Cardoza: Indifference Destroying the American Dream
Recently, the administration announced a policy proposal that I never thought I would hear from any American president, much less a Democratic one. It proposed giving up on the dream of middle-class homeownership and collapsing an already dangerously distressed housing market.
Before I am accused of overdramatizing the situation, let me point out that today some 90 to 95 percent of new residential mortgages are backed by the federal government, either through the government-sponsored enterprises Fannie Mae and Freddie Mac or through other agencies such as the Federal Housing Administration. Nationwide, before the GSEs were established, the average American mortgage required a 50 percent down payment, and the loan had to be repaid in five years. Withdrawing assistance to the GSEs, however slowly, would make owning a home virtually impossible for all but the very wealthy. The American dream is already on life support, and drastically winding down government assistance would essentially pull the plug. We need to reform Fannie and Freddie, not destroy them.
This dangerously irresponsible proposal from the administration shows how out of touch the Beltway mindset is with the struggles and dreams of Main Street America. Republicans and Democrats alike have failed to grasp the seriousness of a crisis where millions of America’s families continue to lose their homes to foreclosure every year, where almost one in four homeowners — and more than three in five in California’s Central Valley — owe more on their loans than their house is actually worth. The politicians don’t get it: The housing crisis is getting worse, not better. We are driving toward a cliff, and immediate and aggressive action by the federal government is the only way we can avoid disaster.
Our first priority needs to be keeping families in their homes. While our economy shows signs of improving, economists predict the number of foreclosures will actually increase this year. An estimated 2 million more people will lose their homes, and cities such as Seattle and Atlanta that seemed to have avoided the worst of the crisis are now seeing property values plummet.
The American taxpayer is facing disaster as well. More than 30 million home-owners have mortgages backed by Fannie Mae and Freddie Mac. Many of these mortgages are already trapped in the downward spiral that ends in foreclosure. Since they are ultimately the debt responsibility of the federal government, widespread default would be catastrophic.
We have the power to prevent this looming disaster. The solution I have been fighting for, the Housing Opportunity and Mortgage Equity Act, would stop the onslaught of foreclosures by using the federal government’s conservatorship of Fannie and Freddie to offer no-barrier, no-penalty refinancing to homeowners.
The concept of the HOME Act is simple. Fannie and Freddie would be required to allow homeowners the opportunity to refinance at a fixed, single-digit, market-based rate. This would enable millions of homeowners to take advantage of the current low interest rates and extend repayment for up to 40 years.
Instead of requiring new government spending, the HOME Act allows Fannie and Freddie to resell mortgage-backed securities to cover their costs, and investors get paid at par for their investment.
Refinancing at the current historically low market rate could save middle-income homeowners up to $1,000 a month on their payments. For millions of Americans, this could be the difference between holding on to their homes or losing them to foreclosure. And if the taxpayers are stuck with the tab regardless of all those Fannie- and Freddie-backed mortgages, shouldn’t the government do everything in its power to prevent homeowners from defaulting on their loans?
The HOME Act is far-reaching, but it is not unachievable. If the Federal Reserve can loan banks money at a quarter of a percent interest, can’t we give struggling homeowners a better rate on their mortgages so they don’t end up in foreclosure?
In America, owning a home is at the core of middle-class prosperity. It is our American dream and one of the reasons people like my grandparents immigrated to this country.
But this dream is fading, one foreclosed home at a time. And every time a homeowner gives up, their neighbors’ homes lose more of their value. The market is dragged down further, and the crisis deepens. Americans are losing hope.
The Band-Aid solutions our government has offered so far have done little to stem the growing tide of foreclosures devastating communities nationwide. The collapse of our economy is directly related to the housing crisis, and bold action is needed if we are ever going to recover. Congress and the administration need to wake up, face this reality and take action.
Rep. Dennis Cardoza (Calif.) is co-chairman of the Democratic Caucus Housing Stabilization Task Force.