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Bank of America is announcing on Thursday a loan modification program to help military service members who are behind on their mortgages. What's unique about the program is that the bank is offering to reduce the principal owed on the loans instead of just adjusting the interest rate.

There is already a law designed to protect military personnel from financial stress. It bans foreclosures and reduces interest rates while they're on active duty.

What Bank of America is offering is a special program to help service members once they are no longer on active duty and no longer protected by the law.

"Without principal reduction, they may not be able to recover from that situation, and foreclosure would be their only option," says Dan Frahm, a spokesman for Bank of America. "We think principal reduction applied here puts us down a path to help them keep their home."

Initially, the program only applies to loans Bank of America owns, not the ones it services that are owned by investors.

"It's a good thing for some of the military people who qualify, but there are a lot more others who would benefit from a principal write-down," says John Taylor, president of the National Community Reinvestment Coalition. "Hopefully, this is the beginning of moving in that direction."

Frahm says the bank doesn't think principal reduction is the answer for everyone. And there are no plans to expand the program beyond those who are leaving active duty.

Washington, DC -- Today, hundreds of community organizations sent a letter to President Obama calling on him to make a recess appointment to the Federal Housing Finance Agency (FHFA). FHFA is currently led by an Acting Director, Ed DeMarco, who has refused to allow Fannie Mae and Freddie Mac, which hold the majority of the mortgages in the country, to participate in a key administration principal reduction program.

"The administration saying that their hands are tied on FHFA, when the President has the ability to name an FHFA Director through a recess appointment, is akin to telling someone "my dog ate my homework," said NCRC President and CEO John Taylor. "It's time for the President to step up and use his power to make a recess appointment to deliver much needed relief to American homeowners, who are still paying the price for a housing market which crashed because of malfeasant industry practices, not through any fault of their own."

"Despite the Obama administration's continued efforts to work with FHFA Acting Director DeMarco, he has shown that he will not budge on principal reductions at Fannie Mae and Freddie Mac. Doing principal reductions at the GSEs is in all of our best interests, as it would not only help homeowners, and save taxpayers money, but also benefit the housing market and our flagging economy. This is too important an issue to continue to leave the director position at FHFA unfilled."

DeMarco recently announced that he will not allow Fannie Mae and Freddie Mac to participate in the Home Affordable Refinance Program Principal Reduction Alternative (HAMP-PRA). FHFA's analysis shows that allowing the GSEs to participate in HAMP-PRA the could benefit up to 500 thousand homeowners, save $3.6 billion for Fannie Mae and Freddie Mac, and $1 billion for taxpayers.

NCRC has long called upon DeMarco to allow principal reductions on Fannie Mae and Freddie Mac loans.

About the National Community Reinvestment Coalition (NCRC):

The National Community Reinvestment Coalition is an association of more than 600 community-based organizations that promote access to basic banking services, including credit and savings, to create and sustain affordable housing, job development and vibrant communities for America's working families. To find out more, visit http://www.ncrc.org.

Washington, DC – On September 13, dozens of members of the National Community Reinvestment Coalition (NCRC) came to Washington DC for the White House American Economic Competitiveness Forum on Housing. At this forum, over a hundred community advocates came together with administration officials at the White House to discuss solutions to America’s housing crisis. 

“This was an encouraging discussion on the necessary steps to address America’s continuing housing crisis. Until we fix the broken housing market, we will not be able to fix our economy,” said NCRC President and CEO John Taylor. “We commend the White House for convening this substantive dialogue with on-the-ground local community leaders on the solutions it will take to bring our communities, the housing market the economy back to full strength.”

“Key to immediate progress is the role of the Federal Housing Finance Agency (FHFA) and Fannie Mae and Freddie Mac,” said Taylor. “Because FHFA Acting Director Ed DeMarco has not shown a willingness to work constructively with the administration and on principal reductions, it is imperative to do a recess appointment to fill the FHFA Director position.”

