(Cross-posted from the Home for Good blog)
During the foreclosure crisis, government regulators ordered major mortgage lenders to conduct a review of their internal foreclosure practices. This effort, dubbed the Independent Foreclosure Review (IFR), was supposed to provide relief for homeowners who suffered from wrongful foreclosure and illegal robo-signing practices. Sadly, IFR was an expensive disaster from the start, with a weak outreach plan that did not adequately reach communities of color. Just as borrowers were beginning to file claims, the government shuttered the process and opted for a settlement.
In its place, regulators settled with the banks in the $10 billion Independent Foreclosure Review Settlement, distributing relief to 4.2 million homeowners regardless of the actual level of harm done to individual families. The settlement seemed like welcome relief, given the millions of dollars paid to third-party vendors while homeowners received nothing.
However, according to the latest Government Accountability Office (GAO) report, the settlement may have come too soon, before the extent of damage done to homeowners was fully known. At the time of the settlement, banks had reviewed only very small portions of their total obligations—some had completed less than 2 percent of their required case reviews. While regulators had calculated a harm error rate of 6.5 percent, at least one bank that had completed a larger portion of its review had an error rate of about 24 percent. Since this bank had completed much more of its review process than the others, it’s entirely possible other banks had higher harm error rates as well.
For the Latino community, this news is deeply troubling, as the effects of the foreclosure crisis have been severe and ongoing. Vast amounts of generational wealth and home equity have been lost, with the racial wealth gap between Hispanic and White Americans standing abysmally high. After the recession, Hispanic families experienced the largest decrease in net worth among all groups. For every dollar the average White family owns, the average Latino family owns only seven cents.
Sadly, the foreclosure crisis is far from over today, with a new Haas Institute report documenting the nation’s metro areas hit hardest by foreclosure and underwater mortgages. Nationwide, nearly one in five of all mortgaged homes were underwater at the end of 2013—more than 9.8 million households. States and cities with large Latino populations including Miami, Chicago, Nevada, and California all suffer from high rates of foreclosure and underwater mortgages. In Newark, New Jersey, a city overwhelmingly Black and Latino, over half of all mortgages are currently underwater. Our communities are clearly still in crisis.
Latino families and all Americans affected by the foreclosure crisis did not receive the relief they deserved as victims of mortgage lending errors. We must continue to look for practical solutions to help these families recover the wealth they lost. We renew our call to protect Latino families and all American homeowners still struggling to avoid foreclosure. With Director Mel Watt now at the helm of the Federal Housing Finance Agency, principal reduction should be implemented immediately to provide relief to underwater homeowners struggling to make their mortgage payments before it’s too late.
Today, the foreclosure crisis is still not over and communities of color are still struggling to get back on their feet and regain the massive amount of wealth lost during the recession. The stability of our entire economy depends in part on a strong housing recovery. No American dream is complete without homeownership, which is why we must continue to work to ensure that housing policies facilitating sustainable homeownership remain at the core of our nation’s housing agenda.