Protesters in front of the Federal Reserve Bank of Boston last Wednesday urged the agency to adopt new rules that discourage predatory lending.
Jeannette and Anthony Forde never expected to become a statistic.
Today, the Mattapan couple is one of 8,400 Bay State families who faced the loss of their home during the first four months of 2007, up from 4,712 from the same period one year ago – a 78 percent increase, according to The Warren Group, parent company of Banker & Tradesman.
Massachusetts families are not alone. The foreclosure rate nationwide is rising at an annual rate double that of two years ago. Nearly 2 million adjustable-rate mortgages are forecast to reset at higher rates over the next two years, suggesting the foreclosure rate has not peaked.
Last week, the Federal Reserve Board was the target of a series of nationwide rallies by the Association of Community Organizations for Reform Now (ACORN) in 17 cities, including Boston, New York, Chicago and Washington, D.C., to demand the agency protect homeowners from predatory lenders. The dozen protesters in Boston called upon the Fed to prohibit lenders from making loans that become unaffordable after the interest rate increases; stop the abuse of stated-income loans; reduce or eliminate prepayment penalties on subprime loans; hold lenders accountable for the actions of brokers; and require subprime lenders to escrow for taxes and insurance.
Thomas L. Lavelle, a spokesman for the Federal Reserve Bank of Boston, said the board has been conducting nationwide hearings to consider using its authority to curb abusive lending practices.
The central bank has scheduled a June 14 public hearing in Boston. The Fed will consider restrictions on prepayment penalties, limiting loans made without verifying a borrower’s income and requiring lenders to ensure a borrower’s ability to repay.
Still, it’s unclear what the Fed will do, consumer advocates say. In a speech last week, Federal Reserve Chairman Ben Bernanke said, “We have an obligation to prevent fraud and abusive lending Â… at the same time, we must tread carefully so as not Â… to eliminate refinancing opportunities for subprime borrowers.”
‘Stem The Tide’
Known in the mortgage industry as “subprime” lending, mortgages like the one taken out by the Fordes commonly feature high interest rates and points, fees, annual refinancing and advertising that promises high-risk borrowers instant loan approvals.
“The Fed could step in right now and help stem the tide of foreclosures,” said Maude Hurd, ACORN’s president. “American homeowners shouldn’t have to wait for Congress to pass new legislation.”
The Fordes bought their seven-room home in 1999 for $83,500 with a fixed-rate mortgage of 7.25 percent. At the time, their monthly payments were less than $600. But after refinancing their home five times – most recently in 2004 for $260,000 at 13 percent – to pay debt on a failed transportation company the couple launched, their monthly payment increased to nearly $2,900. But when Anthony Forde lost his contracting job, the bills began to pile up, leading to foreclosure.
“I’m really stressed out,” said Jeannette Forde, a customer services representative at Northeastern University. “I filed for bankruptcy last week, but we’re trying to find an alternative because I don’t want to go bankrupt and ruin my credit. We can afford $2,000 per month but not $3,000.”
Chris Leonard, ACORN’s campaign director, said the national advocacy group recently reached agreements with 29 different lenders in a foreclosure-avoidance program. Working with an ACORN counselor, advocates often can work with the lender to rewrite the loan, incorporating more favorable terms including a lower rate in the single digits, Leonard said.
“This is in the lender’s interest,” he said. “Half the people facing foreclosure never contact the lender to try to work out an agreement. They just ignore the collectors’ calls and letters. We get them together to work out a deal each one can live with. It works.”
Daneen Sparcino, a Bank of America vice president, said the bank has partnered with ACORN to help customers unable to pay their mortgage. “If someone loses a job or has other financial setbacks, we work with ACORN and the borrower to keep them in the home,” she said. “We work out a repayment plan, often with a lower rate or longer term without all the fees to help them get back on their feet.”
