Homeowners who can’t afford their mortgage payments may not find much in the way of rescue or relief in the U.S. government’s $700 billion bailout of the financial markets.
But while the feds have fearfully sat on their hands and watched a severe credit crunch turn into a major crisis, a number of states have introduced their own foreclosure prevention programs, as detailed in "Defaulting on the Dream: States Respond to America’s Foreclosure Crisis," a report by the Washington, D.C.-based Pew Center on the States.
"The jury is still out about whether and to what extent (these approaches) will be effective. Still, several states among those hardest hit by foreclosures also have been among the most assertive in trying to address the problem," the Pew study stated.
The seven "hardest-hit" states are California, Florida, Michigan, Ohio, Texas, New York, Georgia, Illinois, Indiana and Pennsylvania. Two of them, New York and Ohio, along with Maryland and Massachusetts, have committed the most money to anti-foreclosure programs, according to the study.
These and other states have experimented with a variety of "innovative but as yet unproven approaches" to ward off foreclosures, the study said. Generally, these approaches aim to educate and aid homeowners, regulate mortgage lenders and brokers, and mitigate the damage that foreclosures can cause to state budgets and local municipalities.
Specifically, states have:
- committed millions of dollars in mortgage refinance funds to help borrowers avoid foreclosure,
- encouraged lenders to modify loans on which homeowners have defaulted,
- launched media campaigns to educate overextended homeowners about how to seek help,
- forced lenders to give borrowers who are in danger of defaulting early notice about available assistance,
- required or recommended consumer education and counseling,
- worked with a national nonprofit foundation to staff 24-7 homeowner counseling hotlines,
- implemented new regulations to try to prevent foreclosure rescue scams,
- regulated high-cost loan products,
- obligated mortgage brokers who recommend mortgage products to consider or represent the borrowers’ interests, and
- set up task forces to work on solutions to foreclosure problems.
The Pew Center’s 51-page report is a must-read for anyone who wants to know more about governmental responses to the foreclosure crisis. It contains a number of useful charts and maps, explanations of the various programs and sound recommendations on ways to measure their effectiveness. (Incidentally, if you believe the mortgage crisis will end this year, take a look at Exhibit B-1 on page 44 of this report.)
To be fair, some state programs are funded with federal dollars that are distributed in the form of block grants or earmarks for state-level agencies or programs, and the federal government has several of its own foreclosure-prevention and rescue programs, namely, FHASecure, Hope Now and Hope for Homeowners.
Hope Now, a U.S. government-sponsored "alliance" of mortgage companies, recently said mortgage servicers completed more than 189,000 mortgage workouts in August. One month doesn’t comprise a trend, but for argument’s sake, that figure represents a run-rate of 2.27 million workouts this year.
Critics charge that that pace is too slow, that many loan workouts offer only a repayment plan or temporary interest-rate freeze but no reduction in the amount the homeowner owes, that many workouts only postpone the still-inevitable foreclosure, and that workouts targeted toward "avoidable" or "preventable" foreclosures don’t aid those homeowners who are in the most dire situations.
Hope for Homeowners, which comes now as the latest incarnation, not unlike Scrooge’s ghost of Christmas future, is too new to have a track record. But critics have already complained that the guidelines are too strict and that lenders won’t want to participate because the program requires principal reduction. The New York Times editorial board went so far as say this program was "looking like a lead balloon."
The bottom line is that while the federal government has thrown $700 billion at Wall Street financiers and investors, states are trying to help real people with actual real problems. The Pew study argues that states "cannot go it alone" due to the size and complexity of the crisis and says "it makes little sense to have 50 separate and specific responses." The federal government still could give the states more support for their programs. The track record is still short, but there’s a real opportunity to make a difference in the lives of many more homeowners.
Marcie Geffner is a freelance real estate reporter and former managing editor of Inman News.
Copyright 2008 Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author. Unauthorized use of this article is a violation of federal law.
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