The Foreclosure Plan

ForeclosuresMass.com announced it expects Massachusetts to set a new quarterly foreclosure record with at least 7,000 new filings in the third quarter. Foreclosures are up in 303 of the state’s 351 communities in the year ending July 31.

Massachusetts Attorney General Martha Coakley filed a lawsuit against Fremont General and Fremont Investment and Loan accusing the former subprime lender of engaging in unfair practices that contributed to the foreclosure crisis in the state, her office announced. Among the allegations were that Fremont sold exceedingly risky loan products that it knew or should have known were designed to fail, including loans that combined 100 percent financing, stated income and adjustable rates; rewarded but not meaningfully monitored brokers who sold risky loans; and engaged in unfair loan servicing.

Coakley seeks civil penalties, restitution and an injunction that would prohibit Fremont from selling or transferring any Massachusetts mortgages and from foreclosing on any state loans without first allowing her office a 90-day review period for such loans.

The lawsuit comes about three months after Fremont agreed with the attorney general to stop foreclosures on over 2,000 loans it originated in Massachusetts.

The New Hampshire Banking Department announced it will be hosting free public sessions in cities across the state to help borrowers review their documents and identify any upcoming changes in their payment terms. The department’s staff will, among other things, assist in filling out complaint forms if their documents show signs of fraud and direct borrowers to foreclosure prevention counseling if necessary. The next session will occur in Laconia on Oct. 16.

A new foreclosure prevention company, HomeAssure, is promising to refund borrowers’ money if it is unable to help them negotiate a satisfactory plan with a lender or to provide a viable strategy to avoid foreclosure, according to an announcement Monday. The New York-based company’s counselors negotiate with lenders to develop personalized solutions, including reinstatement or repayment plans, loan modification, restructuring, forbearance agreements, and pre-foreclosure sales. If refinancing is an option, borrowers will be informed within 48 hours and foreclosures postponed until closing.

As part of the foreclosure prevention initiative President Bush announced Aug. 31, U.S. Treasury Secretary Henry M. Paulson announced a new alliance of mortgage market participants has been formed to put together an aggressive plan to reach more borrowers and help them find solutions. The HOPE NOW partnership currently consists of 11 of the largest mortgage servicers representing 60 percent of the nation’s mortgages, several leading mortgage counselors, investors, and large trade organizations.

Countrywide Financial Corp. announced it is among the 11 participating servicers.

“In addition to the campaign to raise awareness about reaching out for assistance for at risk homeowners, the Alliance will work to improve communications between servicers and non-profit counselors to speed outreach and to develop and explain options for at risk borrowers,” Countrywide said. “The Alliance will also develop standards with investors to enable counseling sessions for homeowners to be funded by servicing contracts.”

Connecticut’s Subprime Mortgage Task Force intends to soon give the governor several recommendations, including holding a summit where borrowers can meet with lenders to discuss refinancing and creating a special mortgage refinancing program, according to a news release. The agency is also calling for loan originators and supervisors to pass a competency exam before receiving a license and then complete 18 hours of continuing education every two years for renewals.

Among the task force findings, since its formation, are reportedly that there are currently some 71,000 subprime mortgages in Connecticut worth approximately $15 billion, of which 8 percent are seriously delinquent. Additionally, up to 21,000 subprime ARMs will reset to higher interest rates between now and 2009.

U.S. Sen. Jim Sullivan and Rep. Jon Richards of Wisconsin proposed the Homeowner Protection Act, which aims to prohibit foreclosure scams and equity stripping, according to an announcement. The bill, which reportedly has broad, bipartisan support, addresses foreclosure scam artists looking to strip the equity of delinquent borrowers.

But the National Taxpayers Union warned that a number of congressional measures, including the appointment of a mortgage czar and borrower bailouts, could do more harm than good. Such proposals would shift the risk from subprime lenders to taxpayers by allowing FHA, Fannie Mae and Freddie Mac to respectively insure and buy riskier mortgages.

The study’s author, Jacob Vigdor, Associate Professor of Public Policy Studies and Economics at Duke University, reportedly said the proposals “promise to rescue lenders and speculative borrowers from their own bad decisions.” He said little if any of the help would reach borrowers legitimately in need.

“Lenders who misled these borrowers would be paid off, while the borrowers themselves continue to face the daunting prospect of paying off a loan that they truly could not afford,” he was quoted as saying.