“Restoring Principles to the Housing Market: A Three- Part Strategy for Sub-prime Mortgage Reform”

“Restoring Principles to the Housing Market: A Three- Part Strategy for Sub-prime Mortgage Reform”

Tuesday, January 15th, 2008


As a steppingstone to the middle class, homeownership is at the core of the American Dream. Homeownership stabilizes neighborhoods, helps families and individuals build wealth, and keeps the U.S. economy strong. However, the recent mortgage crisis has decreased homeownership rates and threatens community stability. The effects of the sub-prime mortgage crisis1 have also hurt the housing sector and threaten to slow down the broader economy.

The Challenge

Inevitably, the mortgage crisis has led to declining homeownership rates. In the last year alone, the proportion of American households that own their homes dropped by 0.8%, the biggest year-over- year decline since 1981-82.2 In 2006, the U.S. experienced its highest foreclosure rate since the Great Depression, and it is estimated that another 2.2 million households with sub-prime loans will face foreclosure in the coming years.3

Foreclosures are expensive for lenders to process, financially and emotionally devastating to families, and unsettling to neighborhoods. Communities across the country have begun to feel the effects of the sub-prime lending crisis. As the crisis has spread, so has blight, altering the identity of many neighborhoods.

America’s homeowners and communities need relief. Without swift action, millions of Americans will be at risk of losing their homes, including a disproportionate share of minority families, who were only recently able to achieve the dream of homeownership.

The Solution: Assist, Protect & Prevent

A comprehensive policy response to this crisis will look beyond short-term solutions to find ways to reverse this decline in homeownership rates. This set of policy proposals will focus on financially responsible homeowners or victims of mortgage lending fraud and will:

  • ASSIST those Americans who have already lost their homes. The federal government should assist individuals by ensuring access to capital and supporting state and local affordable housing and financial counseling efforts. Additionally, the government should assist communities by expanding the New Markets Tax Credit and creating a Neighborhood Improvement Emergency Fund.
  • PROTECT current homeowners who are at risk of losing their homes to foreclosure. The government should allow borrowers to extend the period of their loans beyond thirty years and enact the Family Foreclosure Rescue Corporation.
  • PREVENT unprincipled lending practices used by some mortgage brokers. The government should outlaw pre-payment penalties and loan acceleration on homesteads, create a national standard that modifies home equity lending, and increase federal oversight for mortgage brokers and companies.

Read the full paper here:

POLICY_PAPER_HSG_Sub-prime_Mortgage_Reform 2

Or the summary here:

POLICY_SUMMARY_HSG_Sub-prime_Mortgage_Reform 2

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