May 3, 2005
Acting Comptroller Williams Cites Foreclosures as Most Immediate Community Development Challenge
New York, NY – Acting Comptroller of the Currency Julie L. Williams said today there may be no more immediate challenge facing community development today than the problem of foreclosures, and they represent a huge challenge for government, financial institutions, and non-profits dedicated to the goal of expanding home ownership and saving at-risk communities.
"Whatever route it takes, foreclosures can have a devastating impact on borrowers and their communities,” Ms. Williams said in a speech before the Regional Interagency Committee. “That can lead whole neighborhoods into a costly and prolonged downward spiral. And for homeowners who lose their properties, the foreclosure process leaves a devastating scar."
Ms. Williams noted that while pricing flexibility has opened the door to homeowners for many Americans, it has also produced a new class of borrowers whose repayment capacity is fragile. In addition, it has produced a new class of lenders willing to take on riskier borrowers at a very high price, and make loans based on the value in a borrower’s home that the lender can capture in a foreclosure, rather than on the borrower’s ability to repay.
Ms. Williams reported that the challenge of foreclosures is increasingly being met with aggressive partnership programs—programs designed to help financially capable borrowers who run into difficulties continue to service loans and stay in their homes, whenever possible. She cited NeighborWorks® programs in Chicago and New York as examples, and noted that programs geared to urban hubs are being modified by community-based nonprofit housing counseling organizations for use throughout the country.
These comprehensive programs have a number of common features important to success including bringing together not only providers of homebuyer education, but also credit counseling agencies, local government, lenders and secondary market agencies, Ms. Williams said.
“Each of these parties has a particular interest in the health of the borrower, the loan, and the neighborhood,” Ms. Williams noted. “By uniting their efforts, we have learned that the odds of success for all greatly improve.”
Ms. Williams said that strategic partnerships between lenders, nonprofits, and municipal agencies are making a big difference in mitigating the effects of foreclosures and they are working together to stabilize at-risk neighborhoods by targeting vacated properties in need of rehabilitation.
“Lenders that hold such properties may turn them over to the nonprofit, typically at deep discount; the nonprofit oversees the rehab work, typically using government subsidies, and then markets the property to a low-or moderate-income family,” Ms. Williams said. “The housing unit is thus returned to the tax rolls; the lender removes a troubled property from its balance sheet; and a family and a neighborhood have benefited.”
Ms. Williams underscored that there is still much to do to reduce the risk that borrowers will face foreclosure in the life of their mortgage, to ensure that low-and moderate-income homebuyers have access to the full range of financial options for which they qualify, and reduce the overall dependence on very high cost subprime loans.
“If there’s anything that experience has taught us, it’s that there is much we can accomplish when dedicated people willing to roll up their sleeves and tackle a challenge,” Ms. Williams concluded.