Principal reduction would benefit economy, cities, and lenders themselves
Minneapolis — A coalition of community organizations, faith groups and Occupy Homes MN today released a report arguing that homeowners, the local tax base, the economy and banks themselves would all benefit if lenders reduced the principal on underwater mortgages and did more to help borrowers avoid unnecessary foreclosures.
“This was a crisis caused by a system of corruption that preyed on the vulnerable and people of color. It was not caused by individual homeowners who have suffered the greatest burdens and are left with too few solutions. We need bold action from our policymakers from the local to the national – implementing principal reduction and foreclosure mediation to protect our families and rebuild our communities,” said Rev. Paul Slack, Pastor, New Creation Church Minneapolis and President of ISAIAH.
The report, Wasted Wealth: Why Banks Should Fix Mortgages Instead of Foreclosing On Homes looks at a sample of recent foreclosures in Minneapolis and statewide data and concludes:
- Lenders with a history of improper mortgage servicing and foreclosure practices account for at least half of the foreclosures in Minneapolis.
- On average, banks lose more than $93,400, or half of the principal they are owed, when they foreclose on a home in Minneapolis. Banks could forgive the principal instead, keep many more people in their homes, and still come out ahead.
- Underwater homeowners in Minneapolis would need an average principal reduction of 35 percent to get right side up, significantly less than the loss banks incur on foreclosures.
- If banks reset mortgages to current interest rates and market value, they could save underwater Minnesota homeowners an average of $365/month on their mortgage payment, pumping more than $402 million into the local economy every year, which would help create more than 5,941 new jobs annually.
“It is our hope this study proves to policy makers and the wider community the necessary and immediate steps we must take to end the housing crisis that is tearing up our communities. We call on legislation that immediately halts foreclosures, demand principal reduction for all underwater homeowners,” said Jillia Pessenda Bovino, a spokesperson for Occupy Homes MN.
The report recommends steps lenders, homeowners and all levels of government could take to reduce foreclosures and end the destructive mortgage crisis caused by reckless and predatory banking practices.
“We’re not asking for a handout. We’re just asking banks to start working with us. My loan modification proves that they can fix these problems when they choose to. Now we need them to offer the same option to others in my position. We need these bankers to start acting like community members and not greedy crooks,” said Monique White, a north Minneapolis homeowner who worked with Occupy Homes MN and the community organization Neighborhoods Organizing for Change (NOC) on a successful campaign to get U.S. Bank to renegotiate her home mortgage and allow her to avoid foreclosure.
ISAIAH, Jewish Community Action, Minnesotans for a Fair Economy, Minnesota Neighborhoods Organizing for Change, Northside Community Reinvestment Coalition, and Occupy Homes MN jointly released the report.