obama administration’s main antiforeclosure effort has fallen fall short of its goal to modify three million to four million troubled loans.”  The piece goes to establish that the reason for this shortfall:

Its basic flaw is that participation by the banks is voluntary. Most have joined the program but face no real pressure to meet its goals. Another big problem is that banks often do not own the troubled loans; rather, they service the loans for investors who own them. As servicers — in charge of collecting payments and managing defaults — banks can make more from fees and charges on defaulted loans than on modifications. Not surprisingly, defaults proceed and modifications lag. Banks win. Homeowners and investors lose. The economy suffers.

True, however, the Times, like most of the media, fails to appreciate the overwhelmingness of the aforementioned regulatory failure.  As Talk to St. Ambrose has repeatedly contended, the mains problems with Obama’s antiforeclosure program—which, for the record, is the Home Affordable Mortgage Program, or HAMP—are much more severe than what the Times identifies as the “basic flaw,” or the fact that bank participation isn’t mandatory.  Rather, banks routinely refuse to comply with regulations, and the government has lost the ability to enforce their own requirements (see Bryan Sheldon’s March 22 Post for guidance).

As for the solution to this problem, the paper suggests “tough national standards” for mortgage servicers, whereby banks could not initiate a foreclosure or a “foreclosure-related fee” while an attempt at modification is taking place. Without explanation, the Times then states that “national servicing programs could succeed where antiforeclosure programs have failed, namely, in compelling banks to clean up the mess they did so much to create.”

Here, the paper expressly advocates for a measure that has been pointed out many times before, by state attorneys general among others (and should be regarded as little more than common sense, not a “solution” to the housing crisis).  Moreover, the paper seemingly glosses over the severity of the problem in failing to call for comprehensive financial reform, which simultaneously regulates investment banks’ securitization of home loans as well as local banks’ lending practices, something, which we have also commented on in the past.

So yes, as goes housing, so goes the economy, indeed. But the problem is huge, and fixing it requires tremendous regulation, bipartisanship, and hard work in this already trying time.  The rhetoric should consider this imposing reality, painting a more accurate picture of the problem.

 

Backlog of Foreclosed Properties Bodes Poorly For Housing Market

A Foreclosed Property (Image Source: Huffington Post)

This week, several sources have reported new information indicating that a colossal backlog of foreclosed properties has amassed, where banks, unable to convert the repossessed homes into sales, simply hang on to them for an indefinite period, with no discernible hope that a transaction may take place.  While most Americans are keenly cognizant of the foreclosure crisis, even housing experts found themselves shocked to come across some of the newly released statistics: according to the New York Times, lenders “own more that 872,000 homes as a result of the groundswell in foreclosures, almost as twice as many as when the financial crisis began in 2007.”

In addition to demonstrating that the crisis never really ended, this figure suggests that policies aimed at prevention have not worked, and in this severe economy, middle-income families throughout the nation continue to face the constant threat of losing their most valuable asset.  In Atlanta, for instance, “lenders are repossessing eight homes for each distress home they sell,” a staggering ratio.  The ratio is six to one in Minneapolis, and in “once hot” markets like Chicago and Miami, whose real estate is among the most expensive in America, the ratio still remains about two to one.  Indeed, if banks continue to foreclose while maintaining a systematic inability to sell, this glut is sure to continue, signaling that there really may be No End in Sight.

The Times offers two reasons for the glut: “inadequate staffs” and “delays imposed by lenders because of investigations into foreclosure practices.”  While it’s difficult to comment on the former without further information, the latter cause is surprising, since such “investigations” were presumably initiated to assist foreclosure victims and therefore help families stay in their homes.  Of course, if these “investigations” were effective—assuming the term refers to an overhaul of foreclosure practices—then the end result should be a decrease in lender owned homes, not the other way around.

While the paper concedes that “the biggest reason for the backlog” is that it takes longer to sell a foreclosed property than owner-owned home, the paper goes on to suggest that slowing down the foreclosure process has contributed to this stagnant market.

