Lots of news on the mortgage front in the last few days.
On Thursday Senator Charles Schumer (D-NY), chairman of the Senate's
Housing Subcommittee introduced legislation to deal with a potential foreclosure
crisis arising out of the subprime
lending mess. In the legislation Schumer and co-sponsors Sherrod Brown (D-OH)
and Bob Casey (D-PA) proposed that $300 million in federal funds and, Schumer
said, "hopefully even more private money," would be channeled to
community non-profit groups via the Department of Housing and Urban Development
to boost refinancing programs to help homeowners prevent foreclosures.
These funds, Schumer said, placed in the hands of community groups that specialize
in foreclosure
prevention "will not only help hundreds of thousands of families save
their homes, but it will save billions in spillover foreclosure costs. This
seems like a cost-effective investment to me, and one that will help restore
confidence in our shaky housing market."
Schumer said that acting to prevent what he expected to be large numbers of
foreclosures over the next two years is not only important from the perspective
of protecting homeowners and communities, "but it also makes good economic sense.
Foreclosures
can cost up to $80,000 for all stakeholders-homeowners, neighbors, cities and
local governments, lenders, and loan servicers. Meanwhile, estimates suggest
that
foreclosure prevention counseling can cost as little as
$1,000 per household. To be successful, these programs require one-on-one counseling
with the homeowner and negotiations with a variety of stakeholders - making
them very resource-intensive. The rising wave of subprime foreclosures has caused
existing programs to become overwhelmed by requests for assistance, and they
are struggling to give homeowners in trouble the assistance they require in
order to successfully workout a suitable payment plan with the lenders."
The three senators said that, to encourage the private sector including those
banks and mortgage lenders that have the most to lose from foreclosures, they
had just sent letters to individual financial institutions, the American Bankers
Association and other groups encouraging them to partner with the federal government
to create a similar home retention fund by matching federal funds at a minimum
of $2 to $1.
A second part of the proposed legislation is designed to "seal the cracks
in our regulatory system to prevent future widespread lending abuses."
The bill seeks to regulate mortgage brokers and lenders under
the Truth in Lending Act. Among the proposals is a standard for originators
to assess a borrower's ability to repay a mortgage and holds lenders responsible
for brokers and appraisers.
Also on Thursday the Federal Reserve Board announced that it will hold a public
hearing on June 14 to gather information on how it might use its authority to
curb abusive
lending practices in the home mortgage market.
"The goal is to find ways to promote sustainable homeownership through responsible
lending, informed consumer choice, and effective guidance and regulation,"
said Federal Reserve Board Governor Randall S. Kroszner, who will chair the hearing.
"We want to encourage, not limit, mortgage lending by responsible lenders,
so it is crucial that any actions the Board might take are well calibrated and
do not have unintended consequences."
Meanwhile, in Massachusetts, Governor Deval Patrick has asked lenders
for a 60 day delay in any foreclosure auction if a homeowner submits
a complaint to the state. According to the American Bankers Association the
case-by-case delay on foreclosures was announced on Monday and by Thursday the
state's Division of Banks had received 43 complaints from homeowners.
The Governor assigned the commissioner of banks to review each complaint and talk
to lenders about modifying loan terms. The state has no authority to enforce the
informal moratorium but lenders have generally been cooperative.
The commissioner, Steven Antonakes said that the state just wants to slow things
down a bit, buying some time for the homeowner.
According to the ABA, Massachusetts has the highest foreclosure rate
in New England, with filings up 80 percent in the first quarter to 6,395. California
leads the nation with 49,016 filings so far this year.
And finally, on Wednesday General Motors Acceptance Corporation (GMAC) posted
a first-quarter loss as the company took charges at its housing finance unit.
GMAC, a former wholly owned subsidiary of General Motors (which still holds
a 49 percent stake) took a net loss of $305 million. GMAC's mortgage unit
ResCap had a quarterly loss of $910 million which effectively
swamped net proceeds from the company's insurance and auto financing divisions
which totaled $605 million. One year earlier GMAC posted a profit of $495 million.
GMAC has sold off some of its subprime mortgages at a loss, marked down its remaining
portfolio and is curtailing new loans to non-prime customers, reducing its subprime
lending to 1/3 the volume of one year ago and increasing its reserves to accommodate
higher delinquencies.
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