U.S. Rep. Peters and local housing experts fight to help underwater homeowners stay in their homes
At National Homeownership Month press conference with housing nonprofits and realtors, Peters lays out his plan to strengthen the housing market by fighting foreclosures
Farmington Hills, MI – June 14, 2012 – (RealEstateRama) — Today U.S. Rep. Gary Peters marked National Homeownership Month by discussing his bill, the Preserving American Homeownership Act, with local housing nonprofits and realtors at a press conference. Peters’ bipartisan legislation would provide a new way for underwater homeowners to avoid foreclosure through principal reduction.
This press conference happened at GreenPath Debt Solutions in Farmington Hills at 10:30am this morning.
“There’s no question that too many families in our community have been devastated by the foreclosure crisis, and that’s why I’m working to give struggling underwater homeowners a second chance to stay in their homes,” said U.S. Rep. Gary Peters. “When a family loses their home due to foreclosure, everyone loses; that’s why my proposal for a common sense principal reduction option is earning support from Democrats and Republicans as well as realtors and housing experts. During this National Homeownership Month, we need to all come together to strengthen our local housing market, cut foreclosures in our community and ensure that the American Dream of homeownership is there for the next generation of Michiganders.”
“I’m strongly supporting Congressman Peters’ principal reduction legislation because it would help thousands of struggling homeowners stay in their homes,” said Jane McNamara, President and CEO of GreenPath Debt Solutions. “We see many homeowners who are underwater, through no fault of their own, with very little options available to them; Congressman Peters’ bill would help them avoid foreclosure and stabilize our communities.”
“Gary Peters’ principal reduction plan makes sense for families facing foreclosure and it makes sense for the housing market,” said Theresa Davis, a local realtor and partner at Due Diligence, a Southfield firm that trains realtors and helps families with housing issues. “We need to work together to support common sense legislation like this to improve our housing market and end the foreclosure crisis.”
“When foreclosures happen, it negatively affects the entire community,” said Realtor Committee Member Philip Seaver, of the Seaver Title Agency in Farmington Hills. “Congressman Peters has put forward a plan that will strengthen our local economy and help thousands of families avoid foreclosure.”
“Southeast Michigan has been hit hard by the housing crisis and every day, I see families fighting to keep their homes. However, they have no equity to secure a local community loan. What we provide is free smaller repairs for local homeowners,” said Jerry McKay, President of Rebuilding Together Oakland County. “Congressman Peters’ proposal to help struggling families facing foreclosure go through a principal reduction process would help thousands of families in Southeast Michigan.”
Background on the Preserving American Homeownership Act of 2012
“Principal reduction works … It saves taxpayers money and makes homeowners less likely to default.” – Mark Zandi, chief economist of Moody’s Analytics
[F]ailure to act means that further declines in home prices will continue, preventing the rise in consumer spending needed for recovery. As costly as it will be to permanently write down mortgages, it will be even costlier to do nothing and run the risk of another recession. – Martin S. Feldstein, professor of economics at Harvard and chairman of the Council of Economic Advisers under President Ronald Reagan.
- The Scope of the Problem: Since the beginning of the housing crisis in 2006, home values have declined more than 30%, and 22.8% of all homeowners now owe more on their mortgage than their home is worth. A large number of distressed sales is keeping home prices from rising, causing many homeowners to fear they will never be able to get out from under an underwater mortgage.
- The Case for Principal Reduction: Reducing principal balances helps struggling homeowners save their homes, reduces foreclosures, accelerates economic recovery, spurs growth and reduces overall consumer debt, while limiting future taxpayer losses. Principal reduction results in lower re-default rates than other types of mortgage modifications. The cost of reducing principal can often be less than the losses associated with foreclosure, resulting in savings for taxpayers.
- Pilot Program: The Preserving American Homeownership Act directs the FHFA and FHA to create a principal reduction pilot program. Where principal reduction would result in a net present value gain for taxpayers, the homeowner would be eligible for an immediate reduction in principal to a loan to value (LTV) ratio of 115%. If the homeowner continues to make payments for three years additional reductions would be phased in resulting in a LTV ratio of 95%. In order to be eligible for a principal reduction, the homeowner would have to be in danger of foreclosure and so deeply underwater that other remedies, such as principal forbearance, interest rate reduction, or term adjustment will not be enough to give the homeowner an affordable monthly payment.
- Shared Appreciation Model: Losses to taxpayers are further reduced by requiring homeowners to share in any future appreciation. If the borrower sells their home or refinances their mortgage he or she is required to share up to 50% of any appreciation in value to offset the cost of the principal reduction.
- Private Sector Success: According to a recent report issued by the Center for American Progress, the private sector has already begun to embrace shared appreciation principal reduction programs. The report quotes the President of Ocwen Financial Corp. describing that company’s program as a win for the investor and the servicer of the modified loan.