“We are pleased to have this opportunity to come to the White House and share our priorities and ideas for solutions to the problems our communities are facing,” said Neighborhood Housing Services of South Florida President and CEO Arden Shank. “The White House heard firsthand about the need for continued commitment to neighborhood stabilization in South Florida and nationwide. Neighborhood stabilization efforts will need additional support through another round of the Neighborhood Stabilization Program.”

“The forum was a constructive conversation with the White House and administration officials, which we were pleased to be a part of,” said Chicanos Por La Causa President and CEO Edmundo Hidalgo. “We emphasized the critical importance of stabilizing and rebuilding the neighborhoods that have been hit hard by the foreclosure crisis. We need to focus on place-based solutions, recognizing that every community is different."

“It is positive that the White House is engaging local community advocates on the issue of the housing crisis,” said Nevada Fair Housing Center President and CEO Gail Burks. “To fix this crisis, it is critical to get homeowners into sustainable loans through mortgage modifications and refinances. As long as the serious negative equity problem continues, our economy won’t recover, and homeowners will struggle. If the administration would use the tools that they have available in the tool chest today, that would go a long way.”

“This was an important platform for local community advocates and service providers to voice their priorities to the Administration,” said Empowering and Strengthening Ohio’s People (ESOP) Executive Director Mark Seifert. “We made clear the importance of prioritizing housing counseling and foreclosure prevention in our communities in Ohio and elsewhere.”

“This meeting was a valuable chance to speak directly with the White House about critical housing issues facing communities, particularly communities of color,” said Sarah Ludwig, Co-Director of the Neighborhood Economic Development Advocacy Project (NEDAP). “Our communities and neighborhoods remain in serious distress because of the housing crisis, and we need the administration to commit to tackling these problems comprehensively.”

About the National Community Reinvestment Coalition (NCRC):

The National Community Reinvestment Coalition is an association of more than 600 community-based organizations that promote access to basic banking services, including credit and savings, to create and sustain affordable housing, job development, and vibrant communities for America's working families.

Washington, DC -- Today, the National Community Reinvestment Coalition (NCRC) applauded President Obama for announcing new steps allowing homeowners to refinance FHA insured loans at lower rates, and an agreement with lenders which would provide financial restitution for veterans who were improperly foreclosed upon. NCRC President & CEO John Taylor called upon Edward DeMarco, Acting Director of the Federal Housing Finance Agency (FHFA) –the regulator of Fannie Mae and Freddie Mac– to follow President Obama's lead and allow principal reductions on Fannie Mae and Freddie Mac loans.

"President Obama's plan to allow FHA insured borrowers to refinance their loans at a reduced fee is another positive step toward repairing the damage to the economy from the housing crisis. The President's increased leadership on this issue is a very encouraging sign. But the biggest issue facing the housing market is that Fannie Mae and Freddie Mac are not writing down loans. Until that happens, the President's initiatives will have a positive but modest impact," said Taylor.

"We will see much more positive improvement in the housing market with significant principal reductions on Fannie Mae and Freddie Mac loans. Their failure to do so continues to be a major drag on the economy. Fixing the housing market is in the taxpayer's best interest, because doing so is necessary for a robust economic recovery."

"We also call upon Congress to take action and enact the broader reforms and aid for homeowners President Obama has proposed. The American promise of opportunity should not be put on hold because of political concerns."

Since 2007 NCRC has been calling for more aggressive measures and interventions to stem the tide of foreclosure, including principal reductions.

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Washington, DC -- Today, in reaction to Federal Housing Finance Agency (FHFA) Acting Director Ed DeMarco's decision not to allow Fannie Mae and Freddie Mac to use principal reduction in their loan modification programs, the National Community Reinvestment Coalition called for a change of leadership at FHFA.

"DeMarco has failed in his responsibility to do what is best for taxpayers and homeowners," said NCRC President and CEO John Taylor. "FHFA's own analysis on this matter shows that principal reductions at Fannie and Freddie are sensible, pragmatic and consistent with responsible management of the GSEs. DeMarco needs to lead, follow or get out of the way. If DeMarco won't do that, President Obama needs to make a recess appointment to replace him."

