Last week, President Obama and Ed DeMarco, the overseer of Fannie Mae and Freddie Mac, announced their intention to remove barriers that have kept working homeowners from refinancing home loans into low-interest rates. Like anything coming out of Washington, the devil is in the details, and we must wait for those as in-depth operational changes will not be issued until November 15. Based on what we know so far, three elements look promising for Latino families:
- Removal of the loan-to-value limits, which will help families who owe more than the value of their home qualify for a new and potentially more affordable loan
- Reduction in refinancing fees, and
- Streamlined appraisal approvals, which are critical for homeowners in soft real estate markets
Still, we are disappointed that DeMarco did not take this opportunity to more broadly and effectively revive the distressed housing market. Under DeMarco's watch―and in some cases under his insistence―Fannie and Freddie have failed to enforce the basic servicing standards that much of the industry agrees are best practice, such as halting the foreclosure process while a homeowner is still under consideration for a loan modification. Most importantly, Fannie, Freddie, and their regulator have refused to reduce principle balances even though it is widely recognized as one of the most promising strategies for keeping families in their homes. Keeping homeowners in place is critical to reducing blight in hard-hit neighborhoods and stabilizing weak home values.
Although it did not go far enough, the announcement signals a subtle pivot for the Obama administration. There is no question that the collapse of Fannie and Freddie has come at a high cost to taxpayers. What remains in question is how these entities can be better harnessed to usher in our economic recovery. Until recently, Fannie and Freddie represented such a political lightning rod that few policymakers were willing to talk about anything except how to speed their undoing. Over the last couple of months, the administration has quietly changed its approach. In August, Fannie and Freddie solicited proposals for the disposition of the foreclosed properties, and now, unlikely allies across the country are collaborating to turn eyesores into attractive homes for sale or rent. This week's focus on helping underwater homeowners refinance is a welcome next step.
The administration should not stop here. We need bolder solutions that tackle head on the troubles of our housing market. Fannie and Freddie can be part of the solution by enforcing responsible servicing practices, reducing principle, and developing a strategy for selling foreclosed homes, thereby putting neighborhood recovery first. Otherwise, we will continue to watch America's homes deteriorate.
This was first posted to the NCLR Blog.