For African Americans, the foreclosure crisis isnâ€™t just about losing homesâ€”it is about losing the majority of their net worth.
â€śA recent study found that the wealth of African Americans is one-tenth that of whites, and when home equity is subtracted, it shrinks to less than 1%,â€ť announced Robert L. Johnson, chairman of Urban Trust Holdings Inc., during a Dec. 8 speech. At the National Housing Forum sponsored by the Office of Thrift Supervision, he unveiled a plan to help curtail the drastic increase of foreclosures which instigated the countryâ€™s economic spiral downward.
â€śIf this housing crisis causes African Americans to lose their homes, it will be a huge setback to personal wealth creation in the entire black community,â€ť says Johnson, the founder and chairman of the RLJ Cos. who also created Black Entertainment Television (BET) in 1979 and sold it for $3 billion in 2000.
Through Urban Trust Bank, Johnson created a new entity, Homeowners First Bank. Homeowners First is an advanced lending facility or a bank designed specifically to provide temporary, advance funding to mortgage servicers. Mortgage servicers are the middlemen, who may or may not be the same company as the lender, but who retrieve money from borrowers on behalf of lenders.
Johnson has requested $1 billion from the U.S. Treasury Departmentâ€™s Troubled Asset Relief Programâ€”a $700 billion plan to strengthen the weakened credit marketsâ€”and hopes to raise an additional $7 billion to $8 billion from deposits and deposit interest from Urban Trust Bank. He proposes that the plan that will contribute to the stabilization of the housing market and save more than 200,000 people from losing their house in the first year.
â€śIf you are a servicer for a securitization, you have to pay the interest and principle whether or not youâ€™ve collected it,â€ť says Alex J. Pollock, resident fellow at the American Enterprise Institute for Public Policy Research, a nonpartisan think tank. â€śIn normal times when there arenâ€™t that many delinquencies, itâ€™s not that big of a problem, but in a time where there is a housing bust and widespread mortgage delinquencies, the more money they have to advance and the harder they have to work.â€ť
In the past, when borrowers made payments late or missed them all together, loan servicers could borrow money from an advance lending facility and still pay the lenders. Unfortunately, as a result of the faltering economy, the banks that would traditionally make this type of loan to the mortgage loan servicers have stopped making them.
â€śLoan servicers are financially incentivized to push toward foreclosure because they canâ€™t afford to work out loan modifications with the homeowners,â€ť says Kathy Boden Holland, executive vice president of Urban Trust Bank, which has 16 branches located in Walmart supercenters throughout Maryland and Florida. Without advance lending facilities, the loan servicers are less willing to help mitigate foreclosures because they can recoup the outstanding balance once they resell the house.
â€śThe kicker is this: If the mortgages