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Bipartisanship may seem like a long-lost cause in today’s Congress, but there are some groups who are still working to foster consensus from both sides of the aisle. The Bipartisan Policy Center Housing Commission is holding hearings throughout the country in order to shape a policy agenda on pressing housing issues that could gain support from Democrats and Republicans alike. This week in St. Louis, I testified before the BPC Housing Commission on the issue of concentrated negative equity in communities of color (video is here, starting at 4 hours 46 minutes). I asked them to support allowing Fannie Mae and Freddie Mac to engage in principal reductions and to encourage mortgage servicers to streamline short sales and expand principal reduction programs.
Negative equity threatens the success of foreclosure prevention programs, drains neighborhood wealth, and delays a housing market recovery. The destruction of assets caused by negative home equity may disproportionately threaten the economic security of people of color because home equity is a larger proportion of their net worth than it is for white people.
Our report, “Struggling to Stay Afloat: Negative Equity in Communities of Color in the Chicago Six County Region”, showed that the challenges negative equity pose aren’t equally distributed. While one in four homes in the Chicago area are underwater, homeowners with mortgages in communities of color are more than twice as likely to have little to no equity in their homes than are homeowners in white communities. More significantly, homeowners in communities of color are three times as likely to be deeply underwater. The further underwater a homeowner is, the more likely he or she is to default on the loan.
Clearly, negative equity threatens the housing market recovery and bipartisan support can help us address the problem more efficiently and effectively. We asked the BPC Housing Commission to endorse recommendations to reign in negative equity, restore wealth, and set us on the path to stabilizing communities:
• Servicers should use principal reduction as a foreclosure prevention tool more broadly.
• The Federal Housing Finance Authority (FHFA) should permit loans backed by Fannie Mae and Freddie Mac to be eligible for principal reductions.
• Servicers should streamline processes for short sales.
For more information on the extent of negative equity and ways to address it, read my testimony or our report.
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