As this issue goes to print, the credit crunch has deepened. While there appears to be no end in sight for the borrowers, lenders, and communities in the grip of the subprime foreclosure problem, there are many organizations and people working hard to change the fortunes of individual borrowers and communities. In this issue, we highlight some of those efforts in addition to stories on alternatives to payday loans and home improvement financing. We have a report on the FHA and its ability to step in and help borrowers who need to refinance. The FHA’s programmatic changes (FHASecure) have made it a major player again after a few years of being largely ignored as a source of residential financing. With the passage of the Housing and Economic Recovery Act (HERA) this summer, the FHA will be responding even more to the refinancing needs of troubled borrowers through the new Hope for Homeowners program.
Loan servicers are still responding to the hundreds of thousands of borrowers trying to keep their homes this year. The servicers are having a difficult time keeping up with the demand for loan modifications and are therefore often viewed as the bad guys in this tough situation. But through an alliance called Hope Now, the country’s largest mortgage servicers are supporting the housing counselors who help delinquent borrowers and are establishing ground rules for how they as an industry should respond. Keith Rolland’s article on Faith Schwartz, who leads Hope Now , is insightful about how it works, how it keeps track of what the members are doing, and the lessons it is learning.
Consumers and communities continue to seek information on preventing foreclosure, so each of the Reserve Banks in the Federal Reserve System has added a Foreclosure Resource Center to its website. The Philadelphia Fed’s address is www.philadelphiafed.org/foreclosure/. It is designed for consumers who need a credit counselor, an attorney, or refinance options.
The research community is working overtime examining what went wrong and why. Marty Smith has reviewed a recent paper from the Boston Fed, where the research team put together a panel data set that shows all of the loans registered on properties in Massachusetts between 1987 and 2007, and then analyzed what went wrong.
In the midst of all the refinances and loan modifications, we have heard from many community developers, nonprofits, and bankers, in large communities and small ones, about how the credit crisis is affecting them. Borrowers who were once considered CRA-eligible are no longer assured of a loan, even if their credit profiles are strong and they have participated in housing counseling classes. And bankers note that they may not have the profits to generously support nonprofits’ operating expenses in the near future, even as they see how much additional need exists in the community development world. Rebuilding the home mortgage industry, particularly for low- and moderate-income borrowers, will take time. The Federal Reserve’s new rules for origination of higher-cost mortgage loans will help, but it won’t be the end all or be all. Borrowers will still need to learn how to protect themselves, to stop using their home’s equity as a credit card, and to stop thinking their home is a great way to get rich quickly.