(Akiit.com) Unequivocally, a property foreclosure should be the last resort on a defaulted loan. It is — and has always been — the product of a painful and humiliating economic hardship that has long-term negative effects on one’s credit history and subsequent ability to build wealth. Recently, several banks have temporarily halted foreclosure proceedings while an investigation is underway regarding the deeply problematic trend of “robo-signing,” or failing to fully review documents associated with executing a foreclosure.
Recently, the Obama administration has questioned whether this moratorium is the best response. White House advisor David Axelrod, acknowledged that, “it is a very serious problem.” However, he also indicated that a national moratorium is not necessary, saying, “there are in fact valid foreclosures that probably should go forward because their documents are accurate.”
Clearly, protections are needed to ensure that people are not improperly removed from their homes; and with African-Americans and Latinos being 75 percent more likely to experience a foreclosure than their similarly situated white counterparts, largely as a result of having disproportionately accepted high cost mortgage loans, there is also a need to examine this solution using an equity lens. However, in doing so, we should also determine whether a national moratorium is the right long-term response for communities of color.
First, a long-term moratorium prevents the sale of properties that are already vacant, thereby increasing the potential for continued (or increased) community blight. It is estimated that 25 percent of all homes in foreclosure are vacant. A moratorium prolongs the time in which properties are susceptible to the negative elements that accompany an abandoned property. The lack of “curb appeal” for many vacant properties negatively impacts the desirability of a neighborhood and its renting trends, and it reduces property values. Additionally, high crime indices are known to surround residential neighborhoods with high vacancy rates, which affect our safety, property values, infrastructure development, and ability to improve the viability of our communities.
Second, a long-term moratorium blocks key lending processes that stimulate the economy and increase rates of homeownership among African-Americans. According to Neighborworks America, only 9 percent of homeowners are African-American. Nationwide, nearly 25 percent of homeowners nationwide are underwater, and 8 percent of African-Americans have lost their homes to a foreclosure. While this has led to a disproportionately negative impact on our communities, there are still segments of the African-American homeownership community that are managing their mortgages and looking for structured responses in this fiscal environment to help them keep their investments.
With such abysmally low participation rates, we should be encouraging those in our community who are able to responsibly secure a mortgage loan to do so. We should seek to correct the tentative grasp that African-Americans collectively have on homeownership by preventing measures that could discourage future homeownership in our communities. A long history of social inequality and lack of access to capital, resources, and fair lending have provided enough discouragement. We should be thinking of ways to responsibly guide African-Americans toward homeownership, rather than away from it.
Third, the real challenge is dealing with troubled borrowers much further upstream. Foreclosures are not a desirable outcome for anyone, but they stem from a series of activity (or inactivity) that reflect financial hardship over time. However, when loan modifications are sought early, they are likely to produce positive results. For example, seven out of 10 customers at Wells Fargo Bank who work toward a loan modification within 30-90 days of default are able to avoid a foreclosure. For those who unfortunately advance toward foreclosure, it is only after more than 75 calls have been placed to the borrower and more than 45 letters sent to the borrower, encouraging him or her to take advantage of home preservation services. To stay in their homes, borrowers must pay the mortgage; but if they experience hardship, the best thing to do is to address it as soon as possible.
All borrowers have the right to equal protection and due process under the law, and if a borrower is in the unfortunate position to experience the foreclosure process, he/she deserves for the process to be followed to the letter of the law. It is inexcusable for lending institutions to exploit the record number of properties in the foreclosure pipeline to deny people of their civil rights; and for those who may have been illegally harmed by faulty processes, they deserve remedy.
Likewise, our reaction to these issues must consider the extent of the potential harm on communities that are likely to suffer most from a moratorium that is unaccompanied by any corrective action to thwart the harmful, systemic injustices that upset borrowers in the first place. Instead of focusing exclusively on a moratorium, perhaps lending institutions should consider creative responses to divert borrowers from the foreclosure pipeline altogether. Perhaps they should consider expanding principal forgiveness programs for borrowers who are upside down in their loans or in communities with a high incidence of foreclosure. Perhaps they should further develop “good faith” programs that allow for borrowers with an established credit and payment history with the bank to “earn” months of loan deferment if they suffer an extreme hardship that impacts their ability to repay.
Or perhaps, they should think about strategies that will allow borrowers who buy homes in communities that are disproportionately affected by foreclosure to earn points toward future loan reduction, which can improve their debt to income ratio, and perhaps improve the FICO scores of borrowers who are now at a structural–and financial–disadvantage.
The problems associated with the high incidence of foreclosure in communities of color are tied to deeply entrenched, structural biases that prevent full access to quality financial products and services. While a temporary moratorium may be a solution to correct our institutions’ immediate processes, without actions to adequately address the root causes of this crisis, we may be left with little more than a topical anesthetic for a severely advanced disease.
Written By Monique W. Morris