It's no secret that home foreclosures are soaring. In a front-page article today, the Tribune noted that 30 percent of
all U.S. mortgage holders will owe more on their homes than they are
worth in just one year. Unfortunately, little is being done to help
those struggling to stay under their roof.
According to a recent study (PDF) released by the State Foreclosure Prevention Working Group -- the task force consisting of 11 attorneys general -- nearly eight out of 10 "seriously delinquent homeowners are not on track for any loss mitigation outcome," a number that rose between January and May of this year. In fact, loan modification efforts for at-risk homeowners dropped by 28 percent during that stretch, the lowest number enacted since 2007. Illinois Attorney General Lisa Madigan, a leader of the commission, isn't too happy with the data.
"Unfortunately, this report shows that while the foreclosure crisis continues to intensify, lenders have not effectively sustained their efforts to help borrowers avoid foreclosure," Madigan said. "Now, nearly eighty percent of borrowers who are seriously delinquent are still not getting the help they need to try and save their homes."
What can be done? The commission and some affordable housing advocates think Madigan and California AG Jerry Brown's approach to the Countrywide settlement provides a helpful template. That loan modification plan offers $8.4 billion to Countrywide customers who were sold (or peddled, depending on one's point of view) adjustable-rate and fixed-rate subprime mortgages in order to reduce principal and interest payments. Bank of America, which now owns Countrywide, agreed to waive $56 million in prepayment penalties and $79 million in late fees, as well. Today, the commission issued a letter to 16 mortgage lending companies urging them to follow Bank of America's model. ACORN's Financial Justice Center national director Austin King agrees that such a proposal is needed:
More than any other action taken to date, this settlement provides a new model and a road map for actually fixing the problem underlying our deep economic woes, which is that too many Americans cannot afford the mortgage. Through interest rate reductions to as low as 2.5 % and principal write-downs, Countrywide will restructure mortgages so that borrowers are not paying more than 34% of their income toward all housing costs. Critically, this agreement also takes the first step toward addressing the coming crisis with resetting Payment Option ARMs, negatively amortizing loans where borrowers can choose monthly payments that increase their overall debt.
In other foreclosure news, Madigan stood by Cook County Sherriff Tom Dart's controversial plan to implement a moratorium on foreclosure evictions, mentioning that Dart is helping to enforce an Illinois law that requires a renter to be notified 120 days before being kicked to the curb. And Barack Obama announced today he supports a 90-day moratorium on foreclosures that would apply to banks receiving capital through the $700 billion rescue plan.
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