Foreclosure Solutions or Problems?

But first, the housing market could face additional downward pressure on prices — further disrupting financial markets, according to minutes of the Federal Open Market Committee’s meeting on Dec. 11.

“Recent data and anecdotal information indicated that the housing sector was weaker than participants had expected at the time of the committee’s previous meeting,” the minutes stated. “In light of elevated inventories of unsold homes and the higher cost and reduced availability of nonconforming mortgage loans, participants agreed that the housing correction was likely to be both deeper and more prolonged than they had anticipated in October.”

The National Alliance of Community Economic Development Associations, which says it is comprised of a network of 2,000 community development corporations, announced it has helped 10 of its member states pass foreclosure bills. The group claims to represent 27 state, city and regional organizations that work with low- and moderate-income populations.

Outreach Housing LLC is going after mortgage lenders whose practices it says “have led to the massive rise in foreclosure rates,” according to an announcement today.

The Margate, Fla.-based group claims it is offering $1.2 billion in legal assistance to help delinquent borrowers avoid foreclosure by exploiting Truth In Lending and RESPA errors by lenders. Its resources include in-depth mortgage analysis, a nationwide legal team and a state-of-the-art data system.

“In 2008, many will unjustly lose their homes due to their inability to defend themselves against aggressive mortgage lenders and all-too-common errors in the lending process,” the release stated. “Outreach Housing is completely up to date with all the rules and regulations pertaining to proper mortgage and foreclosure practices.”

NeighborWorks America announced it was named in the FY2008 Consolidated Appropriations Act to administer a $180 million national mortgage foreclosure mitigation counseling program. The organization, also known as the Neighborhood Reinvestment Corp., is required to grant at least $167.8 million to qualifying foreclosure mitigation organizations mostly in states with high foreclosure rates.

Neighborworks must award $50 million of the funds within 60 days of the legislation’s enactment, the press release said.

HomeRetain has been launched by the Federal Home Loan Bank of Indianapolis, according to an announcement last week. The $100 million lending initiative will be used by member banks to refinance Indiana and Michigan borrowers at below market rates.

Qualified borrowers can earn no more than 115 percent of an area’s median income and will be required to complete a counseling program, FHLB said.

The American Enterprise Institute for Public Policy Research recently published a report about a quasi-government organization temporarily created by the government during the Great Depression to relieve lenders of delinquent loans.

The Home Owners’ Loan Act of 1933 was drafted when around half of all mortgages were in default, unemployment stood at 25 percent and states were passing moratoriums on foreclosures, according to Crisis Intervention in Housing Finance: The Home Owners’ Loan Corporation. Frequently, based on the assumption of continued appreciation, mortgage payments had no principal paydown and included short-term balloon payments.

The Home Owners Loan Corp. was created to refinance defaulted mortgages, author Alex J. Pollock wrote in the report. At its peak, around 20,000 people were employed by the organization, which was funded with $200 million and authorized to issue $2 billion in government guaranteed bonds. Its goals were to protect borrowers from foreclosure while relieving them from excessive payments, place the least possible burden on the U.S. Treasury and avoid investor injustice.

The average borrower refinanced by the program was two years delinquent. Based on the property’s value, lenders would often accept less than the full balance of the loan, which was essential to the program’s success, and proceeds were paid in the agency’s bonds instead of cash.

“The lender would thus have an earning marketable bond — although with a lower interest rate than the original mortgage — in place of a frozen, nonearning asset,” the report stated.

The program acquired over 1 million loans representing about 20 percent of all mortgages outstanding at the time, although roughly 46 percent of applications were still turned down. Ohio and Michigan, which had the highest default rates, saw the largest number of loans made. Ultimately, even though 20 percent of the loans it made were foreclosed on, the agency saw a return of $200 million.