By Nancy Wilberg Ricks, Senior Policy and Communications Strategist, NCLR
More than five million homeowners in the United States are paying much more for their homes than they are worth. Ironically, one of those homeowners is Sylvia Alvarez, who heads the Housing & Education Alliance, a leading housing counseling agency in Tampa, Fla., and an NCLR Affiliate. Alvarez and her dedicated staff have helped many families escape unsustainable mortgages.
Alvarez is an ideal candidate for principal reduction, but she cannot get help because her mortgage is owned by Fannie Mae. Most of the largest banks have granted some families principal write-downs, understanding that reducing the principal on a home for a struggling homeowner is a win-win. Families stay in their homes, continue to pay their mortgages, and stabilize the economy.
After the housing crisis, many experts knew that the solution to a healthier housing market was large-scale principal reduction, and the best place to start was with the Federal Housing Finance Agency (FHFA), which manages Fannie Mae and Freddie Mac. Consumer advocates fought very hard to ensure that FHFA had a strong leader and advocate for homeowners.
That’s why NCLR and our allies rallied for Mel Watt, a former U.S. representative and housing proponent, to be appointed as director of FHFA. We fought for Watt so he could fight for homeowners like Alvarez who need relief now. In 2013 we won the fight, and Watt was confirmed as the leader of the most powerful housing entity in the business.
Two years later, we still wait for progress. During the first year of his leadership at FHFA, Watt wanted to study the issue. Research points to obvious benefits of helping homeowners keep their homes, and even the 2013 Congressional Budget Office reported that a principal reduction plan could assist 1.2 million borrowers and save Fannie Mae and Freddie Mac $2.8 billion.
Yet Watt wavered.
Now, eight years since the height of the crisis, Watt and FHFA refuse to implement principal reduction. Families pay mortgage dollars that far exceed the value of their homes, and many cannot keep up. In the meantime, banks and investors are pushing out homeowners and acquiring properties at pennies on the dollar. This devastates communities. Turning long-seasoned homeowner neighborhoods into rental communities might not seem bad, but studies indicate that homeownership translates into stability and greater investment in one’s own neighborhood.
When will FHFA and Mr. Watt finally give households the relief they need? Principal reduction remains the solution. It would finally restore homes to their true value. It would also help families hold on to the largest investment most will ever make.