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Washington, DC—Today, Congressman Elijah E. Cummings (D-Md.), a member of the Joint Economic Committee, sent a letter to President Barack Obama urging him to consider options to assist homeowners who have lost their jobs and are struggling to stay in their homes (text of the letter below).
“While the Obama administration and Democratic-led Congress have taken great steps to assist the millions of Americans whose American Dreams of homeownership have become nightmares of foreclosure, there is still a portion of our population at risk of falling through the cracks,” Congressman Cummings said. “Due to loss of income, many men and women who have lost their jobs are finding it difficult to benefit from options such as loan modifications that would help them keep their homes.”
Congressman Cummings is currently drafting legislation, the Temporary Mortgage Assistance Loan Act of 2009, which would authorize the use of repaid TARP funds issued to banks through the Capital Purchase Program to provide short-term bridge loans to homeowners who have lost their jobs and are struggling to keep up with their mortgage payments.
According to a recent paper issued by the Federal Reserve Bank of Boston, negative home equity and adverse life events such as job losses were the major factors affecting the likelihood of a mortgage delinquency. The paper also found that a one percent increase in the unemployment rate results in an increase of probability for a 90-day mortgage delinquency by 10 to 20 percent.
Congressman Cummings is further concerned by the quarterly loan delinquency survey recently released by the Mortgage Bankers Association, which showed an alarming increase in the number of foreclosures among less risky prime borrowers. In Maryland, more of the foreclosure proceedings that began in the first quarter were for traditional prime borrowers than for subprime, and more of the people who had fallen behind by at least one payment were prime borrowers.
“In my home State of Maryland, the number of prime borrowers behind on their mortgage payments rose by 90 percent from this period last year, at least in part because of negative home equity and unemployment,” Congressman Cummings said. “These are everyday men and women who have done everything right—they saved up for a good down payment, made sure that they got mortgages they can afford, and paid all of their bills on time. We helped the banks get back on their feet, and it is only right to afford American families this same opportunity.”
Text of the Letter:
June 11, 2009
President Barack Obama
The White House
Washington, DC 20500
Dear Mr. President:
In light of Tuesday’s announcement by Secretary of the Treasury Timothy Geithner that 10 of the largest financial institutions participating in the Capital Purchase Program will be permitted to repay government funds, I write to request that you consider allocating a portion of the repaid funds to provide bridge loans to enable homeowners who have lost their jobs to meet their mortgage payments. I am currently drafting legislation – the Temporary Mortgage Assistance Loan Act of 2009 – which would authorize the use of repaid Capital Purchase Program funding to accomplish this objective and anticipate introducing it shortly.
A paper entitled “Reducing Foreclosures” and recently issued by the Federal Reserve Bank of Boston found that negative home equity and adverse life events, e.g., job losses, were the major drivers affecting the likelihood of a mortgage delinquency. The paper further found that a one percent increase in the unemployment rate increases the probability of a 90-day delinquency by 10-20 percent. Given that on Friday, June 5, the Bureau of Labor Statistics reported that the unemployment rate for the nation rose to 9.4 percent in May 2009, and that most major economists predict continuing job losses (albeit fortunately at rates lower than we have seen in recent months), we can likely expect mortgage delinquencies to continue to increase.
The mortgage modification programs implemented by your Administration are working to help many families stay in their homes. However, a mortgage modification may be of little help to those who have no job and no steady income – and therefore targeted assistance is needed to help these individuals. These people want to pay their mortgages, and are frequently tapping into their dwindling savings in an effort to remain current. They are relentlessly looking for new employment and likely will find new jobs as the economy begins to improve. But, in the meantime, they need just a little push to help them stay on top of their mortgage payments and keep the homes they have worked their entire lives to own.
The legislation I am proposing will provide temporary, low-interest loans to help unemployed homeowners with negative equity stay current on their mortgage payments while searching for work. These loans will be short-term in duration (likely no more than 24 months) and capped at specific amounts based on the geographic cost of housing.
As I mentioned at the outset of this letter, I propose that a portion of the principal repaid by the firms that received aid through the Capital Purchase Program be reallocated for these temporary mortgage assistance loans. At the same time that responsible, hard-working homeowners have fallen victim to economic conditions beyond their control, private firms will be repaying funds they received to stabilize the economy for all of us. To direct these funds back out to the people that need them most seems a fitting next chapter in our on-going financial recovery efforts, and will give us a tremendous opportunity to keep responsible Americans in their homes.
I appreciate the opportunity to follow up with you and your housing and economic policy team on this issue at your convenience.
Sincerely,
Elijah E. Cummings
Member of Congress
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