In contrast to this suggestion, home owners require a more drastic overhaul of foreclosure practices, not less.  The writer seems to miss the point that stymieing the process often diverts foreclosure altogether, benefiting the home owner and the bank alike.  Indeed, the Times would serve the public by presenting this backlog in a much more nuanced fashion.  While the investigations may slow down sales in the short term, they serve a larger purpose of ensuring that faulty practices that should never have taken place began to finally desist.  Moreover, while the policies encouraging the investigations have too often fallen short, they are nevertheless crucially important.  It’s easy for both parties to scapegoat government programs like HAMP, but to really curtail the rise of lender owned homes, the government must strengthen aid programs, ensuring that that enforcement mechanisms exist and that homeowners have the ability to access the services of HAMP and similar programs in an efficient and understandable context.

In short, while this problem is enormous, the first step to mitigating it is to prevent foreclosure altogether, and for that, we require more government programs and yes, more investigations into unfortunate practices (take, for example, the Washington Post columnist Dana Millibank, whose home was mistakenly foreclosed upon.  And as Paul Krugman points out, there’s no reason to think that this is an exception).

Unfortunately, all indications suggest that this won’t happen.  Proposed cuts in HUD have already taken place, and, coupled with a federal government obsessed with spending cuts, this could only mean one thing: less foreclosure prevention help, the return of unethical lending practices, and no solution to growing stock of foreclosed homes that no one is willing to buy


Can the Government Help the Housing Crisis?

 

Rep John Beohner on the CBS program, “Face the Nation” (Image Source: CBS)

Readers of this blog likely know that over the last few years, the government has experimented with several programs that aim to alleviate the mortgage foreclosure crisis and in turn, bolster the housing market and the U.S. economy.  However, it’s no secret that many of the government’s flagship programs, like the Home Affordable Modification Program (HAMP) and similar initiatives administered by various federal agencies, like the Department of Housing and Urban Development, have fallen short of their stated goals.

However, in spite of all of these setbacks, Americans and their elected representatives by and large have maintained a sense of optimism that the housing market and the economy will recover, until recently.  While some skeptics posit that the housing market is permanently beyond its golden days, others address their criticism at the government, as they’ve lost hope in its ability to make a dent in the crisis. 

Take, for example, Republican House leader, John Boehner.  On the CBS Sunday morning program Face the Nation, Boehner stated bluntly that he has given up on the government’s ability to mitigate the crisis.  Boehner said that at the time of their initial approval he was skeptical that any of the federal housing initiatives would succeed.  He went on: “I’m even more skeptical today that there’s anything the government can do to resolve these problems.  Boehner’s skepticism, predictably, comes with a more optimistic caveat:

“Over the last couple years, Congress has really set up four programs to help with those mortgage problems,” Boehner told Harry Smith. “And unfortunately, none of those have worked. And all they’ve really done is dragged out the length of time for the market to clear the problems. Which is unfortunate.”

In addition to suggesting that the government programs have no chance of succeeding, Boehner simultaneously indicates that the market proffers the sole plausible solution to the crisis.  The Republican leader again presents the public with the ubiquitous dichotomy of market vs. government, whereby the two entities are necessarily mutually exclusive.

Contrast Boehner’s view with that of President Obama.  About a month ago, Obama delivered a speech hailed by many as the first comprehensive illustration of his policy vision for the nation.  While cautioning the nation about the increasing deficits, Obama outlined a boldly progressive stance, contending that in addition to utilizing the government to attain a collective set of liberties, like access to healthcare, public schools, and a strong military, “part of this American belief that we are all connected also expresses itself in a conviction that each one of us deserves some basic measure of security.” Does affordable housing constitute a “basic measure of security?”

Here, we see the vivid juxtaposition of two visions of the government’s role in society articulated by two of the nation’s leading public figures.  Moreover, this blog has commented frequently on the government’s housing initiatives.  While St. Ambrose welcomes government programs, we have been clear in pointing out there failures. In our view, many such failures have regulatory in nature, suggesting the need for more government, not less.  Nevertheless, if the economy is rebounding, perhaps this revival in prosperity will trickle back to the housing market, triggering a growing demand, increased properties values, and prosperous communities.

So, we invite readers to comment: can the government fix the housing crisis?


