Progress and Peril: A Status Report on the Compact for Home Opportunity

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This report describes progress in 2012 toward implementation of the Compact for Home Opportunity, a compilation of policies designed to stem foreclosures, restore communities, protect fair housing, and ensure that homeownership is an accessible pathway to American opportunity. The report, which covers the period from the release of the Compact in February 2012 through August 31, 2012, finds considerable forward progress on several fronts, but also delay and recalcitrance on others, particularly by Congress.

Major findings include the following:

Preventing Foreclosures

  • Make Mediation Mandatory:There has been mixed progress overall. No progress was made by the federal government. However, several states have passed measures that require servicers to participate in mandatory mediation.
  • Invest in Pre- and Post-Purchase Counseling: There has been mixed progress overall, including modest action by the Obama administration, with non-profit actors taking up some of the slack.
  • Reform Servicing Guidelines:Significant progress has been made, largely as a result of the national mortgage servicing settlement (AG settlement), which covers only the five large banks involved in the settlement. The Federal Housing Finance Agency backed away from its proposal for a new compensation structure for loan servicers after industry opposition to the plan. A series of new mortgage servicing rules proposed by the Consumer Financial Protection Bureau (CFPB), if finalized, would have significant implications for the loan servicing industry. Advocates also see a need, however, for the CFPB to ensure that it has the tools necessary to identify, track, and take action to eliminate discrimination in mortgage servicing.
  • Reform and Expand the Making Home Affordable Program:There has been modest progress overall. There have been modest changes to the Home Affordable Modification Program (HAMP), including an expansion of the program that, among other things, allows borrowers to modify mortgages where the debt-to-income ratio is between 25 and 42 percent, and that extends coverage for borrowers struggling with long-term unemployment. But there has been little progress in the enforcement of HAMP rules violations.
  • Improve Legal Assistance:There has been mixed progress. There has been no federal action to remove funding restrictions on legal representation of homeowners for purposes of civil litigation under the Housing and Economic Recovery Act. Some states, however, are using AG settlement funds for legal services.
  • Require Principal Reductions:There has been mixed progress. While the AG settlement required the covered servicers to prioritize loan modifications, the pace of principal corrections has been disappointing. In the face of mounting pressure, the Federal Housing Finance Agency (FHFA) has refused to expand principal corrections to loans owned or backed by Fannie Mae and Freddie Mac. In a sign of modest progress, some servicers like Ocwen Financial Corp. have successfully reduced principal for a large number of borrowers. In addition, the Preserving American Homeownership Act, a bipartisan bill, was introduced in June 2012 by Reps. Peters (D-MI), Campbell (R-CA), and Ellison (D-MN), that would direct FHFA and Federal Housing Administration to implement pilot programs. Finally, states such as Massachusetts and California have implemented principal corrections programs.
  • Refinancing Legislation: There has been modest progress, with several bills introduced in Congress in 2012 that would address refinancing of mortgages.
  • Allow Mortgages to be Restructured in Bankruptcy:There has been no progress. No progress has been made by Congress, although the Bankruptcy Equity Act of 2012 was introduced in February 2012 by Rep. Blumenauer (D-OR).

Ensuring Fair and Sustainable Mortgages

  • Enact Positive Reform of Government-Sponsored Enterprises: There has been no progress by Congress.
  • Issue an Accessible Definition of Qualified Residential Mortgages (QRM) that Preserves Access to Credit for Middle-Class Families:There has been regression on this issue. Progress has been delayed in finalizing the definition of QRM, which may be positive, considering a harmful proposed rule issued by the Treasury Department’s Office of the Comptroller of the Currency, the Federal Reserve, the FDIC, FHFA, the SEC, and HUD in April 2011 that would impose a 20 percent down payment requirement as part of the QRM standard.
  • Increase Consumer Protections:There has been major progress. With an anticipated budget increase of almost 300 percent, the Consumer Financial Protection Bureau (CFPB) has been ramping up action for 2013. The Department of Justice requested a budget increase for 2013 to fund its new financial and mortgage fraud enforcement efforts, including the work by the DOJ-led interagency Financial Fraud Enforcement Task Force.
  • Ensure Consumer Readiness: There has been no discernible progress in asset-building policies.
  • Improve Credit Scoring Mechanisms:There has been modest progress. There have been some interesting industry-specific developments, with a new credit scoring system developed by credit scoring company FICO and data provider CoreLogic. However, this new system is unproven and has not yet been approved for Fannie Mae or Freddie Mac loans.
  • Improve Federal Housing Administration Practices and Oversight:There has been modest progress. The Obama administration reduced FHA costs and fees. As part of the AG settlement, the U.S. Attorney for the Eastern District of New York filed a $1 billion settlement with Bank of America and Countrywide, pursuant to which Bank of America must comply with the new servicing standards under the AG settlement.
  • Promote Flexible Housing Tenures (such as lease-to-own): There has been modest progress. While there has been no progress by federal agencies, there has been some experimentation by states and municipalities with lease-to-own programs.

