NAACP Nine Point Homeownership Reforms
Posted on October 10, 2011
The NAACP proposes nine measures that will help resolve the current housing and foreclosure crisis and will assist in charting a future for housing in America in which the majority of all American communities regardless of race or ethnicity will be able to become homeowners.
Point #1: Ensure Non-Discriminatory Lending
As the NAACP continues to fight racial discrimination, we demand that federal housing finance policy align with and support longstanding federal housing goals to protect against discrimination. It must require all lenders and securitizers receiving a government guarantee of any kind to affirmatively market and offer credit to all neighborhoods including low to moderate income. It must also establish the necessary mechanisms to prevent the targeting or limiting of mortgage capital by any segment of the housing finance system in a manner that is racially exclusive or perpetuates segregation or redlining (including reverse redlining).
Point #2: Ensure a Strong and Autonomous Consumer Financial Protection Bureau
The NAACP supports a strong and autonomous Consumer Financial Protection Bureau (CFPB) to help monitor and enforce fair housing and fair lending. The CFPB is intended to ensure that banks and financial service providers are not unfairly gouging consumers and making profits through fraud, deception, or discrimination. Under current law, a strong CFPB will demand that financial institutions, through clear disclosures, make the terms and conditions of their products crystal clear instead of seeking to obfuscate terms and conditions that harm families, and it will crack down on financial institutions that break the rules instead of providing cover for them as so many regulators did in the past.
Previously, big banks were supervised by regulators, including the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Financial regulators have historically had a dismal record in ensuring compliance with fair lending laws and did not pay attention at all to who was paying the price for the profits reaped by financial institutions in the pre-crisis years. In an era of rampant mortgage steering and even discrimination – where a person was more likely to receive a subprime loan because of their race, or the racial makeup of their neighborhood, than because of their credit qualifications or income -- these regulators disregarded their jobs of protecting consumers.
Point #3: Support the Federal Role in the Secondary Mortgage Market that also Serves to Protect the Interests of All Homebuyers
The federal government has a critical role to play in ensuring that the secondary market serves all borrowers in a fair and equitable manner. Without federal incentives or interventions, the housing finance system will not reach all segments of borrowers and geographic areas. We urge support for a balanced national housing policy that facilitates a stable, liquid secondary
market―accessible to small and large lenders alike―which will extend credit and capital on an
equitable basis to all qualified borrowers and in all communities. As such we support a strong federal role in the secondary market to ensure consistent access to capital for all qualified borrowers. The secondary mortgage market must promote residential integration, the elimination of housing discrimination, and the provision of safe, decent, and affordable housing for all.
Point #4: Support Risk Retention while Adopting a Qualified Residential Mortgage (QRM)
rule that does not Decrease Homeownership Opportunities
Government policy must be aimed at strengthening the ability of first time home buyers to sustainably purchase a home while preventing unnecessary barriers to home ownership. The NAACP supports the concepts of risk retention and realigning the incentives on which loans are marketed and sold. We also support a QRM definition based upon sound underwriting (that recognizes the strength and due diligence of borrowers that makes them a good credit risk) and sound mortgage loan product features (such as income documentation and mortgage type). Both of these criteria have a larger impact on reducing default rates than high-down payments offered by borrowers.
The proposed 10% and 20% mandatory down payments on future home loans would not only stifle economic recovery but, more importantly, would lock too many responsible Americans out of the home buying market; a disproportionate share of those locked out by a high downpayment requirement would be racial and ethnic minorities, groups that do not historically have large amounts of cash reserves. In order to save enough money for such high down payments, borrowers would have to double the current average 5% savings rate to a previously unseen 10% savings rate. In addition, according to a Center for Responsible Lending survey, middle-income African Americans would have to save for almost 30 years or more to afford even a 10% downpayment. We oppose any efforts to institute a mandatory 20% or 10% down payment requirement for borrowers. Finally, QRM should be redesigned to comport with the Congressional intent to encourage sound lending behaviors that support a housing recovery, attract private capital and reduce future defaults without punishing responsible borrowers and lenders.
Point #5: Adopt a Qualified Mortgage (QM) Definition that will not Shut Out Most Prospective Minority Homeowners
To ensure sustainable mortgage lending there needs to be a consistent and safe mortgage product that is available to all Americans. With regard to QM, we strongly support adoption of a qualified mortgage definition that includes a fully amortizing loan with regular periodic payments, no negative amortization or balloon payments, a maximum term of 30 years, with points and fees limited to 3% of the total loan amount, underwritten using all mortgage-related obligations and the fully indexed interest rate, and where the creditor has considered and verified the consumer’s employment status, monthly payment for any simultaneous mortgage, current debt obligations, debt-to income ratio or residual income, and credit history. We believe that this is a comprehensive list of the factors that should properly be required for the underwriting decision if the creditor is entitled to a presumption of having considered ability to repay in the event of the borrower’s default.
