The Root Interview: HUD's Shaun Donovan on Foreclosure Chaos
You know things are bad when even the banks say they might be foreclosing on homes too quickly. America's top housing official explains the government's reaction to the foreclosure freeze, and why he said that not all of blight-stricken, urban Detroit can be saved.
Just when it seemed that this country's home-foreclosure crisis couldn't get any worse, Bank of America made a stunning announcement on Oct. 1: The nation's largest consumer bank was halting foreclosures altogether in 23 states (later expanded to 50) after reports came out that it and other banks had "robo-signed" thousands of affidavits confirming that they had the legal right to foreclose on homes, without actually reviewing the paperwork. JPMorgan Chase and Ally Financial's GMAC Mortgage followed in the footsteps of Bank of Ameria with their own freezes, out of fear that homeowners might have been foreclosed on improperly, and states launched probes into fraud by mortgage companies.
A week later, the debacle led President Barack Obama to refuse to sign a bill quietly passed by Congress that would have made it easier for improper foreclosures to go through. However, his administration refused to go as far as calling for a nationwide moratorium on all foreclosures, as some consumer advocates have called for. Meanwhile, less than three weeks after its original announcement, B of A claims that it has already reviewed 102,000 foreclosures and is set to go back to seizing and selling off properties on Oct. 25. U.S. Department of Housing and Urban Development Secretary Shaun Donovan said this week that the government won't interfere with B of A's decision. What gives?
Given that home foreclosures disproportionately affect blacks, who were more likely than whites to be given subprime loans regardless of income or credit scores, The Root decided to put that question to the nation's top housing official. Donovan shared his reasoning with us in an interview that also covered the government's efforts to revitalize communities hit hardest by foreclosures, and his rationale for saying earlier this week that you "can't save every neighborhood" in Detroit devastated by the economic downturn.
The Root: You have called for a comprehensive review of the foreclosure crisis. What will that entail?
Shaun Donovan: Just to be clear, this is a review that has been going on long before these recent issues that have come up with affidavits and whether people are being wrongly foreclosed on. Broadly, we're coordinating 10 different federal agencies that are looking at a range of problems that have been raised in servicing the foreclosure process and particularly whether loan servicers and bankers are doing enough to keep people in their homes. … Those agencies include the Justice Department, which is coordinating the fraud task force.
The president, right when he came into office, set up the most comprehensive effort that any president has set up to go after fraud in the mortgage process. We've done a lot of work before around these scam artists who were making these bad loans in minority communities. They're now coming back and claiming they're going to help people out of foreclosure. … That same task force is now looking at whether there was fraud in the foreclosure process itself by some of these banks or some of the contractors they hired.
At FHA (which is part of HUD), we are in fact an incredibly important source of financing nationally, but particularly for minorities and minority communities. To give you a sense of that, last year 60 percent of all African Americans who bought homes used FHA financing. … That will tell you very clearly that we need to make sure FHA lenders are doing right by homeowners. We require them early on in the process, if somebody goes delinquent, to reach out to that homeowner, to follow a set of specific steps, and give them a set of options to be able to stay in their home and choose the one that makes the most sense for that homeowner. We call it loss mitigation, and we have very clear standards about that. Right when the president came into office, what we realized was that the prior administration wasn't doing any checking on those loan servicers to make sure that they were following our requirements around keeping people in their home.
We put together a comprehensive report, and what we saw was, while some servicers were doing what we required of them, there were others that had far fewer efforts to keep people in their homes; so we started, last May, an in-depth review of our five largest servicers. That review is just about complete. What we're finding is substantial differences across servicers. Our next step is to present those findings to the banks, to give them due process to respond to us, but then to go to the next step, which is to enforce against them [which includes bringing] fines.
TR: That being said, you have declined to call for a nationwide moratorium on foreclosures, saying there are no "structural problems" to the system that would warrant it. What would it take for you to call for a nationwide moratorium?