Massachusetts Governor Deval Patrick will announce a new state program to help homeowners in his state avoid foreclosure, according to the Boston Globe this morning. He's pressing mortgage companies to accept a short sale (less than what is actually due on the mortgage) so homeowners late on their monthly payments can get out without going into foreclosure. Short sales are a common tool used to avoid foreclosure, but in today's market with housing prices dropping, it's been much harder to get banks to accept a deal. Wells Fargo (NYSE: WFC), Countrywide Financial (NYSE: CFC), J.P. Morgan Chase (NYSE: JPM), Citigroup (NYSE: C) and HSBC have been in talks with the Massachusetts Department of Housing and Economic Development to come up with a plan.
Many times in today's housing market the borrower owes more than the house is worth. I've heard from people who attend auctions regularly that the number of buyers (aside from the banks themselves) at auctions keeps dropping because there are no good deals - the minimum price set by the institution is higher than the property could sell for on the open market.
Governor Patrick wants lenders to quickly respond to borrowers who let the banks know they're having trouble making payments on their mortgage. If the lender can't or won't adjust the borrower's payments so the loan is more affordable, the lender would have to refer the borrower to housing counselors or to state lending programs immediately. Massachusetts announced a program in July that is offered by its Housing Finance Agency to provide $250 million to refinance borrowers up to 60 days late on their mortgage payments as long as the borrower has a credit score of 500 or higher. It's not working well because by the time borrowers apply for the loan after being 60 days late, their credit score is already too low. With the new plan, the governor wants borrowers who are having difficulties paying to be advised by the banks to contact the state programs immediately if the bank can't adjust their payments.
In addition to the refinance program, Massachusetts is setting up a database to link delinquent borrowers with prospective buyers who would be interested if the banks will accept a short sale. The program will focus first on the hardest hit neighborhoods in the state - Lawrence and Springfield - to help stabilize those markets. Other areas are also being considered.
Thomas Calahan, executive director of the Massachusetts Association for Affordable Housing, likes the program but doesn't think many banks will cooperate. This is an uphill battle. Charles Nilsen, a board member of the Massachusetts Mortgage Bankers Association told the Globe that, "We're fearful in industry if the government gets a little too heavy handed." Come on, you've got people losing their homes. Banks designed these risky "teaser" mortgages and promoted them hard. They do have some responsibility to help folks who are in too deep get out. If they don't, they'll just end up owning a bunch of empty houses without having any buyers for them because the prices are too high.
Lita Epstein is the author of more than 20 books including, "The 250 Questions You Should Ask to Avoid Foreclosure."
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Reader Comments (Page 1 of 1)
10-15-2007 @ 10:09AM
al said...
Sure, it's the banks fault. Now the state has government decided let the bank pay for it. Without the bank/lender these home owners would have never had a house in the first place. For the past four years or so these home owners have been paying significantly below market rate. It's been virtually interest free for them. Now that they have to pay, it's no good. I don't get it.
Who twisted these home owners arms to get a mortgage? They wanted a house, were "tired" of paying rent a got a great deal for the pasr four years.
Who has helped me with my mortgage. I saved money like everyone else for a downpayment. If I had no money I would not have purchased, but I guess that's too logical for some in state government to figure out. No, it's back to let's continue to transferr the burden to those who can pay. Does anuone take any personal responsibility anymore?
10-15-2007 @ 11:06AM
Steven Danis said...
Whatever measures that Massachusetts can come up with, it's just an attempt to bring some order to what is already a disorderly process of liquidating what turned out to be foolish purchases and loans. Ultimate responsbility for this mess has to rest with the lenders. Nobody forced them to make loans to borrowers and suspend all of the normal and prudent rules of lending developed over a long period of time. When you don't require a down payment, structure mortgages with low teaser rates and qualify borrowers based on those temporary interest rates, and not even require proof of income, assets and liabilities, what can anyone expect other than what we are now seeing?
10-15-2007 @ 12:08PM
aserver701 said...
I agree with writer no. 1 above.
10-15-2007 @ 12:49PM
Harry said...
How can the Boston Globe write a lead story on a new Deval Patrick plan for dealing with troubled sub-prime loans without ever mentioning the fact that Deval served on the board of directors of the largest sub-prime lender in the USA. The Globe reported in 2005:
In a statement to the Globe, Patrick said he joined the company's board to help Ameriquest deal with the allegations of predatory lending and to put in place policies that will protect low-income consumers.
But today everyone in the Globe newsroom apparently suffers from amnesia about this.
Readers expect newspapers to report how many of the troubled loans that are the subject of today’s story were written by Ameriquest while Deval was serving on their board “in order to protect low income consumers”. Since th Globe coverage does not even mention his prior involvement, small-minded people might suspect that they are showing bias.