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States Focus on Foreclosures

Legislation, aid for delinquent borrowers

March 29, 2007

By JERRY DeMUTH


An increasing number of states and at least one city are taking steps to combat rising foreclosures and, in some cases, stepping up to the plate to help troubled borrowers.

In Ohio, the state's Housing Finance Agency intends to make $100 million available from a taxable bond sale for an estimated 1,000 30-year mortgages with a fixed-rate of about 6.75% that would be provided to some borrowers faced with foreclosure.

The program is in the process of being explained to the agency's 185 lending partners, with the aim of getting them to participate in the program, Rita Parise, director of programs, told MortgageDaily.com. Servicing rights will be purchased by US Bank, she said.

Bonds will be sold in late April, after judging demand for the loans on the basis of inquires, and additional bond offerings could be made if the demand for the refinance loans exceeds the initial $100 million, she explained.

Maryland initiated a similar program, the "Lifeline" Refinancing Mortgage Program, last winter. It offers 30- and 40-year amortizing loans and 30-, 35- and 40-year interest-only loans to "Marylanders who may be facing financial difficulties after purchasing homes with 'exotic' mortgages," that is, "any type of adjustable rate mortgage, balloon payment loan, or negative amortization loan."

Indiana is starting a hotline for use by homeowners facing foreclosure that will provide referrals to counselors who can assist with loss mitigation. The hotline could be included in a public awareness campaign that is currently under consideration by the state legislature.

Similar hotlines already exist in the state of Colorado and the city of Chicago, and are being planned in other states.

Chicago's Department of Housing also has a program that can help troubled borrowers pay for such home maintenance costs as repairs for leaky roofs, with the aim of freeing up money for mortgage payments for people who qualify.

Also in Illinois the state is in the process of revising its Predatory Lending Database Pilot Program, which took effect last September 1 but then was suspended on January 19. That program is aimed at collecting loan data from broker and loan officer filings on loans that could be predatory and determining, during counseling agency meetings with borrowers, whether terms were fully disclosed and understood by borrowers.

While the original program applied to only six zip code areas in Chicago with the city's highest foreclosure rates, and only to borrowers with low credit scores, the revision would cover all of Cook County, including all of Chicago, and include all ARM loans made to all first-time homebuyers and all who are refinancing an existing mortgage. The revision is currently in a 45-day comment period after which it will go the legislature for action.

"It's a guaranteed failure," said Jim Wheaton, deputy director of program services at Neighborhood Housing Services of Chicago. "That's an incredible number of transactions."

He also noted that nothing was ever done with the data that was collected during the 20 weeks the program was first in place.

Meanwhile, Illinois Atty. Gen. Lisa Madigan has said she will back legislation to require lenders to verify borrowers' ability to repay loans, require brokers and loan officers to obtain the best loan products available for borrowers and ban prepayment penalties on all home loans.

In California, there are moves to restrict or ban such loan terms as low introductory interest rates, variable payment options and unverified stated income.

State Senate Banking, Finance and Insurance Committee Chairman Michael Machado wants state laws and state agencies to restrict low introductory interest rates and variable monthly payment options on mortgages. And Preston DuFauchard, commissioner of California's Department of Corporations, which regulates lenders, wants lenders to fully verify borrowers' income and employment status, effectively banning stated-income mortgages, and has asked Gov. Arnold Schwarzeneger whether his department can make this a requirement.

The governor's office did not respond to an inquiry from MortgageDaily.com.

In a separate action, the Department of Corporations currently is gathering information regarding the availability and nature of non-traditional mortgage products through a survey of the lenders it licenses. The information will be used to develop guidance for lenders and for department examination staff, a spokesperson said.


Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at [email protected]

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