I’m like millions of other people across the country: Since the housing bubble burst in 2008, I have been fighting to save my home from foreclosure. I bought my home to care for my aging mother. When she passed, I decided to open up my home to those in need. I housed female veterans who were often homeless and struggling with post-traumatic stress disorder.
When the recession hit, my home’s worth cratered, losing nearly $100,000 in value. To make matters worse, I also lost my job. I continued to make mortgage payments, but I was stuck in my home because my mortgage was deep underwater. I contacted my bank, JPMorgan Chase, before I was ever behind on my payments. I was told that in order to qualify for assistance, I had to be three months behind on my mortgage. So I took the advice of my banker and stopped paying my mortgage. When I applied for a loan modification, I was denied. Because I was delinquent, my home is now owned by the bank.
While the economy is rebounding and home values are rising in many neighborhoods, underwater mortgages and foreclosures still plague low-income neighborhoods and communities of color. Since the collapse of the housing market, neighborhoods like Rainier Valley, South Park and Delridge have had more foreclosures than other parts of Seattle, and they still have the highest number of homes scheduled for auction.
Citywide, there are nearly 11,000 homeowners underwater on their mortgages and a disproportionate number of them are located in south-end neighborhoods. Many homeowners are so deeply underwater on their mortgages that they will never see positive equity in their homes.
Additionally, since being underwater is a leading indicator of foreclosure, many homeowners in these communities are still losing their homes. The only way the foreclosure crisis will end for communities of color is to reset the troubled mortgages to fair-market value.
For the past two years, homeowners facing foreclosure have organized in Seattle, eventually prompting the Seattle City Council to explore solutions that will achieve principal reduction for underwater homeowners. Councilmembers are now looking into programs in Oregon and Boston to see if such programs can be successful in Seattle.
Both the Oregon and Boston models have similar systems to help homeowners. First, homeowners are identified who are facing foreclosure but could afford to stay in their homes if they received principal reduction.
Then, either the government or approved private investors purchase the mortgage from the banks at near market value, and a new mortgage is issued to the homeowner at a slightly higher amount, with the difference helping to fund the costs of running the program. Eventually, the mortgages are sold to new private investors, revolving the funds and allowing more homeowners to be helped.
These programs have been so successful that virtually all homeowners in Oregon who received a principal reduction were able to stay in their homes. In contrast, the U.S. Treasury expects 40 percent of federal mortgage modifications to fail.
For homeowners like me, a program like this would mean permanently lower monthly mortgage payments, the ability to build equity and share in the economic growth of our city and an end to the distress we experience when we are on the precipice of homelessness.
The city council needs to do two things to make this happen. First, they need to fund the program. While the majority of the funds can come from either private partners or from the recent settlements between the U.S. Department of Justice and the nation’s largest banks, the city council should also provide funding to help start the program as soon as possible. Second, the city council needs to give banks reasons to participate in the program. By making the foreclosure process more difficult, the banks would be encouraged to participate in principal reduction.
We urge to the city council to get this principal reduction program off the ground as soon as possible.