If the city of Springfield wants to curb foreclosures and ensure the safety and maintenance of foreclosed properties, punitive ordinances passed in August are missing their mark.
The ordinances, described in some reports as “the toughest municipal anti-foreclosure legislation in the country,” punish community banks for the sins of large national banks and unscrupulous mortgage lenders, industry sources said.
At the recent Conference on the Future of Homeownership in Massachusetts held in Worcester, Rosemary Morin, a lending specialist at Springfield-based Hampden Bank, said the ordinances are so over-the-top that banks are skittish about lending in the city.
Morin did not return calls seeking comment for this story. Several other bankers referred questions to the Massachusetts Bankers Association, which drafted a letter to the city late last month decrying the ordinances’ “vague” language, and voicing the association’s contention that the laws overstep the city council’s legal authority.
Too Little, Too Late?
Passed by the city council in late August, the rules require mortgage lenders to engage in mediation with borrowers facing foreclosure, among other mandates. A second ordinance requires lenders to post a $10,000 bond to secure and maintain foreclosed or vacant properties.
Failure to do so could result in a $300-per-day fine for non-compliance with any provision of the ordinances.
The measures are intended to stem foreclosures, as well as the blight supporters of the ordinances say has taken over foreclosed properties in the city.
“With placing the bond, my question is how do you enforce that after the fact?” said Timothy J. Ryan, a partner at Springfield-based law firm Ryan & Downey PC. “I understand the intent, but what’s the city going to do if [banks] don’t comply?”
He said Springfield-based banks haven’t amassed any significant portfolios of foreclosed and vacant properties around the city. The largest national banks and mortgage companies, those that took the most chances during the good times, are the ones holding residential properties these days.
And getting them to pay fines and post $10,000 bonds could prove problematic, Ryan said.
Amaad Rivera, the city councilor who was the lead sponsor of the ordinances, has said publicly that the measures would “prevent foreclosures” and “give homeowners an opportunity to stay in their homes if they can afford it.”
But the reality may be quite different. In fact, the ordinances are likely to go unnoticed by the very institutions the city is trying to bring to heel.
“To impose these regulations in the hopes that we’re going to make a bunch of people who were probably skirting the law to comply is probably too little too late,” Ryan said. “I don’t think the ordinance is the appropriate response.”
Declining Market
Likewise, Jeff Sattler, president and CEO of Nuvo Bank, a three-year-old bank based in the city, said community banks largely uninvolved in the city’s foreclosure mess probably don’t have much to worry about, and the big banks probably don’t concern themselves with the particulars of municipal law.
“I’m not going to worry about what every city is going to do about real estate,” Sattler said. “It’s about credit and it’s about repayment. I think the city is looking at big banks, but (those banks) have got foreclosed properties they don’t even know they have yet.”
Indeed, the MBA said in its letter that Springfield’s ordinances could “create chaos in the lending industry” by encouraging the creation of “a patchwork of local rules and regulations adopted in individual cities and towns throughout the Commonwealth.”
Sattler said if communications between borrowers and lenders are as bad as they seem – he described borrowers trying repeatedly to contact lenders to ask for loan modifications or other help, to no avail – communications between the city and those same lenders aren’t likely to be any better.
And as far as lenders becoming wary of doing business in Springfield, they’d be doing so in an already rapidly declining market.
So far this year, $42.9 million in purchase mortgages between $100,000 and $500,000 have been written in Springfield, according to data obtained from The Warren Group, publisher of Banker & Tradesman. For the same period of 2010, $80.7 million in purchase mortgages between $100,000 and $500,000 had been written.
In 2009, the total was $88.7 million. In 2008, it was $97.4 million.
Through it all, the market has been dominated by large banks, including Bank of America and Wells Fargo Bank, though Hampden Bank has had a consistent top 10 market share in the city during that time.
