Foreclosures: Mitigate, Litigate & Legislate

IndyMac Bank announced it teamed up with NeighborWorks America to sponsor the NeighborWorks Center for Foreclosure Solutions as part of an effort to implement a coordinated national foreclosure intervention strategy. The center targets borrowers, especially those of low and middle income, who are in financial distress by directing them to call 1.888.995.HOPE. In addition to the toll-free hotline that has financial counselors available 24-hours a day, the program consists of a combination of national awareness, advertising, on-line credit counseling, and face-to-face counseling.

First American First Lien Outsourcing partnered with National Bankruptcy Services to jointly provide default management and administrative outsourcing services to mortgage lenders and servicers, the First American Corp. announced. The team effort combines First American’s foreclosure outsourcing expertise and default technology with national bankruptcy outsourcing services to provide a seamless solution for complete default management.

Minnesota Gov. Tim Pawlenty announced Friday an additional $1 million in state funding for the Minnesota Housing Finance Agency initiative, which will assist troubled borrowers before they become seriously delinquent in their mortgage. Another $800,000 in private, philanthropic and local funds will be contributed to the effort. The funds will double the number of foreclosure prevention counselors from 18 to 37 statewide, triple the number of borrowers that will be served, and are estimated to prevent 5,700 foreclosures in Minnesota in 2008.

As part of the early intervention initiative, the housing finance agency recently awarded to the Homeownership Center and the Minneapolis Urban League $500,000 funded by real estate license fees to help borrowers in targeted areas, according to Pawlenty’s announcement.

Texas Attorney General Greg Abbott earlier this month had a meeting with Citigroup, HSBC, Wells Fargo and Chase in which he proposed they implement five measures to prevent foreclosures for borrowers in the Lone Star State. The measures, which were the same one proposed last month to Countrywide Mortgage, Litton Loan Servicing and EMC Mortgage, call for the lenders and servicers to provide long-term financing for borrowers in adjustable-rate mortgages, mitigate each case in a non-confrontational setting before sending it to collections, create an in-house resolution committee to address consumer complaints, contact borrowers well before ARMs reset, and waive penalties and late fees on loans at risk while they are worked out, according to a news release.

The companies were asked to follow up with the Abbott by the first week of December on their implementation of the measures, specifically on the percentage of ARMs converted to fixed-rate loans and the number of service fees waived.

In Virginia, Gov. Timothy M. Kaine announced the creation of the Virginia Foreclosure Prevention Task Force to seek ways to preserve homeownership. The task force has been assigned to collect and analyze data to assess foreclosures in the state, identify and review financial and programmatic resources available to homeowners, recommend outreach, and revise existing Virginia laws and regulations to suggest appropriate revisions. The task force will convene with mortgage industry representatives, housing consumer advocates, policy experts and researchers to make recommendations.

The formation of the task force comes as the state has observed foreclosures are concentrated among subprime loans — which were involved in 4,000 of the total 5,800 Virginia homes were in foreclosure during the second quarter. The Virginia Housing Development Authority only offers fixed rate/prime loans, thus the task force will help ensure the state is proactive in addressing potential problems resulting from aggressive lending practices in nonprime loans, according to the announcement.

Rep. Chaka Fattah, D-Pa., chairman of the Congressional Urban Caucus, wrote a letter to President Bush, urging him to have the mortgage industry declare a six-month moratorium on all foreclosures and to convene a national summit of congressional, industry and community leaders to develop a long-term strategy to effectively resolve the foreclosure crisis. The moratorium would serve as a “stop gap measure” until long-term strategies can be implemented.

U.S. Treasury Under Secretary for Domestic Finance Robert K. Steel is scheduled to attend a town hall forum this afternoon hosted by Senator Norm Coleman in Minneapolis, Minn. Steel will hear from affected borrowers and discuss a new outreach effort by HOPE NOW, a national alliance of leading counselors, services, and investors working together to educate more borrowers about their mortgage options.

Minneapolis Federal Reserve Bank President Gary Stern indicated that policies relating to preventing foreclosures should be carefully crafted to not hinder the benefits of subprime lending. In a prepared remarks statement for the Global Credit & Operational Risk Forum 2007 in Singapore today, Stern said the preemptive action many called for from central banks, particularly the Fed, to potentially cool credit markets and dampen the excesses and losses suffered by subprime mortgage borrowers and investors, would not come without costs.

“To wit, we cannot pretend that actions which effectively curtail subprime lending won’t have a negative effect on homeownership since, after all, many subprime borrowers continue to meet their financial obligations and reside in their homes,” Stern said in the remarks. “There is a tradeoff here that requires careful calibration as policies are considered; foreclosures might well have been avoided if subprime lending were reined in, but in all likelihood homeownership would have been lower than otherwise as well.”