Talking With the Experts: An Interview With Dr. Matthew Kachura

Baltimore Neighborhoods Indicatory Alliance Program Manager Matthew Kachura (Image Source: University of Baltimore)

Today, we Talk To St. Ambrose have posted our second interview of our “Talking with the Experts Series,” and we are honored to host Program Manager for the Baltimore Neighborhood Indicator Alliance-Jacob france Institute, Dr. Matthew Kachura.  As many of you already know, Dr. Kachura is a hugely respected community member and activist on behalf of Baltimore City.  He is likewise a pre-eminent scholar in the areas of housing, community economic and workforce development, and other issues affecting urban communities.  Dr. Kachura recently conducted an innovative study examining the effects of foreclosure on Baltimore’s schoolchildren, which gained much deserved local and national attention, as it remains one of the only empirically-backed projects studying the residual, far-removed affects of the foreclosure crisis.  Dr. Kachura has also conducted influential research on the Baltimore Empowerment Zone, the earned income tax credit, and commuter issues, among many others.

Again, we are honored to host such an important and distinguished scholar and community member.  My interview with Professor Kachura is below.

Harsha Sekar: It was fascinating to read the results of Phase I of your study on the effects of foreclosures on Baltimore’s schoolchildren. For me, one of the study’s most salient implications concerned the interrelationship of social problems.  It appears that public policies that encourage affordable housing will not be effective without the implementation of a broader welfare state, as widespread access to decent housing seemingly cannot materialize without strong neighborhoods, schools, and access to healthcare.  Given the findings of your study, can policymakers effectively curtail the problem of inadequate housing without simultaneously addressing the needs of other, related social institutions?

Matthew Kachura: The short answer is no.  I believe that urban issues, whether it is affordable housing, high unemployment, social ills such as crime, or issues relating to education, are all interconnected and that policies that take into account this interdependency need to be created and implemented.  Trying to address one issue without recognizing that there are a host of other issues related to it will not lead to sustainable or long-term improvement.

HS: Following up on the last question, what are some of the other, less obvious residual effects of foreclosure that you have noticed in your work?

MK: I think a non-obvious issue is exactly what we set out to identify.  Little attention has been paid to the smallest victims of foreclosure – children.  It is not just that children are also victims of foreclosure, but that the increased mobility resulting from foreclosure can have lasting, long-term effects on their social and personal development and educational performance.  These negative impacts might not occur in the year following the foreclosure, but research has shown that missing days of school as a result of having to move can lead to an increased chance of a student dropping out of school, not completing their degree and in the long run earning less income.

HS: Your study also catalogues the disproportionate effect of foreclosures on minorities.  While many commentators have discussed this issue, few academic studies document this phenomenon with empirical data.  How has the foreclosure crisis functioned to reinforce systemic racism?

MK: We found several interesting findings as a result of this analysis, including the largest numbers of students who were affected by foreclosure in Baltimore City were African American.  This was not surprising though since two thirds of the residents of Baltimore City are African American.  There were two other important findings.  First, the share of Hispanic students impacted by foreclosure had been increasing to a point where the share of students impacted by foreclosure was the same as the total percentage of students attending the City public schools.  Second, we believe the share of white students impacted by foreclosure was not accurately counted, potentially being significantly undercounted.  According to American Community Survey data, nearly a quarter of the children in Baltimore City are white but only 8% of children that attend the City public schools are white.  This means that these students are attending other schools – most likely private schools – and were not included in the analysis.  Overall though, the fact that African American residents and their children were affected by foreclosures in such large numbers supports the facts that predatory lending policies and sub-prime loans were targeted to those persons who could least afford to lose their home.  The loss of the home, the primary vehicle to building wealth for many of these families, only perpetuates a vicious cycle of poverty.

HS: At Mayor Rawlings-Blake’s recent Vacants to Values Summit, the market-drive notion of “Code Enforcement” was promulgated a means to reduce blight in the city, which would impose sheriff sales on properties that do not meet the city’s code.  How do you feel about this tactic, and what other policies do you advocate to incentivize property owners to invest in Baltimore’s underserved neighborhoods?

MK: I believe that the Mayor’s plan has merit and there have been a variety of other strategies taken in an effort to reduce blight and to turn vacant housing into occupied housing.  There are issues with using code enforcement including identifying and locating individuals to serve them with the necessary paperwork, issues relating to selling the properties at Sherriff sales, and then trying to turn them into occupied properties.  Many of these properties are so beyond being able to be lived in, they will require significant repairs and persons willing to take the time and expense in making the repairs before anyone can live in the property.

