Foreclosure Remedies

The U.S. Senate recently approved $200 million in aid for organizations that counsel borrowers in preventing foreclosures. Five senators requested the funds, which are reportedly part of the 2007 Transportation and Housing and Urban Development spending bill passed by the Senate on Sept. 12.

Senators Chris Dodd, D-Conn., and Kit Bond, R-Mo., announced they worked to grant $100 million of the funds to public, private and nonprofit organizations to assist troubled borrowers modify or refinance both conventional and subprime loans or obtain counseling to examine other options. Separately, Charles E. Schumer, D-N.Y., Sherrod Brown, D-Ohio, and Robert P. Casey, D-Penn., announced they teamed up to grant the other $100 million in funding for nonprofit groups to facilitate subprime refinancings.

“Because there are so many distressed homeowners right now, the non-profits are overwhelmed,” Schumer said in an announcement. “They’ve already received more calls for help this year than they did all of last year, and things are likely to get worse before they get better. The non-profits simply do not have the resources to deal with this crisis.”

Consequently, Schumer issued a letter to federal financial market regulators last month, seeking their help in jawboning industry players to contribute still greater resources to nonprofit groups. In addition, he recently met with Countrywide Chief Executive Angelo Mozilo urging the company to consider committing $250 million in funds.

On Friday, the U.S. Treasury announced its Community Development Financial Institutions Fund awarded over $27 million to 68 organizations serving economically distressed communities in 30 states. The organizations were chosen out of over 184 applicants requesting more than $138.4 million in funding under the 2007 round of the CDFI Program. The awards were announced in Chicago to highlight recipient Neighborhood Housing Services of Chicago, which has been recognized for administering one of most successful anti-foreclosure programs in the country — preventing 1,300 foreclosures in the past three years.

“Many of the organizations we are awarding today are on the front lines of creating real solutions for those facing foreclosure in our nation’s rural and urban low-income communities,” said CDFI Fund Director Kimberly A. Reed in the announcement. “The awards we are making today will provide these community-based lenders with the resources to do even more for their communities — such as more foreclosure prevention counseling and capital for market-rate loans to refinance mortgages and keep families in their homes.”

The National Governors Association Center for Best Practices reported that states are leading the way in developing solutions to prevent foreclosures and future problems, noting that the percentage of mortgages entering foreclosure this year hit its highest level in 28 years.

State strategies to curb foreclosures include establishing foreclosure prevention funds, banning common predatory practices, adopting regulatory guidelines for subprime and nontraditional mortgages, tightening regulation of mortgage originators, increasing criminal penalties for mortgage fraud and increasing funding for supervision and pursuing of violators, the center said.

Among specific state efforts are Hawaii’s enactment of legislation designed to protect senior citizens against fraudulent mortgage investments and Michigan’s establishment of consumer education outreach coordinator to provide consumers with a variety of resources regarding financial services, the center said.

Iowa Attorney General Tom Miller announced a pilot project to prevent subprime mortgage foreclosures in that state — which has the fourth-highest subprime foreclosure rate in the nation at 8.6 percent. The project consists of a new foreclosure hotline to the Iowa Mediation Service, which will explore if a loan modification might work for both the lender and borrower.

In Washington state, a newly-formed task force will evaluate the instability in the national subprime mortgage market and ensure the impact is minimized locally, Gov. Chris Gregoire announced. The responsibilities of the Task Force for Homeowner Security include making recommendations on facilitating refinancing options for borrowers in or at risk of default, consumer education, and reforms to state lending practices. The deadline for the recommendations is Dec. 31.

“My concern is for Washingtonians who see what is happening on the national market and are worrying they may lose their own home or won’t be able to purchase a house,” Gregoire said in the written statement. “Because we are not yet seeing high rates of foreclosures and defaults, I convened this group of knowledgeable and compassionate people to work on solutions before this national problem hits Washington as hard.“

Meanwhile, Oregon Gov. Ted Kulongoski instructed state mortgage lending regulators to prepare new regulations and legislative proposals to help borrowers facing foreclosure due to subprime lending woes, according to an announcement. Among the issues the Department of Consumer and Business Services will be looking at are “mortgage rescue” schemes, how subprime loans are underwritten, and whether there are systems in place to ensure borrowers are offered the best possible loan. In the meantime, the department was also advised to take immediate steps to assist borrowers, such as increasing enforcement against misleading advertising aimed at inducing borrowers to refinance.

“We have been fortunate in Oregon that rising home prices have meant lower foreclosure rates than in other states,” Kulongoski said in the announcement. “But foreclosure rates are rising and that’s a concern. We must make sure that no one loses their home because of an unfair loan product or lack of information.”

MortgageHub announced Wednesday an alliance with mortgage banking attorney network USFN to launch the Home Retention Alliance. The new organization, which claims nearly 80 percent of loans headed for foreclosure can saved with the right mitigation, aids servicers by bringing together lenders, borrowers, attorneys and partners under one umbrella.