As California and Michigan unveiled further initiatives to help troubled borrowers, calls for a federal foreclosure moratorium and freeze on mortgage rate resets continued.
California Assembly Democrats announced a legislative package aimed at helping minimize the financial crisis caused by foreclosures. The legislation calls for reforms such as identifying at-risk borrowers and determining what lenders have done to assist them; adding consumer real estate mortgage loans to the list of consumer contracts subject to California translation requirements; banning prepayment penalties; ending incentives and kickbacks that spur originators to push prime-qualified borrowers into subprime loans; increasing home ownership counseling; toughening income verification regulations and requiring lenders to consider an applicants ability to repay over the life of a loan.
The Assembly Democrats also noted they established a Web site to provide foreclosure avoidance resources and information, and that they have suggested the state hold a special session to address its subprime mortgage foreclosures.
Considering lenders have not been able to reach borrowers in more than half of all foreclosures, California Gov. Arnold Schwarzenegger on Thursday launched a $1.2 million public awareness campaign, in partnership with local leaders and organizations, to urge borrowers to work with lenders before foreclosure and encourage the use of nonprofit housing counselors, the governor's office announced.
The governor also reportedly directed the Department of Veterans Affairs to work with his nontraditional mortgage task force to find ways the CalVet Home Loan program can provide a fixed-rate loan to qualifying California veterans and active military personnel who are in subprime loans and at risk of losing their homes. These efforts come a week after the governor unveiled a deal with four servicers to have them ease loan terms for distressed borrowers.
A short sale, where lenders agree to have the home sell for less than the amount owed on the mortgage, can be a "viable" alternative to foreclosure for borrowers who are at least 91 days delinquent on their mortgage, according to an announcement by one real estate agent.
In Michigan, Attorney General Mike Cox announced on Wednesday that his office will be sponsoring the forum, Avoid Foreclosure: Tools to Help Save Your Home, on Dec. 13 at Cobo Hall in Detroit. Lenders sent letters with information about the event to over 30,000 borrowers with whom they wish to discuss remedies for avoiding foreclosure. The event will feature several educational seminars and allow consumers to individually meet with their lender or independent loan counselors. Among the 18 servicers participating in the event are Wells Fargo, Countrywide, Washington Mutual Bank, HSBC and Ocwen Loan Servicing.
Michigan has created a Web page, Avoid Foreclosure Resources.
Michigan House Democrats announced they passed legislation Tuesday that would enable at-risk low- and moderate-income borrowers who face an increase on their adjustable-rate mortgage payments to refinance with a fixed-rated loan through the Michigan State Housing Development Authority if they are unable to work out an agreement with their lenders to avoid foreclosure. In addition, borrowers who have already become delinquent would also be eligible for the special financing.
Borrowers would need to meet income and credit score requirements, the Democrats said.
Michigan State Representative Bert Johnson has sponsored House Resolution 52, which calls for a partnership between private and public entities to address the foreclosure crisis, the announcement added.
In a letter Monday to U.S. Treasury Secretary Henry Paulson, Sen. Hillary Rodham Clinton commended the efforts the Treasury is taking to reduce foreclosures, including a three-point plan announced Monday, but said a"satisfactory" agreement with the mortgage industry would be one that at least imposes a 90-day foreclosure moratorium on subprime, owner-occupied homes; freezes rates on subprime ARMs prior to reset for at least five years or until the loans are converted into affordable, fixed-rate loans; and requires that the mortgage industry report its progress on loan modifications.
Servicers have complained they do not have systems in place to quickly contact the large numbers of at-risk borrowers, Clinton explained in the letter. The moratorium would give time for lenders to implement the rate freeze and organizations to counsel the numerous borrowers. The long freeze would allow time for the housing market to stabilize, while obligating lenders and servicers to regularly report progress, rather than only agreeing to expeditiously convert loans, could help change that, so far, lenders and servicers have modified only about 1 percent of subprime loans.
Clinton said that if Paulson's agreement lacks the suggested provisions, she will pursue legislation that enables lenders to convert unworkable mortgages into stable, affordable loans without the permission of investors and with protection from lawsuits. She also proposed a $5 billion fund to help communities hit hardest by foreclosures and already feeling the effects of the economic downturn.
"Now that you have gathered the housing stakeholders, it is imperative that you negotiate an agreement appropriate to the scale of the problem," Clinton said in the letter. "The proposals I have outlined provide the framework for a comprehensive workout, not a bailout."