Necessary but Insufficient: Principal Reduction as a Response to the Housing Crisis

There is an overwhelming consensus right now that we face a severe market failure with regard to housing. One industry expert recently testified before Congress that, unless something is done about it, 8 to 10 million more homeowners will lose their homes to foreclosure(1). That is 1 in 5 owners with an outstanding mortgage, and in addition to the 8 million owners who have already lost their homes to foreclosure since 2007.

As community organizations, the Occupy movement and the general public begin to refocus their attention towards this crisis, “fixing” the market through mortgage principal reductions is one proposal for stemming the tide of foreclosures that has been gaining some political traction. Even the 50 Attorneys General included a form of this demand in talks to settle the lawsuits filed against the Wall Street banks accused of robo-signing documents and other financial shenanigans. The theory is that by allowing for cuts in mortgage balances – debt relief – homeowners will pay less monthly, which will result in fewer foreclosures.

Certainly, principal reduction is a necessary form of relief for many families hard-hit by the foreclosure crisis – many were targeted for risky and predatory loans by banks in pursuit of quick profits. However, while principal reduction is an essential feature of addressing market excesses and fraudulent lending practices, principal reduction alone is woefully insufficient in addressing the much broader housing crisis. Certainly, it can do nothing for the rent-burdened, the unemployed, the underpaid, and the displaced.

Despite new national attention on the market’s failures related to the foreclosure crisis, there has been little critique of the underlying paradigms and policies that facilitated massive displacement throughout countless communities in the first place. What’s more, while we hear the roar of outrage about individual and widespread cases of fraud and misconduct on the part of Wall Street firms, there continues a deafening silence on the lack of policies and programs required to ensure sufficient stocks of stable and affordable housing for low and middle income households.

In this context, it becomes increasingly clear that the real crisis here is not one of housing, in which artificially high mortgage principals are the cause, but one of human rights, in which the housing crisis is merely a symptom.

Even as we discuss the relative merits of principal reduction, Congress is voting on whether to essentially sell off what little remains of our publicly supported affordable housing infrastructure to the same giants of real estate responsible for the housing crisis. This will be just the latest iteration in a 30-year trend of deregulation and divestment policies that have led to massive demolitions, forcible evictions, and the destabilization of entire communities. As a result, chronic homelessness and serial displacement have become normalized in the name of “housing as real estate.”

Housing is not just a commodity or even a mere shelter; it is the very foundation of family stability, personal belonging and community. It is a basic need and a human right.

With 25 million Americans unemployed or underemployed, it is widely apparent that the market is ill-equipped to provide basic and decent housing for those that need it most, let alone ensure much-needed stability for individuals and families facing hard times. In fact, deregulation has allowed banks and real estate giants to wildly exploit our need for housing. Consequently, today, rental prices are on the rise, though good jobs and wages are not!

This is the time to think big, not small. To address causes, not just symptoms. Now is our opportunity to re- examine relationships to land and housing, as well as the role of banks and government. Principal reduction is an important first step, but it is not enough to deal with the root causes and scope of this housing crisis. With the mass of humanity and morality on the side of the 99 percent, we have the potential to secure the human right to housing for all Americans by demanding a system that is universal, equitable, and sustainable.

These are exciting times as we build a movement to make this a better world for the 99 percent, but what will our movement be remembered for?

Can we develop the kinds of solutions that address the deepest inequities within our housing system? When we look at housing, can we change the question that is asked from, “How can I increase market value?” to one that recognizes the inherent social values in land and housing? Will we seek to maximize profit or the peace, dignity and stability of our homes and communities?

We must attain, but we cannot settle for, principal reduction. We must fight for the kind of housing policies that ensure housing is elevated to the level of a human right. 

By Max Rameau of Movement Catalyst, M Adams of Take Back the Land and Brittany Scott of the National Economic and Social Rights Initiative.


(1) See, e.g., 9/20/2011 Testimony of Laurie S. Goodman, Amherst Securities Group to the Subcommittee on Housing, Transportation and Community Development of the Senate Committee on Banking, Housing and Urban Affairs.