Five years later, the mortgage crisis continues. There are still at least 13.2 million underwater mortgages, a number that is likely much higher when factoring in unreported areas. An estimated 13 percent of underwater borrowers with Fannie Mae and Freddie Mac loans have missed three or more mortgage payments. If even this small proportion of the 13.2 underwater homes goes into foreclosure, Americans stand to lose another $221 billion in wealth.
Betty Badro, a homeowner from Glendale, Calif., said it best: “Where is our relief? If I am thrown out of my house, it will be because my bank refused to work with me for a loan modification. The power is in their hands to stop the crisis. Instead, they continue to profit off of our communities. Even though the stress is affecting my health, I’m not going down without a fight.”
This financial pain is not evenly distributed around the country. As the new report, Wasted Wealth, authored by the Alliance for a Just Society and released with the Home Defenders League and New Bottom Line, shows: communities of color are disproportionately affected at alarming levels. Communities of color were targeted for subprime and riskier products, and as a result have seen higher rates of foreclosure in their neighborhoods. Data show that people of color tend to hold more of their equity in real estate, adding to the impact the crisis has had on those communities.
The result is a devastating loss of wealth for entire communities from which they may not recover. That is why it is time to act. There is a solution that could save a generation of middle-class homeowners and keep their families on track to live out the American Dream. A strategy of principal reduction would save money for homeowners, boost the economy, and create jobs.
Principal reduction — writing down underwater mortgages to current market values — would create significant savings for underwater homeowners. It would also generate new economic activity and create jobs in local economies. Using 2012 data, a principal reduction program could produce average annual savings of $7,710 per underwater homeowner nationwide, boost the U.S. economy to the tune of $101.7 billion and create 1.5 million jobs.
It’s time for our elected officials to act. The nomination of a new director at the Federal Housing Finance Agency, Mel Watt, is a step in the right direction and is a hopeful sign that Fannie Mae and Freddie Mac will implement far-reaching homeowner relief. But we are not just going to hope for change. Homeowners from across America representing every community are traveling to Washington, D.C., to demand justice for their families and their futures. As a nation, we committed trillions of tax dollars to bail out big banks so that we could restore the economy — now it’s time for our government to require those banks to provide relief for families and communities devastated by the financial crisis and foreclosure epidemic.
Hall is the founding Executive Director at the Alliance for a Just Society, a national coalition addressing social and economic injustices through policy research, advocacy and grassroots organizing. Hall has been the recipient of numerous awards for her work including the Leadership for a Changing World Award from the Ford Foundation.
Whalen is campaign director for the Home Defenders League. Whelan was arrested this week along with 34 homeowners fighting foreclosure in protests at the Department of Justice during a Week of Action for Wall Street Accountability.