Fighting the Foreclosure Crisis


For months we have been hearing heart-rending stories of homeowners who were deceived by their mortgage lenders and about to lose their homes. Tragically, a mother in Taunton – one of the nation’s hundreds of thousands who are trapped in this housing crisis – committed suicide last week.

 

This tragedy is a wake-up call and should bring attention to an emergency package of housing legislation.

 

Cities and towns across the Commonwealth are reeling under the loss of neighborhood stability, the dangers of crime-prone abandoned properties, and the economic drain of foreclosures resulting from misleading subprime mortgages. These mortgages were misrepresented as feasible and practical, often to first-time buyers who were encouraged to sign reams of paperwork without the opportunity to wade through and understand the documentation.

 

After the initial introductory rate (which lasts two or three years), the mortgage payment resets at a huge monthly increase of 25 to 30 percent. Many loans were approved without documentation regarding the borrower’s ability to repay; at 100 percent of the property’s value; carrying substantial prepayment penalties; and having high points, fees, or interest in violation of the Massachusetts predatory loan law.

 

In turn, these risky mortgages were "securitized" – packaged as so-called high-quality (meaning relatively safe) investments. Investors in these products, in some cases including public pension funds, were also misled.

 

The number of such mortgages scheduled to reset in Massachusetts will begin to peak in August and September. The worst is yet to come.

 

Three bills in the Legislature would stanch the bleeding now and help struggling homeowners and tenants.

 

One bill calls for a six-month moratorium on foreclosures involving subprime mortgages. It would keep homeowners, living in owner-occupied, one- to four-unit residences from losing their homes while fair and comprehensive solutions are developed.

 

This moratorium is needed to pick up where the 90-day forbearance on foreclosures leaves off. That provision started May 1 and runs out Aug. 1, ending the limited slowdown in foreclosures and adding more unsold properties to an already large and increasing backlog. Last year, the Commonwealth saw 29,600 petitions for foreclosure. This year, it is on track for 41,000 petitions for properties. Foreclosure deeds (the final step in the foreclosure process) rose from more than 2,300 in 2007 to nearly 5,600 so far this year. The economy cannot withstand this shocking trend.

 

Another bill would require just cause for eviction from foreclosed properties. It would enable tenants to remain in their homes for a reasonable time after their building is foreclosed. Lenders who foreclose would not be able to evict residents unless they can show good reason such as nonpayment of rent or criminal activity.

 

Buildings that are vacant become targets for vandalism. They also may suffer from neglect, burst pipes, fire, and general disrepair, threatening neighborhood stability, property values, local tax revenue, and higher costs for local safety services. Municipalities are already scrambling with the impact of unsupervised properties that remain on the market for longer and longer periods as real estate activity declines.

 

The third bill would require "judicial foreclosure" or a right to a day in court. It would amend the current foreclosure law and enable Massachusetts to join 29 states that require a court to approve foreclosures. Today, even if the lender/mortgager violates the law or makes an error in the amount owed, the borrower/mortgagee has no right to challenge the foreclosure in court and have a judge rule on the fairness of the foreclosure. This is in stark contrast to the Commonwealth’s leadership in protecting tenants from unfair evictions.

 

Many borrowers got their mortgages through now defunct brokers and are unable to find anyone who has the authority to renegotiate their loan as they try to deal with the bureaucratic unresponsive maze of large out- of-state companies. Judicial foreclosure would put a face on the foreclosing party.

 

The focus of these bills is where it belongs – on the people whose dreams are shattered as a consequence of what are now widely recognized as unethical practices. It’s not the predatory lenders who need bailing out. It’s the people who are the backbone of their communities.

 

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Boston City Councilor Chuck Turner and Merelice are members of the Green-Rainbow Party, one of the founding organizations of the Mass. Alliance Against Predatory Lending which developed the housing bills.

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