For much of the 21st century, so far anyway, real estate gurus around the country have faced little resistance in selling the American public on the idea that real estate should be seen as an investment. And lenders helped spread the word to a feverish pitch.
We've seen this all before. It looks eerily familiar to the boom years of the late 1980s. That was until the early 1990s came around and the foreclosure pipeline sprung a major leak, flooding the market with overvalued properties. And homeowners from California to Maine were left wishing they had a way to close the floodgates, stopping foreclosure of their homes immediately. Good news, there may be ways to stop foreclosure.
Think it couldn't happen again? Industry experts are saying that anyone who bought a home during or before 2003 should be safe from the turmoil of foreclosure. For anyone who purchased a property from 2004 through 2006, that leaves them potentially facing the financial hardship that distresses many homeowners over the real possibility of foreclosure.
Financial circumstances change. Couples get divorced, people get sick, lose their jobs, OR, their income doesn't keep up with escalating mortgage payments caused by the resetting of interest rates to higher levels on those so-called "exotic" or "toxic" or "liar" loans (whatever you want to call them) of the past few years.
Anyway you see it, unsophisticated homeowners are left hung out to dry with seemingly no way out of a serious financial predicament, and no means to stop the foreclosure of their homes once the process has begun. And this has local, state and national government officials concerned and non-profit consumer groups up in arms.
With more than 1.5 million foreclosure filings predicted by RealtyTrac for 2007, the floodgates are open once again, just not as wide as they were in the early 1990s, and with a finite number projected.
Areas where the current foreclosure epidemic is more acute are calling for everything from a moratorium on foreclosures, to setting up consumer helplines, convening expert panels and calling on state and national politicians to introduce legislation to stop the home foreclosure nightmare that the subprime loan fiasco has caused. Even some lenders are offering assistance to the victims of overzealous lending practices of the recent past.
Here are some examples of what is being done to help turn the tide and stop foreclosure quickly for distressed homeowners looking for a way out:
- Early in 2007 Sen. Charles E. Schumer (D-NY) chaired the Joint Economic Committee in Washington, DC, on the topic, "Sheltering Neighborhoods from the Subprime Foreclosure Storm." The task force's conclusion: it pays to prevent foreclosures. Its suggestions: increase federal support for local foreclosure prevention programs; strengthen and reform the FHA; strengthen regulation of mortgage origination at the federal level; create a federal anti-predatory lending law that bans unfair and deceptive practices; establish borrowers' ability to pay standards; and disclosure relating to alternative mortgage products must be enhanced.
- Denver's Foreclosure Task Force recently issued its recommendations on how to reduce the number of homes in foreclosure. The Task Force report included four goals for reducing the number of foreclosures in the region: 1) stabilization continuum – providing early warning notices to prevent foreclosure; 2) education – consumer counseling on all phases of homeownership; 3) prevention and intervention – through counseling about homeownership and borrowing; and 4) legislation, policy and enforcement – creating clear guidelines to educate consumers regarding terms and conditions affecting homeownership. The group also recommended appointing a "foreclosure czar" or ombudsman to deal with the city's record foreclosure activity.
- Rep. Steven C. LaTourette (R-Ohio) chaired a meeting of the U.S. House Finance Services Committee in Cuyahoga County (a region with one of the highest foreclosure rates in the nation) last August calling for the creation of partnerships between community organizations and state governments as a way to stop the bleeding from an overbearing volume of foreclosure activity.
- In April of 2007 national civil rights groups, including the Leadership Conference on Civil Rights, the NAACP, the National Fair Housing Alliance, the National Council of La Raza, and the Center for Responsible Lending called for the lending industry to agree to a six-month moratorium on subprime home foreclosures resulting from reckless and unaffordable loans in the subprime market.
- NovaStar Financial Inc., a Kansas City-based subprime mortgage lender, helped its customers find jobs earlier this year. The company's "Launch-Point" program helped more than 1,036 NovaStar borrowers find work without charging them for the service. Launch-Point helps job-hunting mortgage customers prepare resumes, practice for job interviews, find job openings and evaluate how the real job interviews went. In all, the program cost NovaStar $3 million, but in the greater scheme of things the investment has prevented $15 million in likely foreclosure losses. Each foreclosure costs about one-third of the value of the loan.
- State officials in Massachusetts are proposing a plan to inject $250 million into helping delinquent homeowners who purchased their homes utilizing subprime morgages refinance into more affordable loans thus preventing foreclosure on their homes. According to the proposed plan, hardball negotiating tactics would be used to force lenders into taking a financial hit on the troubled mortgages the state will be refinancing. MassHousing (the Massachusetts Housing Finance Agency) along with Fannie Mae, a federal agency that invests in mortgages, will be providing the funding under the plan. While interest in developing these types of programs is growing, there are far more borrowers out there victimized by these so-called "liar" loans than there are programs to help stop foreclosure of their homes from taking place.
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