Thursday, February 5, 2009

Ways To Save Mississippi’s Housing


By Ed Sivak

Just like in other states across the country, Mississippians are seeing the effects of a sagging economy. More people are unemployed and many working Mississippians have seen their retirement savings decline in value during the past year. As people lose jobs and face financial emergencies with less savings, they become at risk of losing their homes in foreclosure. Foreclosure rates for both prime and subprime loans at the end of the third quarter of 2008 have more than doubled compared to the same period in 2007. When foreclosures do occur, the effects are devastating for working families and communities. Families lose their primary asset and access to affordable credit, and neighboring homes lose value.

Fortunately, several opportunities exist to rectify the challenges associated with foreclosures. The funding of a Housing Trust Fund would elevate Mississippi’s ability to create affordable workforce housing opportunities. Presently, Mississippi is one of only 12 states without a funded housing trust fund. Housing Trust Funds have been successful across the country in the creation of jobs, stabilizing workforce housing and investing back in communities. A statewide trust fund with an ongoing revenue source would benefit Mississippi’s working families through increased economic development opportunities.

One cannot overlook the effects of subprime lending in the state of Mississippi. At the height of the subprime lending boom, Mississippi had the highest rate of subprime lending in the country. Many of the unaffordable products sold to home purchasers -- Option Payment Adjustable Rate Mortgages, No Documentation Loans -- that ultimately made their way to Wall Street as securities were subprime lending products.

While Mississippi’s rate of foreclosures is less than the national average, a disturbing trend of rising foreclosures has emerged. Whereas only 0.45 percent of all prime loans were in foreclosure at the end of the third quarter in 2007, the rate more than doubled to 1.14 percent one year later, according to the Mortgage Bankers Association. For subprime loans, the rates are of even more concern. At the end of the third quarter in 2007, 2.96 percent of subprime loans were in foreclosure compared to a rate of 6.84 percent in 2008.

That is why Mississippians need stronger consumer protections to ensure that our working families do not easily fall victim to predatory lenders. Other southern states like North Carolina and West Virginia have taken action to protect homebuyers from predatory practices. Mississippi should follow the lead of the other states and require lenders to evaluate a borrower’s ability to repay a loan with fully amortizing payments, prohibit prepayment penalties, and require counseling for all first time borrowers who only qualify for a subprime loan.

There are other positive developments happening that will help mitigate the effects of foreclosures. Through the U.S. Department of Housing and Urban Development Neighborhood Stabilization Program, Mississippi will receive $43 million to acquire and redevelop foreclosed properties. By acquiring the properties, initiatives will be implemented to retain value in communities.

At the same time the downturn in employment will likely exacerbate the housing issue. This past November, the Mississippi Department of Employment Security reported that 86,900 people were unemployed in our state. While the number of unemployed was higher in October, the November 2008 figure was significantly higher than November of 2007. Reasons for the rise in unemployment include the national financial crisis and the associated downturn in the economy. As businesses experience less demand for their products and services and more difficulty accessing credit, the need to cut labor costs increases.

Additionally, as the stock market declined through the fall, Americans lost approximately $2.8 trillion in retirement savings according to the Urban Institute. The decline in savings frayed the financial safety net for many working families. With less savings and rising unemployment, the primary asset of many Mississippians -- their home -- is at risk of being lost too.

Families that are out of work can’t pay for mortgages that are too high, and the economy can’t recover without a stable workforce -- which needs affordable housing. This is why a functioning Housing Trust Fund and protections against irresponsible lending are important tools to help Mississippi through the current economic times and lay a foundation for the future.
Sivak is the director of the Mississippi Economic Policy
Copyright (C) 2008 by the Mississippi Forum.


Anonymous said...

If govt. will take care, The housing can be saved

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