By Dave Gatton
February 11, 2008

The nation’s mayors have called for the Administration and Congress to take immediate steps to address the mounting mortgage crisis, but said further action may be needed in the near future.

During the U.S. Conference of Mayors’ Winter meeting in Washington (DC) January 23-25, Conference President Trenton Mayor Douglas H. Palmer asked Congress to move quickly to reform the Federal Housing Administration (FHA) to serve troubled homeowners, lift the loan limits on Freddie Mac and Fannie Mae to increase liquidity, increase availability of tax-exempt mortgage revenue bonds to spur home refinancings, and provide additional Community Development Block Grant funding to help cities stabilize neighborhoods hit by the mortgage crisis.

“These proposed actions are only first steps,” Palmer told the mayors and the media. “But they are urgently needed. We will have to see how the crisis unfolds and, if necessary, we will call for even bolder action by the federal government,” he said.

In addressing a plenary luncheon, Palmer said that the crisis was not of the mayors making. “The mortgage crisis was brought to us by federal regulators being asleep at the switch, and a banking industry gone wild. Now over 1.4 million families are suffering because they face the real prospect of losing their homes.”

At the luncheon, Palmer described how, in Trenton, he had convened the mortgage industry, the faith-based community and non-profit groups such as the Neighborhood Assistance Corporation of America (NACA), and NeighborWorks America, to develop a strategy to assist homeowners who need their loans modified.

Bruce Marks, President of NACA, said the key was to expedite the use of re-underwriting programs based on the homeowner’s ability to pay. “Banks and loan servicers are not necessarily equipped to move quickly to help homeowners, and it is not in their blood to modify loans,” he said. “Our experience has been that if we (NACA) responsibly re-underwrite the loan, require the homeowner to make six months of payments at the modified interest rate, and disallow those payments to come from credit cards, then the banks will accept it.” NACA has an agreement with Countrywide Financial and Wells Fargo, two of the country’s largest mortgage lenders, to accept modifications from NACA’s re-underwriting system.

Heather Schwartz, Executive Director of the HOPE NOW Alliance, a consortium of bankers, mortgage servicers and Wall Street securitizers, discussed how the consortium was supporting the 1-888-995-HOPE (4673) national counseling hotline. Over 50 percent of families who enter foreclosure never talk about their situation to their lender.

“This is the biggest challenge we have,” Schwartz said. “We need the help of the mayors, with their credibility, to encourage families at risk to call the hotline, or their lender as soon as possible.” The Conference, with support from the Mortgage Bankers Association, provided mayors the opportunity to tape public service announcements promoting the hotline during the meeting.

Schwartz said the Alliance was committed to reporting back to the mayors the number of modified loans and families served through their effort, which began in earnest at the beginning of the year.

Louisville (KY) Mayor Jerry Abramson presented how his city was responding to the crisis and called on the mortgage industry to do more with the maintenance of foreclosed properties. “It is tragic enough when a family loses their home to foreclosure, but it is even more tragic when the mortgage company allows the property to deteriorate in a way that results in further decreasing the value of surrounding homes. Industry must simply do a better job,” he said.

Southfield (MI) Mayor Brenda Lawrence reminded the audience that the mortgage crisis was not a center city problem, but equally plagued suburban jurisdictions such as hers. “This is a middle class problem where people were taken advantage of,” she said. “At the Detroit Foreclosure Summit we were very frank, very tough with industry that they needed to take action to modify loans,” she told the group. The summit was sponsored by the Conference of Mayors and the Council for the New American City in November 2007 and was led by Palmer and hosted by Detroit Mayor Kwame Kilpatrick.

Palmer reiterated that call to industry, saying that if industry does not adequately respond, mayors will take additional action.

Prior to the plenary session, the Council for the New American City, led by Palmer, heard from Federal Housing Commissioner Brian Montgomery about FHA’s efforts to assist subprime borrowers who need to refinance. FHA has seen a significantly increased activity of homeowners who have been able to qualify for FHA SECURE, a program to assist homeowners refinance.

Montgomery repeated the Administration’s call for Congress to pass legislation providing more flexibility for FHA to respond to the crisis and to provide an alternative to subprime lenders in the market place. Just a day later, the Bush Administration announced a stimulus package deal that increased loan limits for FHA but did not include the broader package of reforms. The stimulus deal also raised the loan limits for Freddie Mac and Fannie Mae, to help bring liquidity to the mortgage markets.

Kieren Quinn, Chairman of the Mortgage Bankers Assocition, reiterated the industry’s support for the national counseling hotline and willingness to report back on the pace of loan modifications.

Ken Wade, Chairman and CEO of NeighborWorks America, briefed the mayors on the $180 million of additional home counseling funds that NeighborWorks would make available in the next sixty days to so-called HUD intermediary (pre-approved) counseling organizations.

What prompted the most lively discussion, however, were the comments of John Taylor, President of the National Community Reinvestment Coalition (NCRC), who said that industry’s efforts would most assuredly fall short and that the crisis was much larger than the remedies being implemented. Taylor called on legislation that would allow a newly created federal government'sponsored entity to buy troubled loans imbedded in complicated mortgage-backed securities and modify them to save homeowners and to bring stability to the credit system.

Palmer told the Council it would reconvene in the Spring of this year to assess the industry’s response and to gauge next steps.