Mortgage bankers and consumer groups battled it out in congressional hearings today, arguing about how enabling bankruptcy judges to modify mortgages would impact borrowers and the mortgage market. Meanwhile, as more foreclosure prevention programs are launched, another group has started a campaign against a major servicer it claims is only exacerbating the foreclosure crisis.
But first, in Broward County, Fla., the reported action plan approved for the fiscal year started Oct. 1, 2007 through Sept. 30, 2008 contained $200,000 for the Broward County Housing Authority to provide housing counseling and financial assistance to prevent foreclosure to a minimum of 585 low-income residents.
To assist borrowers impacted by mortgage rate resets in the Las Vegas, Nev., area, the Federal Home Loan Bank of San Francisco hosted the Homeowners Foreclosure Prevention Workshop over the weekend there, with Rep. Shelley Berkley, D-Nev., as a special guest. The foreclosure prevention counseling organization providing education and counseling for the borrowers were brought together by the bank, U.S. Department of Housing and Urban Development, and Housing and Economic Rights Advocates, according to an announcement.
Ocwen Financial, reportedly the fourth-largest U.S. subprime servicer, is being targeted by the Association for Community Organization for Reform Now, which engaged in national and overseas protests, with the goal of demanding that the servicer adopt a set of best practices principles that will modify loans to allow borrowers willing to make payments to remain in their homes.
Ocwen "won't work with families facing foreclosures, they board up houses they've foreclosed, and they aren't living up to their government contract to manage foreclosed homes, allowing homes to rot away and increase the blight of our communities," ACORN National President Maude Hurd said in the announcement. "Ocwen must change."
ACORN announced it staged protests Thursday in more than 40 cities at Ocwen offices, affiliates Deutsche Bank and Credit Suisse and the Department of Veterans Affairs, which exclusively contracted Ocwen to maintain its properties. ACORN members in another 20 cities demand that the VA end the contract with Ocwen after reports by the Government Accountability Office indicated up to 45 percent of the properties Ocwen manages for the VA do not meet code.
The U.S. protests were followed by demonstrations at offices in Bangalore and Mumbai, India, to alert Ocwen's 2,567 Indian employees of the company's "misconduct" abroad, ACORN said.
A group of subprime borrowers in Hennepin County, Minn., filed a class action suit against Mortgage Electronic Registration Systems Inc. for allegedly skipping legally required steps in the foreclosure process, the Center for Responsible Lending announced. Representing the borrowers are the center, Legal Aid Society of Minneapolis and Crowder Teske PLLP.
Minnesota law requires servicers to follow certain procedures before doing a "foreclosure by advertisement," which allows a party to foreclose after publishing a notice of foreclosure in the newspaper and is faster and less costly than some states' requirements to have lenders file a lawsuit before they can foreclose. Among the mandatory procedures is recording with the county all changes in the assignment of mortgages that are no longer held by the original lender, listing the changes in the published foreclosure notice and delivering the information to the borrower prior to the sale, the center said.
The suit reportedly alleges that Virginia-based MERS, which handles 40 percent of the foreclosures in the seven-county metropolitan area, violates Minnesota law because it "systematically ignores these requirements and routinely forecloses upon mortgages that have been assigned without recording those assignments or listing them in the published foreclosure notice."
"Ironically, MERS was established for the very purpose of tracking loan assignments privately, rather than recording them with government officials," the center added.
The center on Monday reported the Treasury Department's plan involving voluntary streamlined loan modifications will prevent only 118,200 foreclosures -- about 3 percent of all the outstanding adjustable-rate subprime mortgages.
"The Treasury plan, plus existing lender modifications, will barely make a dent in the growing foreclosure crisis and will allow subprime damage to continue spreading through the entire economy," the center said in the report.
Plus, the center is among seven consumer and civil rights groups that today announced they jointly created the Alliance to End the Foreclosure Crisis to support two bills that "have been attacked by trade organizations representing the key banking and lending institutions responsible for creating the subprime mortgage crisis in the U.S."
Joining the center in the push for HR 3609, the Emergency Home Ownership and Mortgage Equity Protection Act, and S. 2136, Helping Families Save Their Homes in Bankruptcy Act are the Consumer Federation of America, Leadership Conference on Civil Rights, National Association of Consumer Advocates, National Association of Consumer Bankruptcy Attorneys, National Consumer Law Center, and Jack Kemp, a former HUD Secretary and former U.S. Congressman.
"Current voluntary modification efforts are woefully insufficient," the groups said in today's announcement. "Examining mortgages during the first eight months of 2007, Moody's Investors Service found that lenders only modified 3.5% of subprime loans that reset to higher levels, compared with industry estimates that up to half of such borrowers facing reset will lose their homes to foreclosure."
The Mortgage Bankers Association advised policymakers to ignore the center's data on loan modification and expressed discontent with the bankruptcy reform.
MBA stated that Moody's research showed more than half of borrowers with subprime ARMs scheduled to reset in the first eight months of 2007 refinanced or paid off the balance prior to the adjustment, indicating more than half the loans the center cites as at-risk will never see resets.
"By choosing to misread and misinterpret the existing data on subprime loans, officials at the Center for Responsible Lending have again demonstrated they are more interested in advancing their own legislative agenda than in having an honest debate about the real scope of the problem and how to help those most in need," MBA Chairman-Elect David G. Kittle said in an announcement Monday.
HR 3609 would allow bankruptcy judges to modify the terms of a mortgage contract during bankruptcy proceedings by either modifying the interest rate or reducing the principal owed so that it matches the home's current market value. The bill could preserve $72.5 billion in equity for borrowers with homes located near foreclosed properties because it would help prevent 600,000 foreclosures, the center said in today's announcement, adding that Moody's cited the bill could save 570,000 homes or about one-quarter of foreclosures likely to occur between now and the end of next year.
However, MBA argues that the bankruptcy reform would hinder ability to refinance out of subprime loans because it would increase the cost of all new loans. The trade group additionally noted that two-thirds of all bankruptcy plans fail.
The center's "stubborn insistence on clinging to 'loan modification' as the only means by which a lender can help a borrower in trouble only serves to further mislead policymakers into overreaction," Kittle said. "Repayment plans, forbearance and even short sales are all widely accepted ways of helping a consumer avoid foreclosure. And yet CRL ignores them, because including them would better demonstrate the vast efforts lenders make."
Kittle also challenged the bankruptcy reform in his testimony today before the House Judiciary Committee's Subcommittee on Commercial and Administrative Law at the hearing, "Growing Mortgage Foreclosure Crisis: Identifying Solutions and Dispelling Myths," MBA said.
"We expect that HR 3609 will cost your constituents hundreds of dollars a month and thousands of dollars a year," Kittle said in a separate announcement. "Passage of this bill will encourage homeowners to file for bankruptcy, an expensive and invasive process. Instead of encouraging homeowners to seek bankruptcy, Congress should focus on ways to keep people out of bankruptcy and in their home."
"It is a myth that this legislation will actually be positive for the mortgage industry ... that the total cost of foreclosure is greater than the risk of bankruptcy ... [and] that the preference given to primary residences is simply a loophole," he added.
Among other things, bankruptcy voids credit enhancements such as government mortgage insurance in the amount of the cramdown and the legislation would diminish the value on loans and servicing rights. The increased risk lenders would absorb and the write downs would only lead to higher rates to offset costs and risks, Kittle said.