Restoring Neighborhoods

  • Support Creation of Land Banks:There has been modest progress. Some states and localities, including New York and St. Paul, Minnesota, have created land banks.
  • Require Vacant Property Registration: There has been mixed progress. Cities such as Oakland, California, have passed new ordinances requiring banks to inspect vacant and occupied properties at risk of foreclosure and have expanded registration requirements for bank-owned foreclosed properties. Cities like Los Angeles and Cleveland have filed lawsuits against banks in cases where the lenders are on the foreclosed properties’ deed as the lawful owner. A National Fair Housing Alliance report found inadequate and unequal maintenance of REO properties, particularly in communities of color.
  • Support Community Development Programs:There has been mixed progress. In the FY 2013 bill passed by the House in June 2012 (which was pending Senate consideration as of August 2012), there was an increase in funding for the HOME and Community Development Block Grant programs, but a reduction for project-based Section 8 funding.
  • Encourage Mixed-Use Zoning:There has been mixed progress. The Department of Housing and Urban Development requested an increase for the Community Challenge Planning Grant Program for FY 2013. No action has been taken by state or local entities.
  • Promote Responsible and Productive Disposition of Real Estate Owned (REO) Properties:There has been modest progress. In March 2012, Sen. Reed (D-RI) introduced the Project Rebuild Act, providing for the redevelopment of abandoned and foreclosed properties. In April 2012, the Federal Reserve Board issued a policy statement on the rental of REO properties. In addition, some states and localities are using Neighborhood Stabilization Program funds to acquire and rehabilitate vacant properties.
  • Modernize the Community Reinvestment Act:There has been no progress

Rebuilding Economic Security

  • Expand Owner Re-Sale Seed Capital Programs: There has been mixed progress. Congress has not enacted legislation to expand such programs. However, the FHFA is advancing its pilot program promoting the sale of REO properties to investors.
  • Expand Own-to-Rent Programs:There has been modest progress. While there has been no action by Congress to expand own-to-rent programs, some banks have launched pilot programs. Fannie Mae introduced a pilot program known as “Rehab-to-Rent” (not the same as own-to-rent), but Freddie Mac has not followed Fannie Mae’s lead.
  • Make the Protecting Tenants at Foreclosure Act Permanent, with a Private Right of Action:There has been mixed progress. In December 2011, Rep. Ellison (D-MN) introduced the Permanently Protecting Tenants at Foreclosure Act of 2011, which would create a private right of action, but Congress has not acted on making this law permanent. California’s Homeowner Bill of Rights provides additional protections for tenants in foreclosed homes.
  • Expand Homelessness Prevention Programs:There has been modest progress. In its 2012 budget submission, HUD unveiled new initiatives and requested an increase in Emergency Solutions Grants (ESG) funding. In its report accompanying the FY 2013 appropriations bill for HUD, the House Appropriations Committee allocated the full amount of HUD’s request for ESG. In July 2012, the VA announced grants for homeless veterans. Despite the expiration of federal stimulus money for state homeless prevention programs in June 2012, some localities are using city funding to extend the life of these programs.
  • Provide Credit Protection for Former Owners:There has been no progress. Federal Housing Administration and Veterans Affairs “second chance” loans have been seen as less attractive than conventional mortgages.

Fostering Fair Housing

  • Strengthen Fair Housing Regulations:There has been mixed progress. HUD has taken no action on the disparate impact rule proposed in November 2011, nor has it issued regulations affirmatively furthering fair housing in federal housing and community development programs. The Treasury Department has similarly failed to promulgate rules implementing either the Fair Housing Act of 1968 or the Civil Rights Act of 1964. But in a positive development, the Federal Reserve Board revised its guidance on banks’ treatment of REO properties with regard to fair housing laws. And for its part, the CFPB announced that it will pursue lending discrimination enforcement. There has been no action taken by Congress or the states.
  • Improve Coordination of Equal Opportunity Enforcement Among Federal Agencies, State and Local Governments:There has been significant progress in the coordinated enforcement of anti-discrimination laws relating to housing and credit by federal agencies, including DOJ and HUD, which reached settlements in several major lending discrimination cases. These settlements complement ongoing efforts to coordinate the investigation and prosecution of financial crimes by the interagency Financial Fraud Enforcement Task Force. Congress enacted no new legislation regarding the coordination of equal opportunity enforcement. There have been only a few recent instances of state enforcement of fair housing and fair lending laws. 
  • Develop Robust Consumer Financial Protection Bureau Regulations:There has been modest progress, with CFPB issuance of a compliance bulletin regarding the Equal Credit Opportunity Act. However, the agency has been slow to finalize rules geared toward protecting consumers. In June 2012, the CFPB launched a Consumer Complaint Database (still in beta format), which collects complains against certain credit card companies.
  • Incentivize Inclusionary Zoning:There has been modest progress overall. The federal government has made significant progress in incentivizing inclusionary zoning, with a monitor filing a motion to compel New York’s Westchester County to provide information on local zoning practices that are potentially racially discriminatory, and HUD and the city of Baltimore filing a settlement agreement of a class action brought by public housing residents. Congress took no new action to foster inclusionary zoning. States and localities have made modest progress, e.g., the first apartments subject to inclusionary zoning laws in Washington, D.C., hitting the market, and a positive New Jersey state appeals court ruling invalidating a state agency policy that allowed municipalities to pass zoning ordinances that excluded working families. However, a municipal court invalidated the city of San Jose’s inclusionary housing ordinance.