Recent industry projections are that over eight million families will lose their homes to foreclosure over the next four years. That's one in every six homeowners with a mortgage. If the economy enters a deep recession, the number of homes lost could exceed 10 million. With the housing sector responsible for one in eight U.S. jobs, the flood of new foreclosures will contribute to the growing unemployment rates and further constrict consumer spending.
Banks are foreclosing on homes at a rate of approximately 40,000 per week. The failure to stem these losses imposes a cost to the taxpayers every week in lost tax revenues, in losses to the taxpayers' investments in the TARP initiative, and in deepening the nation's economic decline.
The following four policy recommendations focus on removing the obstacles that prevent the systematic, sustainable modifications needed to keep families in their homes.
Recommendation 1: The Treasury should use TARP funds to stop preventable foreclosures by adopting a systematic loan modification approach that will result in much larger numbers of sustainable modifications.
Recommendation 2: Congress should change rules governing trusts so that the government can purchase whole loans out of securities and so that trust contracts do not artificially restrict modifications.
Recommendation 3: Congress should ensure income tax burdens do not undermine the sustainability of loan modifications.
Recommendation 4: Congress should lift the ban on judicial loan modifications, which would prevent hundreds of thousands of foreclosures without costing the taxpayer at all.
Personal stories from homeowners in PICO communities, the national network of faith-based community organizations, illustrate many of the problems with the current voluntary, case-by-case approach to loan modifications that lead to foreclosures that otherwise could have been prevented.
More on the Need to Remove Obstacles to Systematic, Sustainable Loan Modifications
New Foreclosures By State for 2009
Government Did Not Require Reckless Lending
CRL's Summary of Credit Suisse Findings on Bankruptcy Reform