Our country faces an urgent housing financial crisis that is affecting the health of our entire economy and one that is fueling an impending recession. This situation has been compounded by the continued problems working families face in obtaining affordable and decent housing. The seeds of this crisis were sown long ago and are symptoms of a low-wage economic strategy where workers are given the power to spend and borrow instead of an increase in wages. The crisis also has roots in the economic policies of past years, which promoted deregulation of our financial markets over common-sense rules to protect the interests of those seeking to achieve the American Dream.
Finding affordable housing is becoming more and more of a crisis for middle-class workers and low-income families, individuals and retirees. Many middle-class workers and individuals employed in low-paying jobs are one paycheck away from homelessness. Many have been victims of predatory and unscrupulous lenders. In many cases home is no longer where the heart is but rather where the hurt is—truly a sad commentary for America.
The creation and preservation of decent, affordable housing for America’s working families is a longstanding priority of the labor movement. Union members are builders and buyers of housing, and unions, through the targeted investment of labor pension funds, have a significant impact on low- and moderate-income housing production in the nation. The AFL-CIO Housing and Building Investment Trusts, union pension investment programs created by the AFL-CIO and many of its affiliates that invest in affordable housing, have been leaders in expanding the creation of single- and multi-family housing in the nation’s urban communities.
It is a crime that in the richest nation in the world, a full-time job no longer guarantees access to decent, affordable housing. Many millions of Americans spend an untenable share of their income—more than 30 percent—on housing, and persistent inequality in housing and employment opportunities has led to significantly lower homeownership rates for African American and Latino families.
The Mortgage Foreclosure Crisis
Not since the Depression has a larger share of Americans owed more on their homes than their homes are worth. Nearly 8.8 million homeowners, or 10.3 percent of the total, are in distress –twice the number from a year ago.
The current mortgage crisis in America is threatening the American Dream of homeownership for millions of families. Predatory lending practices and slumping real estate markets threaten the jobs and incomes of hundreds of thousands of workers as well as the financial stability of state and local governments. Financial executives who helped create this crisis are voting themselves huge bonuses while millions of homeowners are simply trying to hold on to their homes.
The Bureau of Labor Statistics reported in February that the construction sector employed 27,000 fewer workers in January 2008 than in December 2007. Employment in building construction dropped 11.2 percent, 10.2 percent of which is attributable to the decline in residential construction. That outsized drop in residential construction employment hits those least able to sustain this economic blow, the lowest paid workers in the construction industry. The impact is beginning to extend to high-rise residential construction and will likely have negative employment consequences for workers throughout the construction industry.
For many families, the triggering event will be a catastrophic rate increase on an inappropriate “exploding” sub-prime adjustable-rate mortgage loan. As devastating as foreclosures have been to date, the worst is yet to come. In 2007 home foreclosures increased by 75 percent to 2.2 million. Foreclosures are expected to accelerate dramatically during 2008, when 2.5 million loans are scheduled for rate resets.
Low-income and minority homeowners are suffering disproportionately in this crisis. Fifty-five percent of mortgages obtained by African Americans are sub-prime and 46 percent of mortgages obtained by Latinos are sub-prime.
The affordable housing and foreclosure crisis is also taking a serious toll on already-reeling state and local government budgets as property values tumble in the neighborhoods where foreclosed houses stand empty. Property tax revenues that local governments rely upon to provide vital services, including K-12 education, are shrinking. The housing crisis also has reduced state sales tax revenue collections from housing-related big-ticket items including construction materials and appliances. Several states are considering plans to help families that are in danger of foreclosure—and these plans will further deplete state coffers. The federal government must provide adequate resources to help troubled communities and distressed homeowners overcome the problems created by the foreclosure crisis and resulting problems.
The AFL-CIO has been calling for an aggressive plan to deal with the credit crisis. The federation has actively supported a number of bills, including the Mortgage Reform and Anti-Predatory Lending Act of 2007, which was passed last year and establishes new protections for all consumers, preventing brokers from steering prime borrowers into more expensive loans and requiring responsible lending practices such as conducting meaningful analyses of the borrowers' ability to repay loans. Additionally, the federation supported the Expanding American Homeownership Act of 2007 (H.R. 1852), which enables the Federal Housing Administration to use risk-based pricing to more effectively reach underserved borrowers, and the Federal Housing Finance Reform Act of 2007 (H.R. 1427), which reforms the regulation of certain housing-related government-sponsored enterprises.
We are working with Congress on the Homeownership Preservation and Protection Act of 2007 (S. 2452). This would establish new consumer protections and will allow state attorneys general to enforce the provisions of the law. The AFL-CIO also is supporting the Emergency Home Ownership and Mortgage Equity Protection Act (H.R. 3609) and Helping Families Save Their Homes in Bankruptcy Act of 2007 (S. 2136), which will prevent hundreds of thousands of Americans from losing their homes by allowing them access to bankruptcy relief.
The Bush administration’s proposed month-long “Band-Aid” moratorium on mortgage foreclosures will not provide any real help and is an insult to Americans in distress.
While the policy process inches along, working families cannot wait. We need an immediate moratorium on mortgage foreclosures for at least six to 12 months. Just as important, during this moratorium the mortgage industry and government must immediately engage in a structured program providing for the replacement of teaser rate loans with conventional 30-year mortgages at the teaser rate.
Servicers must renounce servicing agreements that reward mortgage companies for foreclosing on homes rather than encourage refinancing or other workout strategies. And servicers must commit to publicly reporting—company by company—how many sub-prime loans they are servicing, how many have reset, how many have been restructured and how many foreclosures are occurring and where.
Bankruptcy laws must be changed to provide for a court-supervised process that will allow for modification of home mortgages to help families save their homes. Finally, the federal government must expand outreach to borrowers to let them know how they can keep their homes. The AFL-CIO Community Services network, Working America and the Union Privilege programs are working hard to help those who have been affected by the foreclosure crisis.
The Union Plus Save My Home Hotline has provided foreclosure prevention counseling to more than 1,500 members. The Union Privilege mortgage program never offered the negative amortizing loans that have gotten so many homeowners in trouble and is the only one in the country to provide assistance to members facing financial hardship.
But even these vital steps are only the beginning.
This crisis was born of lax regulation of the mortgage and other financial markets and nurtured on our economic policy makers’ reliance on asset inflation to power economic growth in recent years.
As part of an overall program to revive the middle class, the nation’s policymakers should take immediate steps to resolve the current mortgage foreclosure crisis and hold those responsible accountable. It is time for a moratorium on economic policies that put corporate profits ahead of worker prosperity and reward financial gimmickry over an honest day’s work.
Our nation must also remedy egregious affordable housing shortfalls; improve incentives to preserve existing housing for low-income families, including retirees; provide adequate funding for federal housing programs; and repair the frayed safety net that protects the poorest and most vulnerable in our society.