Tracking the Recession: States Boost Foreclosure Programs
By Stephen C. Fehr, Staff Writer
More than 600 attorneys have volunteered to help New Jersey homeowners facing foreclosure in an unprecedented state-sponsored effort to keep people in their homes.
North Carolina has begun requiring subprime mortgage servicers to notify distressed borrowers and state officials 45 days before filing foreclosure proceedings so homeowners can work with housing counselors and attorneys to renegotiate the loan.
California launched a program late last year offering first-time homebuyers a chance to buy vacant, foreclosed homes at below market interest rates. As much as helping homebuyers, the goal is to stabilize neighborhoods ravaged by the worst foreclosure crisis in the state's history.
As the Obama administration prepares its $75 billion plan to help as many as four million people avoid foreclosure, states are stepping up their own efforts to halt the rise in foreclosures. The loss of homes by people unable to make their mortgage payments has helped fuel the national recession; more than 2 million American homeowners faced foreclosure proceedings last year, and the number is expected to go higher this year as the recession deepens.
Last year, governors in 33 states signed 70 pieces of legislation addressing the foreclosure crisis, and nearly every state has adopted new rules to improve oversight of the state-regulated mortgage lending industry, according to a new report by the National Governors Association Center for Best Practices.
As the foreclosure crisis has worsened this winter, the number of bills and states taking action is certain to go up. In its just-completed session, the Virginia General Assembly passed a bill tightening restrictions on mortgage brokers. Hundreds of Texans, chanting "predatory lenders, criminal offenders," descended Thursday (March 5) on Austin to ask lawmakers to approve legislation that would, among other things, give homeowners at least 30 days to leave their foreclosed homes.
"As governors, we know first hand that we're the first responders in this foreclosure crisis," Washington Gov. Christine Gregoire (D) said in Washington D.C., during a recent National Governors Association panel on the foreclosure problem.
State efforts, the report said, have centered on mitigation, or reaching out to distressed borrowers to avoid foreclosure; stabilization, such as California's effort to prop up its decaying neighborhoods; and prevention, including tougher regulation of the mortgage lending industry.
Governors and other state officials say they will integrate their own foreclosure fighting efforts with Obama's. On Feb. 18, the president unveiled his plan to assist homeowners obtain more affordable mortgage terms and avoid eviction. Federal aid to Fannie Mae and Freddie Mac was doubled to $400 billion to help the mortgage giants refinance loans that are under water, or those in which the market value has fallen below the amount the owners owe.
"I think being able to leverage off the dollars that are available for loan modification through the federal program will mesh very neatly" with state efforts, New Jersey Gov. Jon Corzine (D) said at the governors meeting in February.
New Jersey and Virginia hold elections in November for governor, and the foreclosure issue has seeped into campaigns in both states because it is an intensely felt local issue in many communities. Corzine has been playing up his attempts to reduce foreclosures. In Virginia , the Republican gubernatorial candidate and the three Democrats seeking their party's nomination in a June 9 primary have introduced legislation or offered views on the subject.
New Jersey's foreclosure mediation program is not the state's only effort to keep people in their homes, but it is one that is getting a lot of attention inside and outside the state.
For no charge, a homeowner facing the threat of foreclosure has access to housing counselors and lawyers who first try to come up with a loan payment plan that may involve reduced penalties and or lower interest rates. If the out-of-court approach doesn't work, a judge appoints a mediator to bring the lender and borrower together to develop a pay-back plan. The homeowner buys some time and hopefully avoids getting kicked out of the property.
"We've gone very aggressively into a mediation approach: establishing a time-out period where mediation of any foreclosure has to be negotiated with the judge," Corzine explained. "We have really stemmed substantially the pace of growth of foreclosures."
Of about 60,000 New Jerseyans who may go through foreclosure this year, about 16,600 homeowners may sign up for the mediation program, according to state estimates. Since the program started in January, 291 people have requested mediation. Of those, 98 mediations have been scheduled and 14 have been settled.
North Carolina lawmakers and then-Gov. Mike Easley (D) set up a program zeroing in on subprime mortgages-the problem loans driving the rise in the foreclosure rate nationally.
Under the $1 million program, which began Nov. 1, the mortgage servicers - the companies that collect mortgage payments and transmit them to the owners of the loan - are required to send homeowners with troubled loans a notice at least 45 days before the filing of a foreclosure proceeding.
At that point, the state bank commissioner takes over, sending a letter to the homeowners encouraging them to call a toll-free telephone number to find a housing counselor to receive free advice on how to resolve the loan. The counselor, who also works with the mortgage servicing agency, can ask for 30 additional days if more time is needed before the foreclosure is scheduled to be filed.
"There's been very little push back from any of our financial institutions," said Gov. Beverly Perdue (D), who succeeded Easley. "Ours is very pre-emptive, non confrontational."
The state could prevent half of its projected 25,000 subprime foreclosures through the program, state officials said when it was announced. Between Nov. 1 and Feb. 11, 73 families have managed to stay in their homes, but measuring results is difficult because many families resolve their problems during the initial 45 days and do not report the outcome to the state.
However, foreclosures in North Carolina dropped 59 percent between January, 2008 and January, 2009, statistics that state officials are watching closely to determine whether the program had an impact.
The National Governors Association report did not attempt to answer how effective state programs are in curbing foreclosures, in part, because many of the state programs are too new. "The idea was to put the practices out there," and explain them, said Stephanie Casey Pierce, author of the report.
A recent federal study concluded that despite efforts to modify loans to make it easier for homeowners to avoid foreclosure, most homeowners wind up failing to pay. The joint report by the Office of Thrift Supervision and the Office of the Comptroller of the Currency showed nearly 60 percent of borrowers whose mortgage loans were modified during the first quarter of 2008 defaulted again.
For details about foreclosure mitigation and prevention efforts in each state, the governors association has created a web site .