Treasury to require banks provide unemployed homeowners 12 months of relief
July 7, 2011
Brockton Interfaith Community (BIC), PICO Massachusetts Communities Action Network (MCAN), PICO National Network
PICO applauds new regulations expected to be announced today by the Treasury Department requiring the nation's largest banks to finally provide widespread mortgage relief for the millions of homeowners who have lost their jobs as a result of the financial crisis caused by the big banks.
Under new federal guidelines, mortgage servicers will be required to reduce mortgage payments for eligible unemployed homeowners to affordable levels for up to 12 months. Additionally, unemployed homeowners who are already behind on their mortgages will be eligible for this new Extended Forbearance program.
Today's action is yet another step toward breaking the link in America between losing your job and losing your home. It's only fair that the big banks who caused so much job loss in America extend relief to the millions of families who've lost their jobs as a result of the financial crisis.
For more than a year-and-a-half, PICO clergy and community leaders, together with allies including The Leadership Conference on Civil and Human Rights, National Council of La Raza, AFL-CIO, Center for Responsible Lending and Americans for Financial Reform, have been pressing the Obama Administration to help homeowners who have lost their jobs as a result of the recession avoid foreclosure. A central component in has been 12-month Extended Forbearance.
In December 2009, PICO and allies presented a proposal for Extended Forbearance in a meeting with senior Treasury officials. Through a series of field hearings with Treasury in the spring of 2010, PICO consistently lifted up Extended Forbearance as a low-cost solution that could help millions of unemployed homeowners who had few other options to save their homes. Amidst these hearings, in May 2010, Treasury announced the creation of HAMP UP, the Home Affordable Unemployment Program.
HAMP UP aimed to reduce mortgage payments for those facing unemployment to 31 percent of current income for three months. While this was a step forward, it failed to take into account the fact that the average length of unemployment has consistently stood at over eight months, with many unemployed facing joblessness for 12 months or longer. As with other parts of HAMP, Treasury's reluctance to enforce this regulation - and impose consequences on servicers that fail to follow the rules - has also been a major roadblock to ensuring that it reaches the millions who need assistance. As of March 31, HAMP UP had helped only 7,397 people, a small percentage of the total number of people who qualify.
PICO leaders continued to press for Extended Forbearance and penalties for those servicers who failed to follow the rules. In November, representatives from PICO met with Treasury Secretary Timothy Geithner and other senior Treasury officials to urge them to embrace these proposals. In early June 2011, the New York Times ran a front-page article featuring PICO's work to advance Extended Forbearance with the Administration.
While today's announcement is a major step forward, it will mean little if Treasury does not follow through on aggressive implementation. To make this new regulation work, Treasury must do everything it can to inform borrowers of their new rights, and hold servicers accountable for proactively offering this relief to borrowers. As they have begun to do with other HAMP regulations, Treasury must be clear with the large banks that failure to swiftly and aggressively market this new Extended Forbearance program to their borrowers will result in significant penalties.
In addition, the Obama Administration and other federal and state leaders - including the 50 state Attorneys General currently in negotiations with the banks over the foreclosure fraud scandal - must get serious about reducing the nearly $1 trillion in negative equity that continues to plague nearly one-quarter of all mortgage holders nationwide and is dragging down both the housing market and broader economy. Only then will we be able to restore a level of economic stability for working and middle-class families.