States Step in as Foreclosures Get Worse

Posted on April 30th, 2008 by saman

This month, sheriffs in Philadelphia have delayed the auction of over seven hundred homes at the urging of the city council. In the state of Maryland, officials have increased the time to complete a home foreclosure. In Ohio, over one thousand lawyers have been retained in order to assist homeowners in distress. These are some example of how some states, frustrated by waiting for federal action to assist homeowners have begun helping those in danger of losing their homes. Many cities and states have begun helping their own communities in order to stem the rise in foreclosures that have caused a drop in home prices all over the country. These housing problems have eroded government revenue as utility bills and property taxes remain unpaid.

Nine states have devoted over four hundred million dollars worth of loan funds that are focused on refinancing mortgages for borrowers who were at risk. Some states have made deals with lenders who have promised to ease the terms of problem loans. Some states have increased the time it takes to finish a foreclosure. The states are no longer waiting for the government to step in to assist with foreclosures since the states are having more problems than the government. The effort of the states have had mixed results but it highlights the pressure that is being felt by local and state entities.

The number of foreclosures nationwide is at its highest levels since 1979. Almost every state in the United States has been hit in one way or another. The number of new foreclosures rose by about twenty percent in forty seven states from 2006 to 2007.

In certain ways, cities and states are better qualified to work on solutions to the housing problem than experts in the government. The states have a familiarity with communities in the state so they are more capable of fashioning a response. However, local governments do not have the resources and power to bring about change on a large scale.

The heart of the housing crisis is the poor lending standards that allowed borrowers with bad credit and little money to take out mortgages they were not able to afford when the housing market was doing well.

When the housing market boom slowed down in the tail end of 2005, a number of homeowners were not able to refinance their homes or sell their homes if they ran into financial trouble. Because of this, default rates began to increase.

Some states began creating funds that were to be used to assist distressed homeowners with refinancing. The state of Pennsylvania created two such loan funds at the end of last year in order to assist with mortgage problems.

One loan fund offers distressed borrowers adjustable loans and the option of refinancing if they meet particular standards. This includes a limit on the debt to income ratio and a cap on the income of the household. Qualified buyers have been offered thirty year mortgages with a fixed rate.

Another fund purchases loans from mortgage holds and set up payment plans with homeowner that are affordable.