Larry Swanson: Minding the mortgage
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In America's efforts to support its financial institutions over the past year, the people with the most to lose in the foreclosure crisis -- working families struggling to pay their mortgages -- have received less attention than they deserve.
Despite the ongoing difficulties in the housing market, home ownership remains a cornerstone of financial life for most Americans. It is, therefore good public policy to support home ownership by adopting proven foreclosure prevention measures.
In addition, basic fairness demands that after passing the Troubled Asset Relief Program, which provided almost a trillion dollars of fresh capital to failing financial institutions, Congress should do more to support home-owners who are struggling through a foreclosure crisis exacerbated by unemployment in a deep recession.
Most of the initiatives championed by the president, Congress and other federal agencies have been less effective than their authors had hoped simply because no single initiative can meet every challenging circumstance. Even the U.S. Treasury's Home Affordable Modification Plan -- by far the most ambitious of these schemes -- has resolved only a fraction of the 1.2 million foreclosures filed in the second quarter of this year.
Effectively reducing foreclosures will require multiple models, utilized independently based on each homeowner's individual circumstance.
Pennsylvania has one of the most effective state-run foreclosure prevention programs in the country. The Homeowner's Emergency Mortgage Assistance Program which is administered by the Pennsylvania Housing Finance Agency, has been providing assistance to homeowners for over 25 years.
The program was created in 1983 after a push by union and community advocates to help steelworkers keep their homes as the mills closed. HEMAP was designed to provide a safety net for workers finding new jobs or learning new career skills. In retrospect it was a prescient move, creating unique infrastructure for foreclosure assistance decades before this crisis.
Unlike programs which seek to address defective or predatory loans, HEMAP focuses on homeowners who have suffered a short-term setback through no fault of their own. Job loss and illness are the top two reasons for delinquency.
The program provides qualified homeowners with a loan, either a one-time sum to cure a delinquency, or continuing monthly payments to the mortgage lender. The benefit amounts to individual homeowners are small: typically less than $10,000, and are repaid over a maximum of 36 months.
All applicants must demonstrate the ability to sustain regular mortgage payments without long-term state assistance. The program requires proof of resumed income, or a determination that the borrower could reasonably expect to resume making payments following a short-term disability or job retraining.
HEMAP does not make loans to individuals unless they can afford to repay them, and with median household income of approximately $38,000 it's been particularly effective for working families.
Since 1983, HEMAP has saved the homes of 42,700 Pennsylvania families from foreclosure. Eighty-five percent of recipients maintained long-term homeownership and over 20,000 HEMAP loans have been repaid in full.
To date, the Pennsylvania Legislature has appropriated $225.5 million to the program and received over $235 million in repayment from homeowners. By recycling funds, HEMAP has been able to provide $442 million in assistance to homeowners, a good investment of Pennsylvania's tax dollars.
Harvard University's Kennedy School of Government has recognized HEMAP as one of the 50 most innovative programs in American government, and at least two other states, Delaware and North Carolina, have copied Pennsylvania's model.
Like most foreclosure initiatives, HEMAP is not a panacea and cannot save every home-owner. It cannot solve a long-term income reduction or relieve falling property values. But for the hard-working families who can take advantage of it, it can be a life-saving bridge back to financial stability.
As with any government initiative, funding is always a challenge, particularly as the commonwealth wrestles with an enormous budget shortfall. HEMAP hasn't been spared the budget ax even as Pennsylvania suffers from record foreclosure filings.
However, there are opportunities to fund this vital program through other sources. The U.S. Treasury is sitting on $75 billion that's been set aside for -- but not spent on -- the Making Home Affordable initiative, and interest collected from banks on TARP loans is also flowing in. Either of these sources could be used to fund programs like HEMAP. Congress should authorize the president and his Cabinet the necessary authority to fund effective local solutions.
Home ownership remains one of the core pillars of American financial life. The foreclosure crisis is not simply a matter of individual family tragedy, but an issue of economic stability for whole communities.
Any effort to revitalize the nation's economy should include meaningful home ownership preservation resources and the federal government should look to successful state initiatives for guidance. We owe it to the American people to provide them with the same kind of support that we've shown to our financial institutions, preserving home ownerships with every reasonable tool at our disposal.
First Published August 19, 2009 12:00 am