I also believe that there are already a number of policies that are making strides in having residents invest within Baltimore’s neighborhoods.  Among these are live where you work programs, which also encourages employment, Healthy Neighborhoods, and the Neighborhood Stabilization Tax Credit.  I also believe that the City’s use of data and its Housing Typology model supports the use of strategic investment – targeting neighborhoods with the types of interventions that are needed most within those neighborhoods instead of spreading resources too thinly across a variety of neighborhood types.  Most of all, I believe that residents living in Baltimore’s neighborhoods are the best means to encourage other residents to invest and live in Baltimore City.

HS: Much of your scholarly work examines economic development in urban areas.  How have established NGOs like St. Ambrose contributed to economic development and vibrancy in the Baltimore area over the past few decades?  What do you feel is the role of NGOs in stimulating economic activity relative to that of the city government and the private sector?

MK: NGOs are a critical component to the overall continued health, vitality, and improvement to Baltimore City and its neighborhoods.  NGOs have been recognized as an important partner in economic development strategies that cities, such as Baltimore City, rely on for their ability to produce results and make an impact.  With fiscal constraints and the need to provide the same if not improved services for a shrinking residential base, NGOs have become a more important partner that the City has embraced to push economic and workforce development.  NGOs typically can operate without the bureaucracy and red tape that government agencies have in place, making them, in many cases, more effective and efficient in creating job opportunities and in neighborhood vitality.

Congress Proposes Cut to Important Foreclosure Counseling Program

A Foreclosed Home on the Market (Image Source: CNN)

We’re a little late commenting on this news, but the proposed cuts in the U.S. Housing and Urban Development Department’s primary program that appropriates funds for foreclosure prevention counseling has caused considerable buzz throughout the community development world.  Needless to say, St. Ambrose, like many other non-profit organizations in Baltimore and around the nation, would take a palpable hit if the measures materialize.

Here is the summary from the New York Times:

[The] proposal for the current fiscal year, which is scheduled for final votes in Congress imminently, cuts $88 million from the Department of Housing and Urban Development’s budget for loan counseling programs, including for reverse mortgages, a HUD spokesman confirmed Thursday. Some $9 million of that total is reserved for reverse mortgage counseling, which helps borrowers understand the benefits, costs and risks, of such loans

HUD’s program, the Housing Counseling Program, has made an enormous impact in the effort to mitigate the foreclosure crisis.  In the last few years, the Housing Counseling Program has delivered individual counseling to more than four million families in the midst of the foreclosure process.  The program has worked to prevent mortgage delinquency for more than two and a half million households, with almost one million avoiding foreclosure altogether.  Is has helped more than half a million renters and homeless individuals resolve landlord-tenant matters and other legal issues.  Finally, hundreds of thousands have benefited from pre-foreclosure counseling, which takes place before proceedings commence, enabling many families to refinance their homes, obtain reverse mortgages, and stave off disaster entirely.

These cuts could be severe, no doubt, and they are the product of a highly politicized Congress obsessed with slashing spending they perceive to be “wasteful.”  Indeed, part of the reason that this proposal has emerged relates to the public’s misunderstanding of foreclosure prevention counseling and its societal significance—a misunderstanding that has arisen because it’s difficult to articulate how this kind of counseling can provide both huge financial and emotional relief to homeowners and families.  And counseling has received poor press because of the failures of programs like HAMP and the government’s inability to regulate lender practices, topics that we have covered extensively in the past.

Despite these setbacks, we at St. Ambrose believe that nationally sponsored foreclosure counseling provides systemic help in alleviating the current crisis.  This is why the state of New York, for instance, has proposed providing not only counseling but guaranteed legal assistance to residents undergoing foreclosure, and several other commentators have pointed out the importance of counseling as well.  Here, we see it working first hand, every day.

If you have been in the foreclosure process and have received counseling or legal aid, please call your Congressperson, tell your friends to call theirs, and feel free to share your experiences here.

