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Foreclosure Problem Expanding

Les Christie, staff writer for CNNMoney.com, writes yesterday about the blight being caused by the foreclosure epidemic that is briskly growing.

"Foreclosure filings are up 35 percent nationwide since a year ago, according to RealtyTrac."

Several hard-hit areas of the country are mentioned including Cleveland.

' "Foreclosures have helped destabilize not only Cleveland neighborhoods but inner ring suburbs like Shaker Heights and Euclid as well," said Jim Rokakis, treasurer of Cuyahoga County, which includes Cleveland, one of the hardest-hit U.S. cities."

"And the worst may be yet to come. Rokakis said Cuyahoga County is on track for 16,000 foreclosures this year, up from about 3,500 annually in Cleveland during the mid-1990s."

'The impact can reach far beyond the affected homeowners. Rokakis says streets lined with foreclosures look like "mouths with teeth knocked out of them." '

The areas affected by foreclosures are as diverse as our country itself. From California to Florida and everywhere else in between.

Foreclosures not only affect the unfortunate homeowners but also the communities that surround them.

"Dan Immergluck, associate professor of city and regional planning at Georgia Tech, said that for every foreclosure within an eighth of a mile of a house - two and a half city blocks in every direction - the home's value drops by about 1 percent."

"The vacancies look bad enough, but it's what happens next that really hurts. "The bad people in a community find out right away when a house has been foreclosed on," said Hayden."

' "They come in and steal the copper plumbing. I've even seen them strip the aluminum siding off to sell. The houses become havens for drug dealers." '

-Bill Burniece

Massachusetts Is First State To Impose Foreclosure Moratorium

Massachusetts has become the first state in the country to declare a moratorium on foreclosures stemming from predatory lending according to Yahoo News.

"Homeowners will now be able to submit a complaint to the Division of Banking.
The division will then call the lender and ask them not to foreclose.
The move comes after dozens of homeowners marched on the State House last week, demanding a meeting with Gov. Deval Patrick."

"The state secured 60-to-90-day freezes on foreclosure for most of the protesters. Homeowners having trouble will also be provided with housing counselors."

"If you need help, you can contact Neighborhood Assistance Corporation of America at (617) 250-6230. You can also find more information on their website here."

Is this a sign of things to come for the rest of the country? Let's hope so.

For now make sure to check out this valuable non-profit partner to see if they can help you.

-Bill Burniece

Will Banking Regulators Worsen The Foreclosure Crisis?

Today, Jody Shenn of Bloomberg reports on another potential problem facing homeowners struggling with their mortgage payments.

"Banking regulators may push more homeowners into foreclosure by making it tougher to refinance subprime mortgages, said Angelo Mozilo, head of the largest U.S. home-loan lender."

"The Federal Reserve, Federal Deposit Insurance Corp., and Office of the Comptroller of the Currency proposed guidelines last month that would encourage lenders to turn down borrowers who won't be able to afford mortgages after ``teaser'' rates expire. Rates on loans to people with poor or limited credit are typically fixed for two or three years and then rise. "

I'm already starting to see many lending institutions and investors tighten underwriting standards which hurts the very people whom need help the most. If this trend continues you'll likely see the foreclosure problem spread as many more homeowners will be 'locked out' from the chance to refinance t0 a lower payment loan.

"The change would block more than half of subprime borrowers from refinancing mortgages at a time when slumping real estate prices have already caused delinquencies to rise to a four-year high, according to Mozilo."

"Teaser rates on almost 2 million subprime loans will expire in 2007 and 2008, according to First American Corp. a Santa Ana, California-based realty data firm."

"Mozilo compared the proposals to the savings-and-loan crisis of the late 1980s, when he said more than 1,000 thrifts failed in part because regulators set rules that encouraged thrifts to buy bonds with credit ratings below investment grade and then forced them to sell, causing prices to tumble."

-Bill Burniece

A Government Mandated Foreclosure Moratorium?

This is a possibility, amongst many others, being considered by Congress looking for a way to stem the tide of foreclosures nationwide. While it sounds like a good idea on the surface it may be impossible due to the complexity of the mortgage industry and its multi-tier hierarchy.

Holden Lewis of Bankrate.com writes in an article released today:

"The high number of new foreclosures hints that the foreclosure problem will get worse, and members of Congress are looking for fixes."

'"There are no easy market solutions,"' David Berenbaum, executive vice president of the National Community Reinvestment Coalition, told the committee. He suggested a government solution instead: a mandated temporary halt in foreclosures. Too many law firms and mortgage servicers rush consumers into foreclosure without assessing their ability refinance or catch up on their payments, he said."

"Moratorium would raise questions

There were no servicers at the witness table to critique the notion of a national foreclosure freeze. A mortgage servicer might have asked who would pay the accumulated interest payments during a moratorium. For example, if a six-month halt to all foreclosures merely delayed a consumer's foreclosure for six months instead of preventing it, that homeowner would rack up seven months of unpaid interest charges instead of one month. Who would be responsible for paying the extra amount: the servicer, the investors who own the loan, the borrower? If it's the latter, is that fair? Or would the taxpayers pick up the tab?

Proponents of a foreclosure moratorium say it would give borrowers time to refinance if possible, and would give servicers time to modify loans. Mortgages can be modified in different ways: The interest rate can be reduced, payments can be suspended until the borrower finds a job, or missed payments can be caught up over time or tacked onto the end of the loan."

Complicating things further is the fact that many loans are sold after closing - releasing the original lender from any obligation or authority to modify terms.

"Most mortgages are sold to an issuer, which packages loans into pools with hundreds or thousands of loans with similar terms, rates and credit quality. Each pool of loans is securitized, meaning that bonds backed by the loans are sold to investors. The investors don't own whole loans, they hold interests in the entire pool of loans.

When mortgages are securitized, they are chopped up and thoroughly mixed together. Modifying a loan in a securitized pool is like extracting a teaspoon of sugar from cupcake batter.
"Once the lender has sold the mortgage to the issuer, the lender no longer has the power to restructure the loan or make other accommodations for its borrower," Bair said. That power resides with the servicer, but "the servicer can only do what the securitization documents allow it to do.

Oftentimes, those contracts make it nearly impossible to modify more than 5 percent of the loans in the pool. Loans can't be modified until the borrower is at least a month past due. Tax laws and accounting rules"

It is clear that there are NO easy answers... yet. If you are in danger of foreclosure you cannot afford to wait for Congress to act. You need to take matters into your own hands. You can take the first step by going here.

-Bill Burniece

Will Government Intervene To Help Homeowners In Foreclosure?

That is yet to be determined. But what we can be certain of is a heated debate on this issue in the coming months.

Yesterday, key Senate Democrats fired the first shot suggesting that hundreds of millions of dollars in federal aid may be needed to assist homeowners at risk of foreclosure. Charles Schumer, chairman of the Joint Economic Committee, called on the federal government to consider a large federal bailout program as the foreclosure epidemic worsens.

Elsewhere, consumer activists and nonprofit groups are putting pressure on Wall Street to assist homeowners facing foreclosure in the restructuring of their home loans.

I will be keeping a close eye on these developments for you. Stay tuned.

-Bill Burniece