April 3, 2012
By Omar Calimbas, Housing Rights Attorney at Asian Law Caucus
The Obama Administration’s comprehensive housing plan and the $25 billion mortgage servicing settlement agreement between 49 state attorneys general, the U.S. Dept. of Justice, HUD and the nation’s top five servicers (Bank of America, Wells Fargo, Citi, JP Morgan Chase, and Ally/GMAC) were announced this past February. These two represent the latest large-scale responses toAmerica’s foreclosure crisis. The President’s plan and the national settlement share several objectives, including the following: more refinancing to help non-delinquent yet underwater homeowners capture today’s historically low interest rates; more loan modifications, especially with principal reductions; and establishing new standards to prevent servicing abuses that ran rife in the industry and continue to do so today.
As usual, the persisting question is the actual availability of these solutions to everyone. This article will strive to touch upon some pieces of the national strategy that appear to be promising, both in general and with respect to Asian Pacific American homeowners and renters, as well as mention some of the missing pieces.
Crisis Hurting Some Communities More Than Others
For many distressed homeowners in Asian Pacific American communities, foreclosure fatigue will be difficult to overcome. The Administration’s housing plan and the national settlement come at the heels of ongoing programs such as the Home Affordable Modification Program (HAMP), which has been heavily criticized for its limited success. According to the California Reinvestment Coalition (CRC), HAMP has been particularly challenging for communities of color. Canceled trial loan modifications, unsuccessful applications, and lower decreases in debt burdens were reported by CRC as disproportionately affecting minority borrowers.
A study of the foreclosure impact on Southeast Asians in the Central Valley of California reveals the heightened need to build capacity to address their housing issues. With one of the highest concentrations of Southeast Asians in the country, the Central Valley contains several cities that have been hit hardest by foreclosures nationally. According to the National Coalition for Asian Pacific American Community Development (CAPACD) and the Southeast Asia Resource Action Center, the general income and education levels of Southeast Asian communities, coupled with language and cultural barriers, expose them to subprime and adjustable rate loans. These types of high risk loans make Southeast Asians more vulnerable to foreclosure. Moreover, Southeast Asian renter households represent a higher proportion than renters in the general population. As a result, Southeast Asian communities tend to be more at risk of eviction from foreclosed properties.
Notable Aspects of Obama’s Plan and the Settlement
Notwithstanding consumer disappointment with government efforts, there are some items in both the Administration’s proposal and the $25 billion national settlement that are noteworthy:
Principal reduction. Long-touted by housing advocates and economists as an efficient tool in preventing foreclosures, principal reductions (or loan forgiveness) find its way into the Administration’s plan through tripling existing incentives to lenders. The increased incentives would also be available to Fannie Mae and Freddie Mac. The settlement would credit lenders for write-downs, which would be applied towards the $20 billion relief owed to consumers. Lenders have three years to complete this obligation.
Affordable housing. Unique to the White House plan is the dedication of funds towards housing for low-income families. CAPACD noted in particular the $1 billion in mandatory funding in 2013 for the Housing Trust Fund as a solid move towards the creation and preservation of affordable housing.
Due process and fair business practices. Pres. Obama is calling for a homeowner’s bill of rights to govern the mortgage industry, which would simplify and harmonize disclosure standards, servicing standards, establish a grievance procedure, and minimize conflicts of interests that have exposed consumers to servicing abuses. Now that the newly-established Consumer Financial Protection Bureau has a director, Richard Cordray, who would be responsible for promulgating and enforcing these rules, we expect some movement on this front in the near future. Analogous terms in the mortgage settlement provide a host of standards that would apply to servicers to prevent such abuses as robo-signing and dual tracking (pursuing a loan modification and foreclosure at the same time), while requiring a single point of contact for borrowers and oversight of the whole process.
Protecting Renters. Obama’s proposal intends to extend HAMP to protect homes that are rented out. In large, dense metropolitan areas like San Francisco and Manhattan, many low income families are renters of single family homes or secondary units on those properties. While it is unclear to what extent HAMP may help renters stay in their homes, it is theoretically a step in the right direction to the extent that it acknowledges the myriad forms of affordable housing.
What’s Left Out?
First, the mortgage settlement agreement doesn’t cover Fannie Mae and Freddie Mac. These two combined own or guarantee over 60% of mortgages nationwide. Because no solution to the foreclosure crisis could leave out Fannie Mae and Freddie Mac from the equation, a broad swath of elected officials and non-profit organizations continue to push the GSEs to reform. The Asian Law Caucus has joined one coalition led by the CRC to demand that Fannie Mae and Freddie Mac formalize policies to allow principal reductions, preclude dual-tracking and offer long-term leases to occupants residing in foreclosed properties.
Secondly, solving the housing crisis must not overlook patterns of racial discrimination in the industry, whether it’s with loan origination, servicing or modifications. Yet there is an alarming dearth of statistics on the demographics of the crisis. Most of the studies have been based in large part on grass-roots surveys with community-based organizations and housing counselors. CRC has been advocating for much-needed change here, both in having the mortgage settlement and existing federal law require proper collection of the demographics. A prime example would be the Home Mortgage Disclosure Act (HMDA), which was enacted to collect industry data in order to ensure housing needs were adequately met with all communities, needs to be enhanced to provide for the collection and public reporting on loan modifications. Additionally, HMDA needs to disaggregate data on Asian Pacific American communities. It is clear that, given the sheer magnitude of the foreclosure crisis, any response must address the enhancement of the HMDA to prevent loan modification discrimination practices.