Turn Foreclosure Frustration into Policy Action (Opinion – Roberto Quercia)
Occupy Your Home advocates across the country have good reason to demonstrate their frustration over mounting foreclosures and market excesses. They have called for a National Day of Action to protest.
Homeownership, long the cornerstone of the American dream, is cracked and crumbling. The foreclosure crisis has created two Americas: one prosperous and hopeful, the other hopeless and debt-burdened.
We share their frustration. The crisis could have been avoided. We knew how to do lending right and we didn’t.
Research on home lending over the past decade clearly shows that during the run up to the crisis, lenders originated millions of loans they knew could not be repaid based on a borrower’s ability to pay. In any other area of business, such behavior would be considered professional malpractice. Not on Wall Street. People involved in this risky business actually benefited greatly, and many firms received taxpayer support. Meanwhile, the families who played by the rules, their communities and taxpayers are paying the price. This is privatizing profits while socializing losses at its worst.
Further, many of these bad loans were made disproportionately to people of color. As a result, a staggering one quarter of Latino and African American families lost their homes to foreclosures or are delinquent – twice the unacceptably high rate for white borrowers.
Four years into the crisis, policymakers still are considering misguided strategies, such as requiring a 20 percent down payment for new home loans. Research clearly shows that such a large down payment is not required to ensure borrowers will repay. Meanwhile, a huge share of the potential housing market would be shut out unnecessarily, further frustrating recovery.
These proposals not only reflect a lack of understanding of the root causes of the crisis but, if implemented, will prolong the crisis and severely restrict homeownership opportunities for the next generation. The best outcome for today’s protest would be for the nation to affirm what really caused the crisis – shortsighted greed and lack of regulation, not lending to working families – and take action to restore a sound housing finance system that preserves what has worked to help generations of Americans take that first critical step into the financial mainstream.
Is the American dream of homeownership for America’s working families obsolete, an aspiration of a bygone era? It is not. We know how to save homes, restore our communities, and promote economic opportunity through fair and sustainable lending. The answer lies in the experience of thousands upon thousands of low-income, low-wealth families, many of them borrowers of color, who bought homes using traditional, fixed-rate mortgages, many with low down payments, originated under the auspices of the 30-year-old Community Reinvestment Act.
Despite the worst crisis in generations, these borrowers continue to make their mortgage payments and build wealth. Research by our center and others and the experience of responsible lenders across the nation clearly document their success.
It is not complicated. It never has been. It takes only the right mortgage product, appropriately underwritten, originated and serviced, backed by a well-functioning secondary market and responsible oversight. Is that too much to ask?
Director, Center for Community Capital
Professor, Department of City and Regional Planning
- Affordable housing finance
- Housing economics
- Housing policy
Regaining the Dream: How to Renew the Promise of Homeownership for America's Working Families
Millions of Americans have lost their homes since the start of the Great Recession. Is the dream of homeownership for America's working families obsolete, an aspiration from a bygone era?
A new book by UNC Center for Community Capital researchers tells what really caused the foreclosure crisis and recommends ways to rebuild the U.S. housing finance system to work better for more people and promote economic growth.