REQUIRED READING: Homeownership has been a key element of the American Dream, but unfortunately, that dream has never been equally shared by all Americans, and the economic downturn that followed the financial crisis affected people of color disproportionately.
That's truly unfortunate because homeownership provides many important benefits for individuals and our communities. It can be an important asset-building tool for low- and moderate-income and minority families and provide them with a special measure of economic security, particularly if they lock into a fixed-rate mortgage that spares them from the kind of annual increases in housing costs that renters face. Over the last 15 years, a number of studies have found that there are benefits associated with homeownership, from increased civic participation to more stable neighborhoods.
But while there are clear benefits to homeownership, there are some critical public policy issues that I believe need our collective wisdom and insights to address as we work to help restore the mortgage and housing markets. First, while homeownership does have important benefits to families and communities, we must recognize that homeownership cannot be the only means for affordable and safe housing for families and communities. Attractive and affordable multifamily housing also has an important role to play.
Second, in restoring the housing market, it's essential that we avoid the lax underwriting practices that fueled the unsustainable run-up in house price appreciation that characterized the go-go years leading up to the housing market collapse. Instead, we should emphasize prudently underwritten mortgages, with terms that borrowers understand and have the ability to meet. The bursting of the housing market bubble in 2006 and the financial crisis and recession that followed illustrate the toll that lax – and in some cases, abusive mortgage lending practices can have on families and communities – and the national economy.
For minority communities, this effect has been especially pronounced. According to a Pew Research Center report released July 26, 2011, inflation-adjusted median wealth fell 66% for Hispanics, 54% for Asians, and 53% for black households between 2005 and 2009, compared with just 16% for white households.
The wealth gap between black and Hispanic households and white households is the highest since the government started publishing this data more than 25 years ago. The silver lining in all these dark clouds is that, with the deep decline in housing prices since the downturn and interest rates hanging around their historic lows, homeownership would seem more affordable than ever. However, mortgage lending to low- and moderate-income and minority areas and lending to minority borrowers, in particular, have declined significantly from 2006, according to data published by the Federal Reserve.
As you would expect, underwriting has tightened considerably since the financial crisis. Data in the Office of the Comptroller of the Currency (OCC) Mortgage Metrics report and the Federal Housing Administration's (FHA) monthly outlook reports show that the median credit score for conforming government-sponsored enterprise mortgages has risen to the high 700s, and even FHA mortgages now exceed 700, while other data show that the average national credit score fell eight points last year to 660. These data points suggest that the difficult economy and weak employment may prevent many people from taking advantage of lower rates and more affordable housing.
Because of the unique challenges facing communities of color and the strains of our present economic cycle, it is important that we all work together to ensure that these families have access to mortgage credit that is available on fair terms, and that lenders realistically evaluate borrowers' ability to meet those terms. Mortgage lending practices that ignore fundamental principles of sound lending or that mislead borrowers about the obligations they are taking on have no place in this nation's mortgage finance system.
The road ahead
Home buyers who receive up-front homeownership education, counseling and assistance from trusted independent advisors learn how to obtain sustainable mortgages and learn to manage budgets, credit and home maintenance. As homeowners, these families and individuals find themselves facing foreclosure far less frequently than other homeowners and making greater contributions to the vibrancy of their neighborhoods.
In my role as Comptroller of the Currency, my job is to ensure that national banks and thrifts are safe and sound and that they treat their customers fairly. Our objective is to ensure that they have the capacity to provide credit, including mortgage finance, to communities throughout the nation, including communities of color, and that their customers have reason to believe that the system will serve them fairly.
In that regard, as I mentioned earlier, the consent orders we took, along with the Federal Reserve, against the 14 large mortgage servicing banks and thrifts are intended not only to fix the problem, but, in my view, to restore confidence in the system. I won't go into all of the details of those orders or the work that has been done over the past year to implement them, but I would like to put in a plug for one key initiative in this process – the Independent Foreclosure Review.
As you may know, the orders cover about 4.3 million borrowers who were in some stage of foreclosure in 2009 and 2010. The process may have started much earlier than 2009, but if it was continuing during that year, borrowers are eligible for a review if the servicer of their loan was one of the companies supervised by the OCC or the Federal Reserve. Likewise, if borrowers lost their home in foreclosure after 2010, they are still eligible if the process started before the end of that year.
Our enforcement orders required the servicers to retain independent consultants who agree to work at the direction of the regulatory agencies, and not of the servicers, even though the servicers will foot the bill. Their job is to determine whether errors, misrepresentations or other deficiencies occurred in foreclosures that were in process in 2009 or 2010, to determine whether financial injury resulted from those errors, and then to recommend remediation for that financial harm. Then, the servicers are accountable for remediating that financial injury based on plans the OCC or the Federal Reserve must approve.
Until this process is completed, we will not know the magnitude of financial harm borrowers suffered as a result of flawed practices, and that brings me to a part that you can help play in this process. I want people to know this process is free to eligible borrowers who ask for a file review, and that they give up absolutely none of their rights in asking for the independent review of their case.
All eligible borrowers who request a review can be assured that their file will be reviewed professionally and evaluated fairly to determine whether errors resulted in financial injury. The deadline for requesting a review has been extended to Dec. 31.
So my request is simply this: Help spread the word, however you can, to encourage borrowers to evaluate their experience and, if they believe they suffered specific financial harm, to take advantage of the process. If they don't like the results, they don't have to take it, and they can choose to pursue whatever other legal remedies may be available.
But if they believe they truly did suffer financial harm as a result of flawed mortgage servicing practices, I encourage them to explore this process.
There are distinct benefits to homeownership – for individuals, for communities and for our broader economy. Ensuring that we have an inclusive mortgage industry that operates in a safe and sound manner is a full-time job that involves everyone.
Thomas J. Curry is the Comptroller of the Currency. He can be reached at (202) 874-5000. This article is adapted and edited from a recent speech.