Fewer foreclosure filings is good news but more needs to be done
December 18, 2009
Washington, D.C. – Nevada Senator Harry Reid today sent a letter to Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan, urging them to re-focus foreclosure-mitigation programs on the problem of negative equity to better help the thousands of Nevadans who owe more than their homes are worth.
“While today’s news of fewer foreclosure filings is encouraging, it doesn’t change the fact that too many Nevadans now owe more on their home than it is worth. As we continue to help stem the tide of foreclosures, mortgage servicers must focus on addressing negative equity when modifying mortgages. I thank Secretaries Donovan and Geithner for the leadership on this issue and appreciate any assistance they can provide.”
Below is a copy of Reid’s letter to Donovan and Geithner:
December 18, 2009
The Honorable Timothy Geithner
The Honorable Shaun Donovan
I am writing today to urge you to adjust the Making Home Affordable program to include a more aggressive principal-forgiveness component.
I was an enthusiastic supporter of your first efforts to respond to our country’s foreclosure crisis. These initial steps marked a dramatic departure from prior executive-branch efforts and showed the proper respect for the seriousness of the housing challenges facing the nation. Implicit in the Administration’s efforts was a recognition that our nation’s economic woes cannot be solved without addressing its housing woes. As you well know, economists of all viewpoints agree that the chances of a sustained economic recovery are diminished so long as foreclosures continue at their current clip – nowhere is this more true than in Nevada.
While there has been wide agreement among Democratic policymakers on the need to confront this problem, the best policy response that targets the causes of foreclosures and adequately protects taxpayers without creating unacceptable moral hazard has been more elusive. Indeed, the core of today’s challenge is different than what it was when this crisis began. According to many mortgage-market analysts, at the core of the problem today are homeowner negative equity and unemployment, different causes of homeowner defaults than resetting mortgages that led to unaffordable payments.
The Administration’s Servicer Performance Report for November showed a distressingly small number of permanent modifications completed under the Home Affordable Modification Program (HAMP). Based on input I have received from experts and constituents, there are likely several reasons for the low conversion rate of temporary to permanent modifications. These include documentation requirements that many borrowers are struggling to meet, concerns about immediate and detrimental reporting to credit bureaus through borrower participation in HAMP, and HAMP’s inadequate emphasis on principal reduction.
This last factor is especially significant to Nevadans because home price declines in my state have resulted in an astonishing number of homeowners with negative equity, with estimates ranging from above 50 percent to as many as 70 percent of Nevada homeowners. The best way to assist those Nevadans who deserve relief is for servicers to more aggressively offer principal write-downs. A greater emphasis on principal reduction through HAMP could help achieve this goal and lead to more permanent modifications for Nevadans and fewer re-defaults, thereby stabilizing home prices. Moreover, with a greater emphasis on principal reduction, a modification becomes much more compelling to a borrower and should incent them to work through any lingering documentation and credit-reporting challenges. I am confident the Administration could reconfigure HAMP in a way to meet these objectives.
To be sure, there are other ways to achieve principal reductions outside of the HAMP program. Congress made improvements to the Hope for Homeowners program by passing the Helping Families Save Their Homes Act of 2009 earlier in the year. While use of this program has been disappointing to date, it remains an option for mortgage servicers seeking to restructure their customers’ mortgages. Likewise, I remain an enthusiastic supporter of bankruptcy reforms that would allow bankruptcy judges to restructure a mortgage on a primary residence, a position I know you share. I hope to continue working with you on ways to achieve these reforms as well as any other legislation that will provide relief to ailing Nevada homeowners.
Last week, the President hosted a productive meeting to exchange ideas with members of Congress about ways to address the high unemployment rate, and there the topic of foreclosures also came up. As the Administration continues to review its foreclosure-mitigation programs, as suggested during that meeting, I urge you to continue shaping policy that responds to new facts and evolving problems. This Administration has impressed me and others by using this disciplined approach to policymaking in multiple areas, and that same approach is critical here.
My best wishes to you.
United States Senator
RenoBruce R. Thompson
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