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September 2, 2010 |
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| June 26, 2009 |
By: Polyana da Costa |
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espite the continuing residential foreclosure crisis, Fannie Mae and Freddie Mac mortgage modification programs have been little help to struggling homeowners in places such as Florida and California, says one national housing advocate.
David Berenbaum, executive vice president of the National Community Reinvestment Coalition, said that while he applauds the Obama administration’s efforts to push through mortgage reform and foreclosure prevention initiatives, the plans need to be refined.
Berenbaum said there is still a lot of misinformation about the roots of the financial crisis, who should be held accountable for it and how to solve it.
His organization, a Washington, D.C.-based group of community reinvestment organizations across the nation, has sued three big rating agencies in connection with the housing meltdown.
Last week, Berenbaum testified before the U.S. House Committee on Financial Services and the Subcommittee on Oversight and Investigation about oversight and fraud prevention. Berenbaum warned lawmakers of potential predatory lending practices under the Federal Housing Administration loan program (which recently has increased its share of the market from 2 percent to 33 percent of all residential mortgages). The number of FHA-approved brokers has surged from 16,000 in 2007 to 36,000 currently. And the number of FHA lenders has increased more than fivefold.
NCRC is also pushing a federal program called HELP Now, which could help lenders move bad loans off their books.
After his House testimony last week, Berenbaum appeared on a panel discussion at the National Association of Real Estate Editors’ annual conference in Washington, D.C. He later spoke to the Daily Business Review about his organization’s initiatives and how the real estate meltdown can be fixed. The interview has been edited for length and clarity.
What are some of the issues your group has been discussing with regulators?
There is a lot of smoke and mirrors or misinformation about the cause of the current financial crisis in America. Unfortunately, much of it is pointing fingers to the low-income consumers — African-Americans, Latinos — in our society. Frankly, this has been an entire market meltdown.
If you look at the types of loans, according to Credit Suisse, that are disproportionally in default right now, they are loans that were originated to middle- and upper-income consumers. In fact, most of the subprime loans were not for first-time home buyers, they were refinances.
Many loans did target Africa-Americans and Latinos and that is a very significant problem. Clearly, if we had more responsible regulating and underwriting we wouldn’t be in the mess right now.
NCRC filed complaints against the rating agencies for their role in all this. [The rating firms have drawn criticism for giving top grades to loans pooled into mortgage-backed securities that later soured.]
A lot of people have been pointing their fingers at mortgage brokers. In fact, if a rating agency had appropriately rated all of this paper as junk rather than AAA, none of these loans would have been originated and then, if the SEC had monitored the rating agencies appropriately, this would have been caught much earlier. And our research shows all that information was available to both.
What’s your take on South Florida’s situation. Do you deal with people there?
We work with a large volume of consumers there. Many were first-time home buyers, and they had the wrong mortgage type. Other consumers, quite frankly, bought investment properties. That’s a large number of calls that we receive from there.
The good news for those consumers is that Fannie and Freddie are working with investment properties right now in their programs and because of the large number of short sales, many other [lenders] are as well, because they are taking such losses in short sales.
The values of short sales are actually artificially low right now. The value of the homes are artificially low in Florida and that is terribly impacting the tax base, so we need to get some reality back into it. We’ve been speaking about problems with broker-price opinions because often the real estate agents who are listing the short sales are also giving the valuation and they are depressing it to flip the property and sell it — and that’s a conflict.
What is your take on the strategies and efforts the new administration is undertaking to help solve this crisis?
They are very significant. The point that was made on the [NAREE] panel about ability to pay and affordability to the consumer are critical. One of the reasons we believe there was a high re-default rate prior to this program was that many of the servicers were using sort of adhesion contracts. There was no relationship between the ability to pay or the consumer’s circumstances, or any effort to determine if the loan was predatory, to really ensure it was a holistic or healthy approach to modifying the loan. This process is all about what the consumer can afford and what will the investor agree to and it’s a very good approach.
Many people in Florida are having no success in modifying their loans, and when they do get a modification it brings their payment down by about $100, in some cases, and that doesn’t really help. Why is that happening?
The Fannie Mae refinance program ... has a 105 percent loan-to-value cap. So for California and Florida, for many areas, you are out of the system.
We said at the very beginning when they announced it that it should be 150 percent LTV to capture more people. The depreciation in the communities is a factor but it shouldn’t prevent the refinancing, especially if they are holding the property, because there is no real loss to an investor, especially if they hold it for years. In fact, they may see a profit on the loan.
We have to also keep in mind that most consumers until this crisis were selling homes very quickly so investors didn’t expect a long-term return, and I don’t think they are expecting a long-term return right now, either.
We’ve actually suggested another approach, which is a bulk acquisition approach — it’s on our Web site — called HELP Now.
And what is HELP Now?
Essentially, Treasury would buy the pool [of securitized loans] in bulk in a reverse auction process. That reverse auction would be for pennies on the dollars right now because of the value of the pools. Then Treasury would restructure all of the loans with Hope Now or other groups and give the consumers a fresh start, and then they would be prime paper — not nonprime, not nontraditional — and sell it back to the private sector.
There would be a percentage of the loans where possibly there may need to be a lien because some of them are truly depressed, but it would be a real public-private sector solution.
Have you heard any word on whether the loan-to-value cap on the mortgage modification program by Fannie and Freddie will be lifted or raised?
I don’t know what the new number is going to be. We know it’s going up but we don’t have number yet. They are being very closed-mouth about that.
Polyana da Costa can be reached at (561) 820-2065.
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