Banking industry groups and the National Consumer Law Center have been on the opposite sides of issues like bankruptcy reform, but the Massachusetts Bankers Association has joined with the Boston consumer group to launch a statewide foreclosure prevention program.
More than 60 Bay State banks have signed on to the foreclosure prevention counseling program, including Citizens Bank of Massachusetts and Eastern Bank, and banks in Western Massachusetts and on Cape Cod. Banks fund the program, which provides for a third party to counsel a home owner who defaults on a mortgage when the bank refers the customer. The program is part of the MBA’s mortgage lending initiative that started last fall.
“The cost of foreclosure is extremely high,” said MBA Executive Vice President Kevin F. Kiley. “We’re saying rather than spending money on foreclosures, let’s spend it on front-ending investment and looking at options to sustain home ownership.”
The project works to educate primarily low-income and elderly consumers and to keep mortgage defaults from resulting in foreclosures. The goal is to keep loans viable and to stabilize neighborhoods by sustaining home ownership.
“It’s essentially to offer another alternative to lenders and one more resource to home owners,” said Sandra McKee, NCLC’s foreclosure prevention project coordinator.
NCLC will administer the project and refer home owners to one of seven non-profit agencies in the state for counseling. The goal is to prepare a financial plan for the bank to consider as an alternative to foreclosure. The counselor may help the home owner restructure the loan or other debts. NCLC’s other consumer initiatives include raising awareness about payday loans, ensuring fair access to credit and providing consumer protections in electronic commerce.
“We presume in most cases that the bank and the counseling agency can come to some resolution, or the counseling agency may say for a particular borrower … ‘You can’t sustain this house, but we’ll work with the bank on the sale of the property,'” Kiley said.
NCLC has employed the same model with Freddie Mac, but this is the first program it has undertaken with individual lenders. Massachusetts Commissioner of Banks Thomas J. Curry has indicated that banks that participate in the program will receive credit for compliance with the Community Reinvestment Act.
“Freddie Mac as a large investor has portfolio concerns,” McKee said. “Massachusetts lenders are really showing a commitment to local communities and hoping it will help them sustain local portfolios.”
Preparing for Downturn
Although foreclosures have dropped in Massachusetts in the last few years, more attention has been focused on predatory lending on the state and national level. Statistics compiled by Warren Information Services, a sister company of Banker & Tradesman, show that foreclosures have dropped steadily since 1997. That year foreclosures topped 1,200 for the first three months of the year. From January to March of this year about 500 homes were foreclosed upon.
“I think that right now we’re enjoying a relatively healthy economy and foreclosures have not been as significant a problem as they were during downturns like in the late ’80s and early ’90s,” McKee said. “But even in good times low-income folks and people that face unavoidable hardships like accidents and illnesses have problems. We think that in the next few years if the economy takes a downturn, those people will be the first affected.”
Putting the program in place now will give it time to mature before foreclosure numbers rise again, she said.
The program formed as regulators and politicians are drawing attention to predatory lenders. Secretary of the Commonwealth William Galvin filed a bill to fight predatory lending. While calling attention to the difference between subprime lenders and predatory lenders, Galvin said a number of subprime lenders use predatory practices by targeting unsophisticated consumers and charging exorbitant fees. A number of federal bills would regulate predatory lending across the country. In addition, banking regulators have started to reexamine their policies on predatory lending.
“There’s a certain need in the marketplace for subprime lending,” Kiley said. “There are people that because of credit histories, because of difficulties that they’ve faced, subprime lending might be more appropriate.”
The MBA’s program includes a consumer education brochure for financial institutions and the development of industry guidelines with the Massachusetts Mortgage Bankers Association. The association (along with the MMBA, the Massachusetts Mortgage Association and Fannie Mae and Freddie Mac) helped fund the “Don’t Borrow Trouble” public awareness campaign of lending scams with the Massachusetts Community and Banking Council in Boston, and is preparing to take the campaign statewide.
The MBA supports Galvin’s proposed bans on loan flipping and equity stripping, but opposes placing limits on points that can be charged.
“When everything’s said and done you can have thousands of laws in the books, but regulators have to have the appropriate resources to enforce them,” Kiley said. “Particularly on the non-banking side, if there are concerns there ought to be appropriate personnel to deal with people that are the bad guys in this industry.”
Counseling agencies participating in the program are: Ecumenical Social Action Committee and Homeowner Options for Massachusetts Elders in Boston, South Shore Housing and Development Corp. in Kingston, Community Teamwork Inc. in Lowell, Hampden Hampshire Housing Partnership in Springfield, Nuestra Comunidad Development Corp. in Roxbury, and Rural Housing Improvement in Winchendon.
