Home Foreclosures Rise in U.S.

by admin ~ January 13th, 2009.

Home foreclosures continue to rise and attorney generals across the U.S. want federal bankruptcy codes amended to allow judges to modify home loans in an effort to help homeowners remain in their houses.  Arizona Attorney General Terry Goddard along with state attorneys general from California, Connecticut, Delaware, Illinois, Iowa, Kentucky, Louisiana, Massachusetts, Minnesota, Mississippi, Montana, New Mexico, North Carolina, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Vermont, Washington and West Virginia, as well as the District of Columbia, are urging Congress to revise bankruptcy codes to help homeowners struggling with home loan payments to prevent foreclosure or short sale of their home while the U.S. economy continues to be unpredictable. ”With the nation’s foreclosure crisis growing more severe, this amendment can be a win for both homeowners and mortgage holders. ”Bankruptcy judges are well-qualified to work out fair terms that will allow more families to stay in their homes,” said Goddard.

A letter drafted by all of the attorneys general and sent to the U.S. Senate and House of Representatives notes that despite best efforts by state and federal regulators encouraging mortgage loan servicers to voluntarily grant more loan modifications, further action is needed to help struggling homeowners. The letter listed the three following mitigating factors in the continuing foreclosure crisis:
     * The most troubled mortgage loans are securitized and therefore multiple stakeholders may be involved in the decision to offer loan modification agreements, causing a continued paralysis.
     * The multi-state Foreclosure Prevention Working Group released a report compiled from data from 13 major servicers in September 2008 showing that many voluntary loan modification measures have failed with re-defaults emerging 3-6 months after lenders agreed to loan workouts.
     * FHA loan options recently rolled out the new federal mortgage modification program, “Hope for Homeowners” program has generated little interest from mortgage holders. The Department of Housing and Urban Development (HUD) recently reported that only 111 applications had been submitted nationwide. 

The attorneys general claim their proposed amendment would better protect families from foreclosure as well as help jump-start the economy. Goddard said that slow-moving lenders who promised soon after the foreclosure crisis began to voluntarily grant an increased number of loan modification requests are not living up to that promise and Congress needs to step in and help alleviate the situation. 

In a press release on January 6th, Goddard outlined what the loan workout amendment he and other Attorneys General are asking for includes. Homeowners and investors would share losses and benefits under the amendment, and if a federal bankruptcy court orders a loan modification, repayment would be based on current secured value, however the mortgage holder might also be required to absorb the unsecured portion of the debt exceeding value of the home depending on the details of the loan modification agreement.
     ”A homeowner with regular income would retain his or her home while paying a sustainable mortgage and would receive a steady stream of income while avoiding the losses and expenses in a foreclosure sale,” said press secretary for Goddard’s office, Anne Titus Hilby.
     Hilby said the amendment poses virtually no hardship on the existing bankruptcy system because the bankruptcy courts already have approximately 300 judges experienced in valuing property sitting on the bench and therefore changes to bankruptcy codes could be implemented almost immediately and seamlessly.
     Some skeptics and opponents of changes to existing federal bankruptcy codes argue that the proposed amendment might result in a sharp increase in homeowners filing for bankruptcy as an easy way out.
     ”The Attorneys General do not anticipate an increase in bankruptcy filings by passing such an amendment.
     ”Instead, they believe such a measure will likely motivate mortgage servicers and secondary market investors to achieve sustainable loan modifications,” Hilby said.
     According to an analysis study performed by State Foreclosure Prevention Working Group, led by Iowa Attorney General Tom Miller, as of the end of May last year, nationwide 300,000 home mortgages were in foreclosure proceedings. “Given the inability of servicers and investors to adjust their approaches to meet this unprecedented challenge, the State Working Group continues to see a need for new and broader-based approaches to loss mitigation that are focused on homeowner sustainability,” read the report.
     The report by State Foreclosure Prevention Working Group claims the FDIC’s new approach for addressing delinquencies in IndyMac’s servicing portfolio might offer some relief. The report stated that adoption of similar proactive programs based on systematically revising loans through other servicers could help lower some mortgages currently at high risk to go into foreclosure to affordable levels. 

The organization also stated that it is hopeful that the recently enacted “Hope for Homeowners” federally-guaranteed refinance program will increase the level of refinancelenders are willing to grant to troubled homeowners, but said the full impact of the program has not yet been felt and it will take more time to evaluate its effectiveness. Nonetheless, representatives with State Foreclosure Prevention Working Group said there is hope for the future.  “While the federal government struggles with the implications of the recent financial markets crisis, state and local governments continue to implement new and innovative approaches to slow the pace of foreclosures that are devastating their communities,” said representatives with the group. 

With the rise in foreclosures and the attorney’s general all over the U.S. asking Congress to help, Goddard also wants to warn homeowners to beware mortgage assistance scams. Hilby said Goddard’s office has had an increase in complaints form homeowners about individuals and-or companies offering the help in negotiating with mortgage lenders to reduce monthly payments and possibly prevent foreclosure. 
The problem is that some of the offers out there are scams that leave consumers in the same financial straits as they were and a loss of money to the scammers, Hilby said. “Unfortunately, these third-party negotiators rarely deliver on their promises and in some cases consumers have paid a fee of one month’s mortgage payment, and the rescuer simply took the money without even contacting the lender,” she said. 

Goddard recommended getting in touch with the primary mortgage lender before considering an offer of assistance in negotiating a home loan modification by a 3rd party. “If you are behind on your mortgage payments, it is imperative that you contact your mortgage lender immediately,” Goddard said.   Read the original article >

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