New Program Brings $40 Million to Maryland for Foreclosure Prevention

Official Logo of HUD, Which Administers the Program

As many of you may know, Maryland recently gained $40 million for foreclosure assistance as part of the Emergency Homeowner Loan Program, signed into law several months ago by President Obama.  Governor O’Malley used these funds to kick off the Emergency Mortgage Assistance Program last week.  On her popular Real Estate Wonk blog, Jamie Smith Hopkins succinctly describes the program’s bullet points:

Borrowers could receive as much as $50,000 in interest-free loans to pay off past-due amounts and to make up to two years of payments. They must have taken an income hit of at least 15 percent, be three to 12 months behind on their mortgage and have a “reasonable likelihood” of being able to get back on their feet.

The emergency help is like loan-to-grant money given to first-time homebuyers: No payments are due for five years, and every year the total is reduced by 20 percent until nothing is owed — as long as the homeowner keeps the property and stays up-to-date on the mortgage during that time.

Ms. Hopkins then asks: “what do you think? Better or worse off than loan modifications?”  While perhaps failing to directly proffer a response, my thoughts are below:

Maryland’s adoption of the new Emergency Mortgage Assistance Program is welcome news, no doubt, but it’s important to temper our optimism with strong caution.  As it stands, the new program delivers cash, not regulation.  And as we’ve seen all too often in our counseling sessions and discerned from our peers across the nation as well as from the news media, cash alone certainly may not result in a tangible step towards mitigating the impact of the foreclosure crisis, which, at least ostensibly, is the goal of this legislation.  Take for example Bryan Sheldon’s recent commentary about a “typical” mediation process, in which Bryan, a veteran counselor, accurately describes some of the common troubles that home-owners face while utilizing HAMP: banks’ ridiculous and erroneous demands for documents unrelated to foreclosure, the government’s inability to enforce program guidelines (and the banks’ inability to comply), and the banks’ illegal practice of commencing foreclosure proceedings while the borrower is under review for HAMP assistance.  Recently, policymakers were forced to draft legislation prohibiting lenders from initiating a foreclosure while the borrower is actively seeking mediation.  While this prospective reform is a breath of fresh air, it should have been totally unnecessary: common sense should prompt one to realize that such a practice is dishonest and unethical.

Frankly, Bryan hits the nail on the button when he writes, “the basic problem with the available government programs is that they have been implemented in the grossly deficient regulatory system which contributed to the foreclosure crisis in the first place.”  Indeed, I’m not convinced that this new program will produce results without robust, broad financial regulation to accompany it.

It’s important to remember that the foreclosure crisis was two-fold.  The predatory lending scams defined stage one, causing massive foreclosures and therefore families without housing, an aggregate loss of equity across the nation, and oddly as well as most consequentially, a crash in the U.S. securities market.  This last consequence led to stage two: large-scale layoffs, which subsequently forced many middle class families to default on their mortgages and eventually face the inevitable.

These victims still exist.  Many are still jobless, even homeless. And while many such people borrowed beyond their means, this trend emerged because of the gaping income inequality and stagnant wages that pervaded the last few decades, obligating many middle-class Americans to borrow more than they could take on.

These problems are now structural, and in addition to emergency benefits like the one’s offered in the new package, a structural fix is likewise necessary. To be sure, The administration has made some good efforts: the Frank-Dodd bill aimed at regulating the financial markets, the concept of a Consumer Financial Protection Bureau, headed by Elizabeth Warren, to name a few. But these development aren’t cutting it, indicated by the continuing prevalence of foreclosures nationwide.

I’m worried that the administration will stop with this initiative and that it will turn into another HAMP, which does not grant the Treasury Department the ability to impose fines on banks, a loophole that the latter group routinely abuses, among other shortcomings.  Along with foreclosure assistance to states, the President Obama needs to return to the drawing board and draft comprehensive financial regulation that 1) includes consumer protection measures, 2) defines and streamlines the process of responding to a foreclosure, while consolidating paperwork, 3) rigorously regulates the trading and development of dangerous securities, and 4) provides stringent enforcement measures.  This last point is crucial, as it had become fairly obvious that the government, all too often, has been plainly unable to administer the rule of law.

Until then, unfortunately, I am not convinced that this measure won’t fall short.  So while the state should welcome the Emergency Homeowner Loan Program with open arms, first and foremost, in order to stymie the foreclosure crisis and ensure it does not reoccur, we must mend “the grossly deficient regulatory system” that caused it.