Resolving the foreclosure crisis at state level

Posted on January 21st, 2008 by saman

The statistics resulting from the ongoing mortgage crisis are appalling. 3 million houses are expected to be foreclosed. One in every 27 house has been hit by the crisis in
Stockton, CA. Figures releases by Countryside, the largest U.S mortgage lender, show that foreclosures and late payments had risen to a record high in December.

However, according to a report by Center for Responsible Lending the effect on financial markets and the economy surpass the losses from the mortgage foreclosures. Estimates show a loss of almost 400,000 jobs, due to foreclosures, in the housing industry and a cost in declining property values of about $233 billion.

The Bush Administration, who at first did not offer any sort of foreclosure relief, has now offered one which is full of concessions to the lending industry. The burden now lies with the States to execute effective policies to stop the current foreclosure crisis. This article highlights three policies that states can implement to help fight the crisis.

Moratorium on Home Foreclosure

Moratorium is a legally authorized postponement of payments to a debtor. It provides incentives to lenders for restructuring loans on fairer terms and gives the borrowers enough time to consult and ensure that their loans have fair terms.

The first state to pass a moratorium on foreclosures was
Massachusetts and it did so back in May. The governer of
Massachusetts, Deval Patrick, instructed the state’s Commissioner of Banks to ask for delays of up to two months from mortgage lenders engaging in foreclosure activities for any homeowner who filed a complaint with the Division of Banks. In addition to that, the State’s Attorney General persuaded one of the largest subprime lenders of the state to allow for a 90 day review period before foreclosing any properties during which, the General’s office can object to any foreclosures that it deems to have been caused by unfair lending practices.

In Ohio, where the auctions of foreclosed homes is presided over by the Deputy Sheriff, a coalition of community groups have asked to give homeowners a 60 day foreclosure moratorium by delaying the auctioning of homes that are occupied. The sheriff has also been requested to stop evicting homeowners. The proposition is currently being considered.

Right to Rent Instead Of Eviction Vacant properties pose various threats such as fire hazards and criminal activities and destabilize neighborhoods. Foreclosure of millions of homes would mean an increase in vacant houses thus increasing the threats mentioned above.

The Center for Economic and Policy Research has proposed a solution whereby homeowners facing foreclosure are given the option of renting their house at a fair market value determined by an independent appraiser. The proposition allows homeowners to remain in the house as renters even if it is foreclosed. Furthermore, it does not require any tax payer dollars and would go a long way in helping to preserve communities by keeping people in their homes.

You foreclose on it, you maintain it

Lack of maintenance on foreclosed homes causes a decline in the property value and the overall appearance of the surrounding areas. Banks and homeowners should be required to maintain foreclosed houses to contain the effects of the ongoing foreclosure crisis.

In Buffalo, NY, banks are held responsible by the city prosecutors for fixing any damages and maintaining foreclosed houses. As an alternative, the city can get the lenders to pay for demolition or get them to donate the properties to community groups if it is not beyond repair.

Upkeep on foreclosed properties has been explicitly required by other jurisdictions as well. The
Manteca, CA city council requires homeowners to pay for upkeep on foreclosed properties after the occupants have evacuated the property. Neglecting these homes would result in a fine of up to $1000 a day. Homeowners are also required to pay for the maintenance of yards built outside homes after 1993. If they fail to do so, the city can hire contractors and bill the owners.

Conclusion

All of the policies mentioned above can help stop the foreclosure crisis without costing the taxpayers. There are several other options available for states willing to spend funds. Such as setting up foreclosure hotlines for counseling, outreach programs to help struggling homeowners and refinancing programs.

It has been argued by right wing talking heads that the victims of subprime loans should bear the consequences of their decisions. The reality though, is that the lenders have exploited these families and have profited from this. Bonuses for Wall Street executives have risen by 14% even though the firms that they worked for had a direct hand in the subprime crises. A moratorium on foreclosures will give these exploited families a chance to get back what they’ve lost and and provide them with an opportunity piece together their lives.