Point #6: Provide Continued and Increased Funding for Certified Housing Counselors
Meeting the great demand for housing counselors is still a fundamental step that must be taken to turn around the radical decline in the housing market and bring greater racial equity to homeownership. The foreclosure crisis has disproportionately affected racial and ethnic minorities. African-American and Latino families were disproportionately affected relative to their share of mortgage originations. Among recent borrowers, we estimate that nearly 8% of both African Americans and Latinos have lost their homes to foreclosures, compared to 4.5% of whites. In 2010, a record 2.87 million properties received notices of default, auction, or repossession and over 3 million homes have been repossessed since the housing boom ended in 2006. Looking forward, it is expected that 10.4 million mortgages, or about one in five outstanding home loans, will likely default. Therefore, we are in need of housing counseling, now more than ever before. NAACP units across the country rely on housing counselors to assist members in our communities on not only housing purchases, but also what to do when they are faced with foreclosure. As one of the most vital resources for prospective and existing homeowners, now is not the time to increase housing counselors and more strongly support the critical role they continue to play during this foreclosure crisis.
Last year, more than two million families received one-on-one counseling through the U.S. Department of Housing and Urban Development’s (HUD) Housing Counseling Assistance Program. Yet sadly, this program, which is the only federally funded housing counseling program, did not receive funding in fiscal year 2011.
Point #7: More Assistance to Help Those Persons Devastated by the Foreclosure Crisis
The Federal Government, financial institutions, state governments, non-profits, and community organizations must continue their efforts to help the millions of homeowners who have lost their homes to foreclosure and to those homeowners who are living in their properties awaiting notice/eviction from their lender. Due to the unprecedented numbers of Americans facing foreclosure and the disproportionate impact the crisis has had on communities of color, the NAACP supports several initiatives which would greatly assist homeowners facing foreclosure. These include:
• Enactment of a provision which would close that loophole and allow impartial bankruptcy judges to require lenders to enter into loan modification negotiations with a person facing bankruptcy.
• An extension of the HUD’s emergency Homeowners’ Loan Program (EHLP), which is intended to help homeowners who are temporarily and involuntarily unemployed or underemployed due to economic conditions or a medical condition. Applications for the program were no longer being accepted after September 30, 2011. The NAACP also supports expanding the qualifications of who may be eligible for assistance under the program.
• Outlaw “Robosigning” and remedy homeowners adversely affected by the practice, in which many servicers did not even read the foreclosure documents they were signing.
These post-foreclosure efforts must include receiving transition assistance, unemployment assistance, job training, counseling, and placement. By offering coordinated federal, state, and non-profit assistance to former homeowners devastated by the foreclosure crisis, we can help these persons and their families regain some financial stability in their lives and move forward.
Point #8: The Federal Government, Banks, and Financial Institutions Must Increase Mortgage Principal Reductions tied to Current Home Values
More mandatory and widely available mortgage principal reductions for primary residence homeowners are needed. To date, this vehicle for relief to homeowners has not been seriously used. However, the critical need to stabilize the financial problems facing our nation’s homeowners and communities necessitates more immediate and substantive action. Principal reductions should be provided in both the federal government’s home loan modification programs and each financial institution’s private loan modification programs. They should include heightened loss-mitigation standards. Finally, they should also include a forbearance program to help unemployed homeowners.
Point #9: Enhance Federal Efforts to End Housing Discrimination
Sadly, more than 40 years after enactment of the Fair Housing Act, housing discrimination remains rampant in America: there are still an estimated 4 million instances of housing discrimination each year. Of these 4 million, in 2008, when the public filed over 30,758 fair housing complaints, fair housing organizations, with an average staff size of just five, processed 20,173 of these complaints, almost twice as many as all government agencies combined. The Department of Housing and Urban Development and the Department of Justice processed 2,156 complaints and state and local agencies processed 8,429 complaints. Included in policies that we feel are important to ending housing discrimination are:
• HUD should develop a strong Affirmatively Furthering Fair Housing (AFFH) regulation: Over the last year, HUD has been developing a regulation to define “affirmatively further fair housing”, and has indicated that a regulation should be released in December 2010. Any regulation must define “affirmatively furthering fair housing” as a proactive term. In order to affirmatively further fair housing, any jurisdiction receiving a grant from HUD should be required to develop housing policies that promote residential integration and expand geographic housing opportunities for all protected classes under the federal Fair Housing Act. It should not limit protection to just the groups in the federal law, however, because many states and localities provide protections to a broader group. The regulation must also include performance measures based upon HUD grantees’ outcomes in increasing racial/ethnic and economic integration within jurisdictions and across metropolitan regions. Merely filing appropriate paperwork is not enough; this regulation should permit a municipality to be flexible enough to meet its population’s needs but demand accountability for results and eliminate residency preferences that too often deny housing to members of the protected groups.
• Fully fund the Fair Housing Assistance Program (FHAP) and the Fair Housing Initiatives Program (FHIP): These two programs, which fund state and local fair housing enforcement agencies as well as private groups which investigate allegations of discrimination and provide “testers” are central to on-the-ground efforts to uncover and eliminate housing discrimination. FHIP has consistently been funded at $42.5 million annually, and FHAP has been funded for the past several years at 29.5 million annually. We recommend funding FHIP at $57 million in fiscal year 2012 and FHAP at $40 million in fiscal year 2012.
For more information about this 9 point plan contact:
Executive Director of the Washington Bureau
Senior Director of the NAACP Economic Department