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Published: February 2009

Foreclosure prevention necessary to solve economic recession

Coalition: Housing

Leading consumer groups - including Consumer Action - sent a letter to Treasury Secretary Timothy Geithner outlining what a successful federal foreclosure prevention program should include.

Our organizations represent the people and communities hardest hit by the current economic crisis, and we have been working on the front lines to provide assistance to distressed homeowners.  We have seen how the stated policies of loan servicers are implemented on the ground, and understand the kinds of loan modifications that do and don’t offer long-term sustainability.

The crisis in our nation’s neighborhoods widens and deepens daily.  The growing tide of foreclosures is at its core, and we believe that the larger economic meltdown cannot be solved until foreclosures are stopped.  Voluntary mitigation efforts on the part of loan servicers have not worked. We appreciate the efforts you have made to increase accountability under TARP, but we believe the steps taken to date are not enough to solve this problem.  The time has come for bold, aggressive action on the part of the federal government.

A successful federal foreclosure prevention program must include the following elements:

• Require all institutions receiving assistance under TARP to establish streamlined, aggressive loan modification programs.
• Require that loan modifications make mortgage payments affordable, i.e., no more than 31% of gross monthly income.
• Require institutions to lower and fix interest rates and reduce principal balances as a means to achieve affordability.  Extending loan terms is a third option.
• Require institutions to make loan modifications permanent, to avoid simply postponing resolution of the problem.
• Make provisions to purchase second mortgages.
• Eliminate income tax burdens that undermine the sustainability of loan modifications.
• Make public information on the types of modifications offered, the race and national origin of the affected borrowers and information on the performance of the modifications.
• Ensure that servicer incentives promote loan modifications and do not favor foreclosure over loan modifications.
• Shield servicers from liability for making economically rational loan modifications.
• Provide adequate resources to attorneys and non-profit foreclosure prevention counselors who assist troubled borrowers.
• Establish authority for judicial loan modifications.
• Make continued Real Estate Mortgage Investment Conduit (REMIC) status contingent on modifying PSAs to allow for economically rational loan modifications.

In addition, we urge the Department to move forward on several other fronts:

• Continue and expand efforts to modify loans within the control of the government, both through the purchase of whole loans and through more aggressive loan modification efforts by Fannie Mae and Freddie Mac.
• Purchase loan servicing rights where feasible and set a strong standard for fair and sustainable loan modifications.
• Use your new guarantee authority to provide guarantees for sustainable loan modifications.
• Establish a system to ensure that expenditures of TARP funds comply with applicable federal civil rights laws and regulations.

While some of these recommendations may be difficult, we believe that all are critical to successfully ending the foreclosure crisis and turning our economy around.

Other Organizations

ACORN | Center for Responsible Lending | Consumer Federation of America | Consumers Union | Dēmos: A Network for Ideas & Action | The Greenlining Institute | Leadership Conference on Civil Rights | Lawyers’ Committee for Civil Rights Under Law | NAACP | National Association of Consumer Advocates | National Community Reinvestment Coalition | National Consumer Law Center on behalf of its low-income clients | National Council of La Raza | National Fair Housing Alliance | National NeighborWorks Association | National Policy and Advocacy Council on Homelessness | National Training and Information Center | PICO National Network U.S. Public Interest Research Group

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