The foreclosure crisis in Massachusetts and elsewhere in the USA is a complicated issue governed by a variety of self-interests. These are being played out at the emotional and financial expense of those with the greatest need. In August of this year, Massachusetts posted an alarming, single month jump in foreclosed homes, topping 900 units. This figure does not even begin to measure the total impact on the lives of families and communities. Massachusetts laws protect renters, only until foreclosed properties are sold, then they too are subject to legal eviction.Nationally, the data shows a 14% increase in default notices during the 3rd quarter of the year from July to September. Although not all defaults result in foreclosures, this trend indicates that we’re far from being out of the woods.
It’s pretty clear that the Republicans’ stance is to let the free market deal with the problem and that no assistance should be provided to struggling homeowners. The Democrats’view is far more muted, but leaves homeowners in the same place: helpless and abandoned.
The untold story is that tens of thousands of lawyers and their staffs are making a financial killing repossessing homes on behalf of their lender clients. Lobbyists representing the foreclosure industry lawyers have been continuously pushing Washington hard and fast to maintain a hands-off position. The other strong lobbying group is the National Board of Realtors, that has been equally effective in forcing Congress to do nothing. In fact, Realtors are encouraged to attend classes to take full advantage of, what they typically refer to as REO (real estate owned), short-sales and foreclosures. And finally, we have the lobbyists for the banking industry. As you no doubt recall, they were among those that that benefited greatly from the infamous taxpayer funded TARP bailed-out. Needless to say, they’ve shown that they learned nothing from the precepts imparted in the Gospel’s tale of the unforgiving servant and, as such, have done nothing to demonstrate their willingness to pay it forward by making life easier for their clients that find themselves in a tough spot.
By now, every American should have a clear realization of what’s really going and, not surprisingly, it turns out to be much of what has fueled and is at the core of the Occupy Wall Street movements.
Remarkably, a large part of the justification for maintaining the status quo, is that far too many people have jobs feeding off the foreclosure industry and stopping it would create more unemployment. All one needs to consider, when repudiating such claims, is the simple fact that the economy was on significantly better footing when the housing market was doing well. The financial collapse had its roots in the housing sector. Therefore, the logical conclusion should be that a strong housing market would contribute to a rapid improvement that would reach a broad spectrum of the economy.
Given that I hold both a Massachusetts Real Estate license and a Massachusetts Construction Supervisor’s license, I am very familiar with both sides of the equation. It is from this background that I propose the legislative changes that follow. The nuts and bolts of such a measure would have to be hammered out by committee, but the essence of the bill is spelled out below and provides meaningful reforms that protect the interests of both homeowners and lenders while at the same time providing a jumping off point to repair our badly damaged economy.
– HOMEOWNER’S FORECLOSURE PROTECTION ACT:
1. Immediate moratorium on all foreclosure activity relating to owner-occupied homes, including owner-occupied multi-family dwellings. Investment and/or commercial and abandoned/vacant properties would not be subject to the provisions of the Act.
2. Personal bankruptcies that fail to reaffirm the owner-occupied home loan are also exempt from the provisions of the Act.
3. Recently unemployed homeowners must notify their lender within 30 days of unemployment.
4. Homeowners have 90 days to show proof of unemployment or underemployment and an inability to make their current mortgage payments.
5. Homeowners unemployed prior to the Act have 90 days from its inception to show proof of unemployment or underemployment and an inability to make their current mortgage payments.
6. Failure to provide requested documentation or failure to provide sufficient evidence to indicate financial hardship in the specified time and manner shall nullify the foreclosure stop action.
7. Arrearage, the amount past due, would be moved to the back of the loan, without additional interest or penalty.
8. Lender would provide, without regard to homeowner credit worthiness (credit scores), their lowest possible interest rate and, if necessary, would further temporarily lower mortgage payments to not exceed 28% of the homeowners gross income for a period of up to 36 months. Homeowners must remain current with their local property tax obligations and homeowner’s insurance.
9. Homeowners, at their discretion, may seek an independent property appraisal and the lender must rewrite the loan (loan modification) based on an agreed upon current value.
10. During the 36 month provisions of the Act, homeowners must update their income status every six months. Lenders are obligated to adjust accordingly (up or down), the monthly mortgage payments, to reflect the required 28% payment to mortgage ratio.
11. Homeowners are free to sell the home at any time. However, if the ultimate selling price exceeds the original mortgage amount, after all fees, the lender is entitled to full repayment of the original loan amount.
12. Lender may not report loan modification as an adverse action to credit bureaus.
13. The Act includes modification of the tax code to eliminate the treatment of forgiven debt as taxable income to the homeowner in cases relating to home refinancing, loan modifications, short sales or foreclosures. However, lenders may continue to benefit from being able to right-off the entire cost associated with any such loan modifications.
– THE RESULTS:
1. Stabilizing the housing market is an important stepping stone towards an overall sustainable economic recovery. By stopping foreclosures, we immediately put a halt to the downward pressure on home prices.
2. The devastated home construction industry can once again begin to build as a result of the reduction in excess inventories and increased demand. With a vibrant construction industry, comes increased spending on building materials, tools, trucks, vans, etc. Architects begin designing new homes, builders begin to hire carpenters along with a whole slew of sub-contractors, such as plumbers, electricians, and roofers, etc. In turn, their families will have money to spend and grow the economy and create even more jobs in every sector.
3. Cities and States will realize increased tax revenues resulting from increased taxable incomes and sales taxes. We can then afford to appropriately pay our teachers, repair our schools and give our first responders competitive wages and provide them with the tools and equipment that keeps them safe, while they put their lives on the line for us every day.
4. Neighborhoods will no longer be littered with unsightly abandoned homes that attract vandalism and further depress neighborhood home values.
5. But what of the professional foreclosure lawyers, their staffs and the real estate agents that were dependent on a steady stream of delinquent properties? Fortunately for them, they too will benefit from the protections afforded to them by the Act. The 3 year window should be more than adequate to allow them to hone their skills in other related areas.
6. For the lenders, the cost to slow down mortgage repayments, modify loans to reflect current market values, including lower interest rates, has to be less costly than what they would otherwise pay in legal fees to foreclosure lawyers, title companies, appraisers, and real estate agents. In addition, foreclosed properties are typically sold off for 10% to 20% below fair market value. And let’s not forget the property maintenance costs associated with maintaining vacant foreclosed homes. Current data indicates foreclosed homes linger on the market for an average of 336 days and the costs of maintenance on these vacant foreclosed homes can quickly add up.
7. Even if all you care about is looking strictly at the numbers, history and the overwhelming unemployment figures prove that there arefar more jobs of every kind created with a healthy housing market. There is no credible rationale that would allow this injustice to continue.
Washington lobbyists, with the full collaboration of our politicians, continue to ignore the plight of those in need in favor of those in greed. With national elections a year away, we need to demand immediate short-term solutions of our elected officials. If you agree with my proposal, I urge you to write your elected officials and include a copy of this document.