MARTHA COAKLEY Held training event
In the two months since Gov. Deval Patrick asked the state Division of Banks to intercede on behalf of mortgage borrowers with lenders, the agency has – at least temporarily – helped stave off more than 200 foreclosure proceedings.
“All we seek is for individuals and families to have a little time to work with lenders and nonprofits toward a solution that might save their homes,” said Patrick, who garnered headlines for his action.
The additional time gained by the efforts of banking regulators has helped at least 10 borrowers refinance into new or restructured loans.
The agency attempts to obtain one- to two-month stays of foreclosure for troubled borrowers who call its consumer hotline seeking help. All callers are referred to one of several hundred nonprofit consumer- and homeowner-assistance agencies on an approved list kept by the state Department of Housing and Community Development.
Of 563 consumer requests for help received by the DOB from late April through last week, 305 involved loans for which foreclosure petitions already had been filed. Lenders agreed to delay foreclosure in 216 instances, or 71 percent of the cases in which formal foreclosure proceedings already had commenced.
The other 258 calls received by the division were from borrowers behind on payments or in trouble because of steep interest-rate resets but not yet facing foreclosure.
As of mid-June, Bank Commissioner Steven L. Antonakes said, 10 of those homeowners had managed to refinance or modify their loans, and another 10 were in the process of refinancing or restructuring their mortgage. Another 13 borrowers were able to sell their homes to avoid foreclosure, and “a few” filed for bankruptcy. Two were foreclosed upon following the expiration of the stay period.
“Short-selling” a home for less than the amount due on the mortgage loan and giving the deed back to the lender to avoid foreclosure are among borrowers’ other options. Both “workout” options require approval of the lien holder.
The number of petitions to foreclose, the first step in the foreclosure process when a borrower falls behind on mortgage payments, increased to 11,594 through mid-June, up 53 percent compared with the first two quarters of 2006, according to statistics from The Warren Group, Banker & Tradesman’s parent company.
Attorney General Martha Coakley, whose office recently ran a seminar to train area lawyers who have volunteered to assist homeowners facing foreclosure, said it’s a “sad” fact that “there are still a lot of people who will lose their homes.”
Some cases are still being worked out, although happy outcomes fewer and farther between than consumer advocacy groups had hoped, according to Robert Pulster, executive director of Jamaica Plain-based ESAC (Ensuring Stability through Action in our Community), a private nonprofit that receives many of its cases from the city of Boston’s Department of Neighborhood Development but also has taken on recent referrals from the DOB.
For example, he said, homeowners facing foreclosure today are less likely get a modification of loan terms from their current lender than an offer refinance from a new one.
“You’d think their lenders would want to work with them, because they’ll pay out a lot more for a foreclosure than a sustainable accommodation,” Pulster said. Nevertheless, many lenders with whom ESAC has negotiated have been inflexible.
Refinances also are getting tougher to secure, he said. ESAC has been able to help only two homeowners – of its caseload of 200 borrowers experiencing difficulty – into a refinance loan this year. That’s down from 10 refinances last year and 13 in 2005 – even as the number of homeowners seeking help is going up.
Borrowers in trouble today are less likely to be able to refinance than in recent years because most already have done so multiple times and used up virtually all of their home equity, Pulster said.
‘Political Will’
Many of the 150 attorneys and homeowner advocates attending Coakley’s training session last month worked for ESAC and similar nonprofit agencies, but solo practitioners, partners at large law firms and lawyers representing both lenders and consumers also attended. Participants agreed to offer pro bono assistance to at least one homeowner in trouble.
Coakley said the goal was to use the resources of Massachusetts’ legal community to help homeowners facing foreclosure.
“The nice thing about this is we had such an incredible outpouring of interest and support from the private bar,” she said.
Trainers Odette Williamson, a staff attorney at the Boston-based National Consumer Law Center, and Andrea Bopp Stark, a staff attorney with Legal Aid Alliance of Northeast Massachusetts, offered the attorneys pointers on everything from which parties are involved in a foreclosure (at least seven or eight entities, including lenders, servicers, lenders’ attorneys and loan insurers might have a say) to tips on how to get through to them (start with the lender’s in-house counsel) and ways to stop the foreclosure clock from ticking while a client is working out an agreement.
For example, she said, if a mortgage is government-insured or guaranteed, “the borrower has a lot more protection.”
Williamson said advocates should be aware of laws such as the Truth in Lending Act and RESPA (Real Estate Settlement Procedures Act), which allows a homeowner to receive basic information about a loan from a servicer within 20 days of requesting it. RESPA is important because default problems sometimes can be traced to a problem as simple as missing or misapplied loan payments, she said. In one case, Williamson said, a “notoriously bad” servicer had misplaced a borrower’s loan payments and couldn’t produce half that person’s payment history upon request.
Massachusetts’ consumer protection law, Chapter 93A, and HOEPA (the 1994 federal Home Ownership and Equity Protection Act) provide additional protection against predatory loans.
The session on “red flags” that would signal such questionable loans, and how homeowner advocates should address them, was closed to the press. But Williamson said lawyers shouldn’t attempt to work with a lender to modify that kind of loan because they’d be giving up their clients’ legal rights to redress.
Coakley said what lawyers can do, in those cases, is negotiate more time to figure out what agreement would best serve the client.
Lawyers who attended the attorney general’s training session said they’re getting more and more calls from desperate homeowners in recent days, and more of the cases are later in the foreclosure process.
“Sometimes they call us after the auction” when it’s too late to help, said Janet Merrill, a staff attorney with the Massachusetts Justice Project in Worcester. MJP also has heard from mentally disabled people being foreclosed on, she said, as well as tenants of foreclosed-upon landlords.
One advocate, from Homeowner Options for Massachusetts Elders, said he’d met homeowners who signed loan documents that they knew contained false information, such as an inflated income, because they were about to be evicted from an apartment or otherwise felt coerced.
Others nodded their heads in sympathy, but Special Assistant Attorney General Carol Kenner, a former U.S. Bankruptcy Court judge and observer at the training, said if someone who had done that had turned up in her courtroom, she would have considered it “a problem” that would hurt the borrower’s case filing for bankruptcy.
Pulster said development of alternative loan products that can help borrowers out of their current, inappropriate ones, are critical to the ESAC’s efforts. Some borrowers who otherwise would have difficult refinancing have been helped by such products, he said.
For example, Boston’s First Choice Lenders program, created in October 2006 with the help of six Massachusetts banks, offers homeowners who can afford a conventional, fixed-rate loan a way out of a bad one. Quasi-state agency MassHousing plans to introduce an affordable, alternative loan product aimed at borrowers who were “victimized by predatory loans,” a spokesman said.
Beyond new products, Pulster said, the “political will” to motivate mostly large, national lenders to modify borrowers’ loans would help the most people in need.
Next week: Borrower and lender perspectives on dealing with the mounting foreclosure crisis.
