Mortgage Daily

Published On: November 30, 2007
Plans Call for Widespread Modifications

Recent foreclosure prevention activity

November 30, 2007


photo of Coco Salazar
Among federal and state plans being floated to stem an expected flood of foreclosures are widespread loan modifications for subprime borrowers who could afford to continue to pay their mortgages at their teaser start rates. Other foreclosure prevention activity includes local town hall meetings, unsecured loans to catch up delinquent payments and a call for investment banking executives to donate holiday bonuses to a fund for borrowers facing foreclosure.

In Massachusetts, foreclosure auction announcements numbered 1,214 in September, ticking up by 23 from the previous month — though almost 103 percent higher than a year earlier, The Warren Group reported. Auctions may have slowed as a result of lenders holding off on such action due to heavy real estate portfolios they have built through foreclosures or because they could be heeding Gov. Deval Patrick’s plea to slow down the process.

But the group said there are signs of more trouble ahead, as the filed number of petitions to foreclose increased 25 percent from July to 3,115 in August — the highest number in a one-month period since it began collecting foreclosure data in January 2005.

In a move to help borrowers get current on their mortgages, announced it is offering subprime personal loans of up to $15,000. Borrowers must have a steady income and a FICO credit score of over 530 if they own their home, and over 580 if they rent, for access to the unsecured cash loan product, which is designed to be repaid in four years, with annual percentage rates from 5 percent to 20 percent.

In Nevada, mobile resource centers will make stops this week in the five Nevada counties being hit hardest by foreclosures: Washoe, Douglas, Elko, Clark and Nye, according to an announcement from Sen. Harry Reid. The mobile centers bring together government, lenders, and non-profit organizations to provide the information to help borrowers stay in their homes.

To fight for a moratorium on foreclosures, the Michigan Emergency Committee Against War and Injustice is planning a Dec. 8 meeting in Detroit, according to its Web site.

U.S. Speaker Nancy Pelosi issued an announcement in response to a report from the U.S. Conference of Mayors in which she pointed out actions on behalf of the House to combat the possible ripple effect of weak residential investment, lower spending in the construction industries, and curtailed consumer spending. The House this year has passed bills to reform the Federal Housing Administration for more refinancing options for subprime borrowers, end taxes on mortgage debt forgiveness, raise loan limits of government-sponsored enterprises for single family homes in high cost areas, and invest $200 million for housing counseling.

Additionally, Pelosi said the House Judiciary Committee is currently considering legislation that will allow bankruptcy judges to revise mortgage contracts on primary mortgages, much as they are currently entitled to do with other debt and mortgages, such as vacation homes.

The National Association of Consumer Bankruptcy Attorneys announced it did an area analysis on the Center for Responsible Lending’s data that, out of approximately 2 million expected subprime foreclosures, 600,000 could be avoided through the pending fairness legislation.

The National Training and Information Center, National Association for the Advancement of Colored People, community groups and borrowers nationwide will ask the biggest U.S. investment banks to donate their holiday bonuses to a foreclosure prevention fund, according to an announcement. The coalition noted a borrower who received loan modification assistance needed a downpayment of $2,500 to get into an affordable fixed rate loan and was able to do this only because a foreclosure prevention fund provided the downpayment.

The request follows a new report by the NTIC and other groups that revealed how the top investment banks “wielded extraordinary power in the subprime mortgage market, pushed it to unsustainable levels and reaped tremendous revenues and bonuses as a result.” The coalition is sending letters this week to Goldman Sachs, Merrill Lynch, Morgan Stanley, Lehman Brothers and Bear Stearns, which together issued a record $36 billion in holiday bonuses last year, NTIC said.

HSBC recently provided a $1 million grant to housing counselor Money Management International for the Preserving Homeownership and Savings Education Strategy pilot program, according to a news release. PHASE, as it is dubbed, provides borrowers grants to pay outstanding debts and one-on-one financial counseling sessions. The program began with availability in Illinois, California, Florida, Ohio and New York, and has reportedly spread to 10 more states, including Arizona.

U.S. Treasurer Anna Escobedo Cabral will be at The Commerce Club in Atlanta, Ga., today to discuss the mortgage financing services and options counseling agencies offer to help local borrowers who are having trouble making payments. HOPE NOW alliance members NeighborWorks America and Consumer Credit Counseling Service of Greater Atlanta will host the event.

At a town hall forum last week in Minneapolis, Minn., U.S. Treasury Under Secretary for Domestic Finance Robert K. Steel revealed that the HOPE NOW alliance would send more than 300,000 letters by the end of this month to troubled borrowers who could qualify for a more affordable loan. The figure is 100,000 more than the alliance expected to reach and more borrowers will be contacted through this direct mail campaign over the next several months. His prepared remarks also showed that three more lender and servicer members have joined the alliance since the start of November for a total of 20.

Over in California, the state being hit hardest by foreclosures, Gov. Arnold Schwarzenegger announced that Countrywide, GMAC, Litton and HomeEq have agreed to streamline “fast-track” procedures to help prevent more subprime foreclosures. The agreement builds off of an FDIC proposal to keep subprime adjustable-rate borrowers at their initial interest rate if they are living in their home, making timely payments, but cannot afford the loan at reset. The effort by the four companies, which service more than 25 percent of subprime mortgages, is expected to relieve tens of thousands of California borrowers — as a half million are in subprime ARMs that will reset in the next two years.

“This common-sense approach does not involve a government subsidy or bailout,” Schwarzenegger said in the written statement. “If these lenders are willing to meet more than halfway, it’s important that consumers don’t run when they reach out. It was a two-way street that got us into this mess and it will be a two-way street that gets us out.”

HUD-approved housing counseling agency ByDesign Financial Solutions hosted the meeting, while The Center for Responsible Lending announced its support for the plan, though it called for the initiative to have a monitoring system.

Schwarzenegger also announced he will launch a statewide outreach campaign that will include public service announcements encouraging troubled borrowers to seek help. The governor noted he made available $1.16 million in Community Development Block Grant funds in September for consumer counseling and is urging Congress to provide more funding for the program.

A plan is being negotiated between federal regulators, including the Treasury Department, and a coalition of mortgage servicers, including Citigroup Inc., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp., that would temporarily freeze interest rates for subprime borrowers who could keep their homes if the maturity date of their mortgages were extended or the interest rates remained at the teaser rates, the Wall Street Journal reported today. The plan, which reportedly has the support of bond investors and could be announced next week, could freeze teaser rates for as long as seven years.

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