Foreclosure crisis: Lessons learned

UNC-CHAPEL HILL (US) — As the nation works to restore the housing market, a new book tells what really caused the foreclosure crisis and how to rebuild a safe and sustainable U.S. housing finance system.

“Our study of 46,000 low-income families who received home loans and managed to repay them during the worst housing crisis in our nation’s history proves that we know how to make sound loans to creditworthy working families,” says Roberto G. Quercia, professor of city and regional planning and director of the Center for Community Capital at University of North Carolina at Chapel Hill.

Quercia, along with center senior research associate Allison Freeman, and center executive director Janneke Ratcliffe are co-authors of Regaining the Dream: How to Renew the Promise of Homeownership for America’s Working Families.

Policymakers and regulators face critical decisions to implement The Dodd-Frank Wall Street Reform and Consumer Protection Act of July 2010 and determine the future role and structure of Fannie Mae and Freddie Mac, Quercia says.

The book provides historical background, facts, and data to show decision-makers how both can be used to create a more resilient housing finance system that ensures broad access to mortgage credit while minimizing risk.

Regaining the Dream documents the experiences of thousands of families, unable to obtain home loans from traditional lenders because of their low incomes and assets, who received 30-year, fixed-rate home loans through the Community Advantage Program (CAP).

The Ford Foundation provided $50 million in risk capital for this demonstration project to show how the mortgage lending industry could extend the benefits of home ownership more broadly.

Ninety-five percent of those borrowers made their payments successfully and experienced median home equity growth of $23,000, according to the report. Their successful repayment experience was based on several key elements, including:

  • sound mortgage products
  • sensible underwriting and proactive servicing
  • access to credit

“The Community Advantage Program is a model upon which to base sound and equitable lending policy,” Frank F. DeGiovanni (financial assets unit) and George McCarthy (metropolitan opportunity unit), Ford Foundation directors, write in the book’s foreword.

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