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Resolution 31495 Moves to the Full Council Monday

Yesterday, the Seattle City Council Housing, Human Services, Health, and Culture committee voted 5-0 to move Resolution 31495 on to the Full Council on Monday, December 16. 

Next, the City Council will form a City of Seattle Interdepartmental Team (IDT) to explore whether principal reduction and other foreclosur12-12-13e prevention programs can help low- income homeowners.  By March 15, 2014, the IDT will report to the City Council Finance Committee and the Housing Committee on the financial and legal implications of specifically the three principal reduction programs proposed in the Hockett Report and a recommendation on what approach the City should take to help low-income homeowners in order to support and revitalize communities impacted by the foreclosure crisis.

Principal Reduction is when the mortgage is rewritten to reflect the actual value of a home.  The Hockett Report was commissioned by the Council last March after passage of Resolution 31434.   It was received in late September and its conclusion is that programs that accomplish mortgage principal reduction for homes that are “underwater” (when more money is owed on a home than the home is worth) are better strategies to pursue than traditional mortgage prevention programs that either provide limited monetary assistance or lower monthly payments.  The mortgage debt overhang of underwater homes is one of the primary drags on economic recovery and is valued at an estimated $1 trillion more than our nation’s homes were worth.  Principal Reduction may aide in our economic recovery by returning some of the money that is going to the banks back in people’s hands to put back into the economy through increased consumer spending.

Following the IDT’s March recommendation, by June the IDT will report to the City Council on the characteristics of low-income homeowner mortgages that a program should target, including an estimate of the number of loans and the average benefit to borrowers and the attendant economic benefit to the community. Also by June there will be a strategic plan proposed for the development of the program and a list of the potential partners to fund the program.

This is important work for the City to take on. 2012 estimates of homeowners who were underwater on their mortgages ranged from 24,000 to 42,000 with homeowners owing on average $65,900 to $131,800 more on their mortgage than their homes are worth.  Seattle zip codes, 98104, 98106, 98121, 98148, 98168, and 98178 have underwater home mortgage loan concentrations of 43%, 38%, 39%, 42%, 44%, and 40%, respectively.This is higher than the national average of 20 – 25%

If you are interested in more background, you may want to read what I’ve written on this issue in the past.

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