September 18, 2008
There are an expected 45,470 subprime foreclosures between the third quarter 2007 and the end of 2009.[i] Over this same period of time, the subprime mortgage-related foreclosures will cost Pennsylvania $2.42 billion.[ii] The impacts of this devastating crisis are being felt not only by the families themselves, but also by neighborhoods, cities and our economy as a whole as the number of vacant properties is growing, the property values of nearby properties are declining, and cities face a loss in property taxes. Many of these foreclosures are the direct result of predatory lending - cases where brokers and/or lenders convinced borrowers to take out a risky, soon to be unaffordable, loans.
The economic and social costs of this crisis to our state are serious enough to warrant emergency action to stem the tide of foreclosures. Many foreclosures are preventable, particularly in the current climate in which mortgage servicers are being pressured by elected officials, from the federal government on down, to make loan modifications in order to achieve affordable mortgages for borrowers. Additionally, when a qualified housing counselor negotiates on behalf of a borrower, a better resolution is often achieved. However, these loan “workouts” take time, as they require a case-by-case review of a borrower's financial situation. And time is something that, by all accounts, neither the mortgage servicers or the housing counselors have enough of, given the huge number of borrowers going into default and foreclosure.
Therefore, It is in Pennsylvania’s interest to “stop the clock” for a period of time to allow families to get back on their feet financially and to encourage negotiated settlements – loan workouts - that move people into more affordable loans and thereby reduce the number of foreclosures. Reform proposals being advanced nationally are necessary, but not sufficient. The depth of the crisis and the costs to the state argue for a moratorium as the only sure way to put a brake on the hemorrhaging and buy parties the needed time to work out viable alternatives to foreclosures.
ACORN is calling on policy makers to follow the lead of New York, Minnesota, & others and implement a moratorium on foreclosures involving subprime mortgages that were recklessly and inappropriately underwritten and call for the lenders to make new affordable loans to these customers.
● This would include Adjustable Rate Mortgages (ARMs) for which the borrower was qualified using the starting interest rate and ARMs which were made to borrowers on fixed incomes. In both these types of cases, the lenders should convert the adjustable rates to a fixed rate loan at the starting interest rate.
● It would also include so-called stated income loans which were unaffordable from the beginning of the loan. In these cases, the lenders should reduce the interest and/or balance of the loan in order to make it affordable based on the borrower’s real income.
Several reform proposals in the PA general assembly are a good start: including McGeehan’s HB 2694, to create a statewide diversion program based on the successful Philadelphia Diversion program, and John Taylors HB that follows the lead of Minnesota’s model legislation. For more information on the specifics of the legislation, please contact PA ACORN Legislative Director Ian Phillips 35 406 4386.
[i] Mortgage Bankers Association, Joint Economic Committee of Congress, October 25th Subprime Lending Crisis Report