"Someone in the Administration needs to step up on housing. As we have said before, until we fix the housing market we will not fix our flagging economy. Principal reductions are a viable step that would help homeowners remain in their homes, and help our nation's economy return to full strength."

FHFA’s analysis shows that allowing the GSEs to participate in the Principal Reduction Alternative program could benefit up to 500 thousand homeowners, save $3.6 billion for Fannie Mae and Freddie Mac, and $1 billion for taxpayers. Despite these findings, DeMarco today announced that he would not allow Fannie Mae and Freddie Mac to participate in the program.

NCRC has previously called upon DeMarco to allow principal reductions on Fannie Mae and Freddie Mac loans.

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NCRC Urges Fed To Stimulate Economy By Demanding Principal Reductions On Its Loans Worth $1.1 Trillion

Taylor Says Federal Government Has Power, Authority to Obtain Reductions on Majority of Mortgage Market

Washington, DC – In its efforts to stimulate the economy, the Federal Reserve should demand that banks reduce the principal balances on $1.1 trillion worth of loans it currently holds in mortgage-backed securities to prevent foreclosures and increase consumer spending, said John Taylor, President and CEO, National Community Reinvestment Coalition. He noted that the Federal Reserve, and other government entities, own or have authority over most of the mortgage market.

Taylor said foreclosures could also be reduced with carrot or stick incentives for banks borrowing from the Federal Reserve, or seeking to sells loans or do business with any other government entity. Through Fannie Mae, Freddie Mac and the Federal Housing Administration, the Federal government has power and authority over most of the mortgage market.

"The Administration needs to stop talking like it doesn't have the power to stem the foreclosure crisis. They have more than the bully pulpit; they have tremendous leverage. The Fed, the GSEs and FHA are the secondary market today. Whether they write down loans they currently hold, or remove their willingness to lend, purchase and securitize loans, these entities have the power to force the industry to write down principal and prevent unnecessary foreclosures," said Taylor.

"Ben Bernanke himself has tremendous power over these mortgages, and he should use it to demand principal reductions on the Fed's loans and reap the benefits of greater consumer spending. If he does it, others will follow. By the way, it's also the right thing to do," said Taylor who, beginning in 2007, told the Bush Administration and then the Obama Administration that banks would not voluntarily assist borrowers in a meaningful way and that a mandatory effort should be put into place to stop foreclosures.

Both Administrations rejected that advice. Today most economists and housing experts agree that the banks are not doing enough to help borrowers and that the government's voluntary approach has failed, especially since a growing number of homeowners owe more than their homes are worth.

The Federal Reserve is expected to announce today or Thursday the purchase of $500 billion in Treasury bonds to help avoid economic stagnation. Taylor said the Fed also has the power to help stabilize the economy by requiring banks to align mortgage loans with home values to stop foreclosures and steer money from mortgage payments to consumer spending.

Paul S. Willen, a senior economist at the Federal Reserve Bank of Boston, said at a recent Federal Reserve and Federal Deposit Insurance Corporation conference that both private and public efforts to date amount to "three years of failed policy." As reported by The New York Times, Willen offered the conference attendees two solutions: "Require banks to modify loans, basically imposing the cost on them; or pay banks to modify loans, imposing the cost on taxpayers."

Taylor said banks and investors should bear the costs, not taxpayers.

"By and large, homeowners aren't underwater because of something they did to themselves or to their neighbors. They are underwater because Wall Street and the industry colluded to drive up our home prices and their profits. It's time for them to eat their losses," said Taylor.

The Los Angeles Times reported yesterday that of the estimated 15 million homeowners underwater, about 7.8 million owed at least 25% more than their properties were worth in the first quarter of this year, according to Moody's Analytics' calculations of Equifax credit records and government data. More than 4 million borrowers, including 672,000 in California, 424,000 in Florida and 121,000 in Illinois — three of the biggest real estate markets — were underwater more than 50%. Their average negative equity: a whopping $107,000.

