Foreclosures and Sub-Prime Lending

Since I was elected to the House of Representatives in 1998, I have worked on housing –as a member of the Housing committees and as a proponent of legislation.  I have witnessed how the real estate cycles -- boom and bust, boom and bust-- have impacted too many families.  At the height of the market, those who sought to purchase a home too often accessed credit at interest rates much higher than the market rate (upwards of 14% in many cases).  These so-called sub-prime lenders would finance purchases of homes where the buyers would have to dedicate as much as 80% of their income to their mortgage payment.  Now in the bust part of the cycle, many of these homes are in foreclosure or at risk of foreclosure.  It was no favor to these well-intentioned and hard-working individuals to give them credit at these extortionate rates.   

According to Jim Campen, the University of Massachusetts professor who is the state’s leading scholar on this subject, in three towns in my own district -- Everett, Chelsea and Revere – there were sub-prime loans for upwards of 50% of all home mortgages that closed in 2005.  In Everett, a staggering 59.5% of loans were sub-prime.

I have filed legislation with Rep. Dave Torrisi of Andover to help prevent unscrupulous sub-prime lending practices, as well as assist mortgagers at risk of foreclosure.  One story from Chelsea in my district illustrates why consumers need basic protections from abusive mortgage lending and why mortgage companies should be obligated to fairly apply good credit to low income and minority communities.

A gentleman from El Salvador bought a 3 family in Chelsea three years ago.  Ameriquest wrote the original loan.  Several years later he received an offer from Ameriquest to refinance his loan and include within that loan an ability to write off his credit card debt.  One year later he is in foreclosure and despite repeated offers by him to pay off the loan, Ameriquest has refused.

ESAC in Jamaica Plain provided counseling to this man and his brother who co-signed the loan.  According to the homeowner, his mortgage broker originally offered a loan of 9.9%. When the loan was closed, the rate increased to 10.5% (which was 4.5 points above prime) with a cap of 16% over the life of the loan.   

ESAC’s foreclosure counselor spent 1 hour going over the refinancing documents with this homeowner, who speaks very little English and does not read or write in his native language, Spanish.  The counselor realized quickly:
 No one ever explained the details of the loan to the homeowner;
 No one explained to the brother the responsibility of co-signing the loan;
 The homeowner, who brings in $2,000/month in salary and sends $400 home to El Salvador, was stated in the loan documents as earning about $5,500 per month. Because it was a “no documentation” loan there was nothing to support this inflated number; and
 In the refinancing of the mortgage, the homeowner was charged $17,000 in fees of which $15,000 went to Ameriquest.

This story is one of many stories that show why our bill is necessary to make sure that homeowners purchasing or refinancing their homes have the information necessary to assure they can pay their loan and keep their house.  It will also keep mortgage brokers in check to assure they are not originating loans that they know will result in foreclosure. 

The sections of the Torrisi-Barrios Foreclosure bill are summarized below:
AN ACT TO PRESERVE AND PROMOTE HOMEOWNERSHIP

SECTION 1:  ESTABLISHING A HOME PRESERVATION FUND.  The fund shall be used for the following purposes:

 For grants and loans to homeowners facing foreclosure of their owner-occupied homes because they have been victims of abusive mortgage lending practices.
 For grants and loans to non-profit organizations to conduct public education campaigns, to provide counseling, legal services, and refinance assistance to homeowners at risk of foreclosure or who are in foreclosure.

SECTION 2.  REQUIRING IN PERSON COUNSELING FOR HIGH COST LOANS.  This section would amend the Chapter 183C of the MGL, the chapter which regulates high cost loans, to require in-person counseling to a prospective homeowner before a homeowner accepts a high cost loan.  Currently, the law allows for over the phone counseling.

SECTION 3. GOOD FAITH AND FAIR DEALING IN HOME LOAN SERVICING.  This section would increase the protection to mortgagors when dealing with loan servicers and therefore minimize the chance that servicers will drive mortgagors into default and foreclosure.  The section requires that:

 Fees that servicers add to loans are reasonable and authorized by statute or the loan itself;
 Servicers respond in writing to mortgagors written requests for information on their loans;
 All payments received by servicers are posted promptly to the mortgagor’s account;
 Servicers must make timely payments to the mortgagors escrow account. 

SECTION 4. ESTABLISHING A MORTGAGOR’S RIGHT TO CURE A LOAN DEFAULT. 
This section establishes a borrower’s right to cure a loan default initiated by the mortgagee/servicer and thereby stop a foreclosure action from proceeding.  It provides that a borrower would be entitled to:
 A written notice from the lender/servicer outlining the nature of the breach and the specific means and amount to cure it;
 A 30 day “cooling off” period during which the lender/servicer is not allowed to send the loan to an attorney’s office and during which the lender/servicer cannot charge any fees or charges, including any attorneys’ fees and during which time the borrower can redeem the property by paying back to the lender the total amount owed.
 To cure a default up until the home is sold at auction or otherwise transferred by the lender/servicer.

SECTION 5.   ESTABLISHING HOUSING INVESTMENT OBLIGATIONS FOR CERTAIN MORTGAGE LENDERS (Mortgage Company CRA).  This section adds in, word for word, the Mortgage CRA bill (S.562) that was filed in 2005.  This section would impose a “continuing and affirmative obligation” on all mortgage lenders who make more than 50 residential loans a year to help meet the credit needs of the communities where they do business. 

SECTIONS 6 & 7.  LICENSING MORTGAGE ORIGINATORS.  This section amends Chapter 255E of the MGL by deleting the exclusion for individuals who work for licensed mortgage brokers and mortgage lenders from licensing requirements; these individuals currently do not need a license themselves.   The bill would require that any individual who deals directly with borrowers in arranging mortgage loans, except those who work for banks and credit unions, must be licensed by the state. 

SECTION 8.  APPOPRIATION FOR THE HOME PRESERVATION FUND.  This section provides for a $10m for the Home Preservation Fund.

Comments

[Global UGGs]

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[az injury lawyer]

It's just hard for now doing that, but pushing it is required.

[first home buyer loan]

Well….I still think that it isn’t quite the “buyer’s market” yet. NoVA housing prices are still high — and — at times OUTRAGEOUS even.

[Andrew]

The banks are in to lending business but not in to real estate business, the only thing they want is interest on the loan amount, they go for foreclosure as they can not keep the non-performing assets in the books of accounts.

[John]

Banks and mortgage lenders are not really in the Real Estate investing business. In fact they are really in the lending business and they want to collect interest on loans and the fees they get for servicing and so forth. But, they must deal with the large number of defaulting loans. Unfortunately for banks, many are not permitted to keep these non-performing assets on their books. This creates opportunities for investors to buy the banks' problem properties. But, buyer beware; do your homework and make sure that you understand you will be buying "As Is" unless you manage to get the bank to fix the property before you take it over. You may find properties for sale on the banks' own Web sites: Bank of America, Countrywide and U. S. Bank each have some.
http://www.thejohnbeck.tv

[Trent Smith]

I especially agree with the counseling part. These people need to know that getting approved does not necessarily mean they need to purchase the property or get the loan. I operate http://www.CurrentForeclosures.com and the # of foreclosures has been skyrocketing. From what i'm finding, most of the people that used to own these homes had extremely high interest rates.

[Lee]

Dear Senator Barrios,
I do not live in your district, but I am grateful for your service to the Commonwealth. Thank you for your work in this vital area. These deceitful lenders are taking advantage of people who simply want their little peice of the American Dream. This illustrates another fracture in the social contract we have to look out for one another.
All the best,
Lee

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