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Foreclosure Drama

Recent foreclosure prevention activity

May 7, 2008


Politicians in three states have recently proposed or implemented foreclosure moratoriums ranging from one month to two years, while a Chicago-based group is recommending a plan that would turn foreclosed borrowers into renters then back in to borrowers. Meanwhile, a new report analyzed the impact of foreclosures on children.

The Shadow Financial Regulatory Committee, a Chicago-based group of scholars, is recommending that the U.S. Department of the Treasury and the American Securitization Forum adopt a plan to enable delinquent borrowers who agree to a deed in lieu of foreclosure to lease the properties with an option to buy. The value of qualifying properties would less than the mortgage, and borrowers would have the option to buy the homes at the value as of the deed-in-lieu date.

Under such a plan, servicers would avoid the costs and delay of foreclosure while borrowers would have an incentive to maintain the property and would not have to move. While the securitization pool would take a loss, it would maintain cash flow, according to the group.

The Department of Veterans Affairs issued a circular indicating it would only reimburse attorney fees for foreclosure services. The agency noted that during the past five years, many servicers had been outsourcing the foreclosure oversight process and incurring attorney fees as a result.

"While VA understands that servicers may find efficiencies in outsourcing certain functions, the cost for such outsourcing must be considered as an operating expense of the firm contracting for the outsourcing; i.e., the servicer," the agency stated. "VA cannot consider outsourcing fees to be part of the cost of an attorney fee for completing a foreclosure."

First American Subordinate Lien Outsourcing announced the debut of its Suit-on-Note Scoring Module, which helps servicers and investors determine the best resolution for servicing subordinate lien assets. The score helps servicer define the borrower's capacity to pay by quickly identifying actions on other assets.

Three Michigan state senators have introduced legislation to establish a two-year freeze on all mortgage foreclosures in the state. During the moratorium, the court may order borrowers to make reduced payments based on their payment ability. Two related bills would prohibit tax foreclosures and authorize bonds to guarantee payments during the moratorium.

The proposed legislation in Michigan, which according to RealtyTrac saw 29,544 first-quarter foreclosure filings and had the seventh highest foreclosure rate in the nation at one filing for every 153 households, is similar to legislation passed by the New York State Assembly that would impose a one-year foreclosure moratorium on subprime mortgages in that state.

Following a one-month moratorium of sheriff's sales by Philadelphia's sheriff, the city resumed judicial mortgage foreclosure sales yesterday, according to a posting by the sheriff. The sheriff took the step following a unanimous vote by the City Council. At the time, a legislative counsel for one of the councilmen told MortgageDaily.com that the sheriff was expected to ask the court for a six-month moratorium.

Foreclosures were initiated on 9,114 mortgage in Massachusetts during the first quarter, up from 8,579 in the fourth quarter and 38 percent higher than a year earlier, according to the Massachusetts Market Analysis Report announced today by ForeclosuresMass.com. The level of activity represented the third consecutive record-breaking quarter. During just March, the number of filings reached 3,023.

Competing foreclosure tracker RealtyTrac reported 16,366 first-quarter filings in Massachusetts, including 9,461 Lis Pendens. That report indicated a foreclosure rate of one filing for every 166 households, the ninth worst in the country.

An appeals court judge in Massachusetts upheld a preliminary injunction against Fremont General and Fremont Investment and Loan prohibiting the former California-based subprime lender from foreclosing on some subprime borrowers in the state, according to an announcement from the state's attorney general. The order called for Fremont to submit a notice to the attorney general's office at least 30 days before it intends to foreclose on a loan. The attorney general had 45 days to object to the foreclosure if the property is owner occupied and the loan is considered to be "presumptively unfair."

A report announced last week by the children's advocacy group First Focus indicated an estimated 2 million children will be impacted by foreclosures in 2008 and 2009 resulting from the subprime mortgage crisis. The group suggested affected kids will see their reading proficiency drop by half, with many dropping out of school. In addition, they will develop behavioral problems and suffer severely compromised physical and mental health.

"When families lose their homes, kids often lose their schools and access to services," the announcement said. "Due to the increasing number of foreclosures, school districts across the country are experiencing increases in the number of homeless children entering their classrooms."

ACORN announced it has organized protests in 20 cities tomorrow targeting Washington Mutual, congressional members and the Federal Reserve. Among the group's demands are that WaMu halt foreclosures for six months, modify all delinquent loans to affordable fixed-rate mortgages, and provide servicing data to the State Foreclosure Prevention Working Group. ACORN is also calling on Congress to support H.R. 3609, the Emergency Home Ownership and Mortgage Equity Protection Act, which would empower bankruptcy judges to modify mortgages.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: [email protected]

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