You can imagine the frustration in communities of color and working class neighborhoods across the country: They are facing record high foreclosure rates, job loss, and skyrocketing household debt. When you add in the fact that those that are in a position to buy are unable to get credit, entire neighborhoods are defeated.
Distressed communities are seeing ownership opportunities slip away and into the hands of investors and speculators.
This is where FHA can help. NCLR is pleased with the progress FHA has made so far. The program has moved quickly to lend when the private market would not. In 2008, 45% of loans made to Latino homebuyers were FHA-insured.
We understand the concerns around the increased claim rates against the insurance fund. But FHA cannot let tough economic times jeopardize its mission to serve moderate-income first-time homebuyers.
That is not to say there isn’t room for improvement. There are three areas of the FHA program that should be strengthened to better serve borrowers and taxpayers:
· Get rid of the bad actors. Much of FHA’s increase in claims is due to problems in the origination process and economic conditions. Not the product itself. HUD should do more to purge bad actors from the approved list of FHA lenders.
· Create an incentive to get objective pre-purchase homeownership advice. Several years ago, FHA removed the requirement for first-time homebuyers to attend homeownership counseling. Buyers that attend counseling are far less likely to default. HUD should create allow a premium discount for those that attend pre-purchase housing counseling with a HUD-approved agency.
· Exhaust all foreclosure prevention options before the home is lost. FHA has some of the best tools to prevent foreclosures, which servicers are required to offer. However, there is little monitoring or enforcement. Servicers should be required to prove to FHA that all foreclosure prevention options were exhausted before being able to file a claim.
During the subprime boom, millions of families that could have qualified for an FHA loan ended up in a toxic mortgage. Arguably, many would not be facing foreclosure today had they been steered toward FHA instead of predatory loans.
This year alone, 700,000 African American and Latino borrowers will lose their primary source of financial security to foreclosure. This is unacceptable. We need a robust FHA program that can offer a competitive alternative to such loans.