Many homeowners in this situation still have jobs and can afford to make payments but cannot refinance to benefit from much lower interest rate because they owe too much. Economists fear a significant number of these homeowners may stop making payments, if the economy continues to deteriorate.

NCRC's Board of Directors recently met with the Federal Reserve about foreclosure problems. "He seemed concerned about the issue; we hope he pursues the full range of actions at his disposal," said Taylor.

Washington, DC -- Today, the National Community Reinvestment Coalition (NCRC) said that new data released by the Federal Financial Institutions Examination Council showed continued constriction of credit, particularly for low- and moderate income communities and communities of color, and significant disparities in lending by race.

The volume of home lending was 7.1 million loans in 2011, the lowest since 1995, according to the Federal Reserve Board. Lower income borrowers, borrowers purchasing homes in lower income tracts, and borrowers purchasing homes in predominantly minority tracts experienced large drops in home purchase lending. Credit scores for borrowers are the highest in twelve years, indicating a significant contraction in lending.

“While national indicators suggest that a housing recovery is in its early stages, clearly the housing crisis continues to have a disproportionate adverse impact on low and moderate income people and communities of color,” said NCRC President and CEO John Taylor. “The housing recovery might be occurring for some, but this data suggests that it is not occurring for underserved populations.”

Lending in distressed census tracts, or those deemed distressed by the Neighborhood Stabilization Program, remains depressed and declined by a larger percentage since 2010 than in non-distressed census tracts. Highly distressed tracts suffered lending declines of 13.8 percent compared to 3.3 percent for non-distressed tracts. The overall decline in lending was 7.2 percent from 2010 to 2011.

“This latest data shows a number of very disturbing trends,” said Taylor. “It has gotten even harder for people of color and people of low- to moderate- income to access credit in the financial markets. In addition, refinancing out of higher interest rate loans to loans with historically low rates in today’s market is much harder for minorities, who are experiencing much higher denial rates in the refinance market. This impedes recovery from the foreclosure crisis for the hardest hit communities.”

About 40 percent of African-American applicants and 32 percent of Hispanic white applicants are denied refinance loans compared to 20 percent for white non-Hispanics. When borrower and lender factors are accounted for, the rejection rates for conventional refinance loans decline to 32.1 percent, 26.6 percent, and 20 percent for African-Americans, Hispanic whites and non-Hispanic whites, respectively. Even after controlling for various factors, the rejection rates for minorities remain significantly higher than for whites.

“The point is, those working-class people and minorities who have already been through the mortgage gauntlet are finding the bar raised even higher as they try to refinance into more affordable loans,” said Taylor. “This is patently unfair and un-American.”

Minorities also remain much more likely to receive FHA loans. While FHA has preserved access for traditionally underserved borrowers during the crisis, FHA loans are more expensive than conventional loans. Stakeholders must take steps to reduce the disproportionate incidence of FHA lending for minorities. For home purchase lending, 21.6 percent and 78.4 percent of African-American borrowers received conventional and government-backed loans, respectively. For Hispanic whites, the split was 29.2 percent and 70.8 percent and for white non-Hispanics, the split was 53.3 and 46.7 percent in 2011. The incidence of government-backed loans for all races declined from 2010 to 2011 but declined to a greater extent for non-Hispanic whites.

The top 10 lenders had about 37 percent of all HMDA-reportable originations in 2011, about the same as 2006. Lending by the 10 largest lenders fell more in 2011 from 2010 than lending by other institutions (17 percent compared to 2.6 percent).

Taylor concludes, “Too big to fail may also mean too big to lend. Regulators need to ensure that the market remains competitive and robust as we recover from this crisis.”

About the National Community Reinvestment Coalition (NCRC):

The National Community Reinvestment Coalition is an association of more than 600 community-based organizations that promote access to basic banking services, including credit and savings, to create and sustain affordable housing, job development, and vibrant communities for America's working families.