Government Intervention Best Bet to Reduce Foreclosures, N.H. Representatives Say
FORECLOSURE FINAL
New Hampshire Union Leader
Jenny Paul
Boston University Washington News Service
12/9/08
WASHINGTON, D.C.—John Skiff nearly lost his home to foreclosure two years ago. Now he’s close to losing it again.
The Nashua retiree missed monthly mortgage payments on his four-bedroom house for the first time in 2006, after gaining legal custody of his seven grandchildren. Skiff said he had to make a choice between paying the mortgage and feeding and clothing the children.
“It isn’t anything we wanted to happen,” he said. “We just fell behind. The kids, they grow, and you have to get out there and get clothes.”
With the help of a pro bono legal clinic, Skiff filed for bankruptcy to halt the foreclosure and resumed making his monthly payments while paying back the debt that had accrued.
This year, Skiff fell behind again, giving his mortgage company the right to foreclose on the house for a second time. His foreclosure date has been set for Jan. 14, leaving Skiff unsure whether he will have to split his family up and send the children to foster care next month.
“It drains you some, when the whole month you’re wondering if you’re going to be here the next month,” said Skiff, 66, a retired shuttle driver and warehouse employee who relies on welfare checks, Social Security benefits and a small monthly pension to make ends meet. He said he can’t go back to work because his wife, Judy, has health problems and needs help caring for the children.
Skiff, who has a fixed-rate mortgage, is waiting to see if his mortgage company will voluntarily modify it to reduce his monthly payment.
As the economy worsens and job losses increase, homeowners who hold fixed-rate mortgages, like Skiff, are becoming a more common presence at New Hampshire housing clinics. The foreclosure crisis is no longer confined to those with subprime and adjustable-rate mortgages, housing experts say.
There were 333 foreclosures in New Hampshire in October, up from 211 during the same month in 2007, according to data provided by the New Hampshire Housing Finance Authority. The authority, which the state government established in 1981, predicts there will be more than 3,500 foreclosures in the state during 2008 – nearly 1,500 more than there were last year.
A push for help in Washington
The state’s two Democratic U.S. House members as well as housing experts say the foreclosure rate won’t slow unless the federal government moves to force lenders to restructure the terms of troubled mortgages.
“Folks in New Hampshire are kind of stoic,” Rep. Paul Hodes said. “We are used to being frugal and tightening our belts and helping each other, and at the same time, the statistics and the stories I’m hearing from folks in distress are telling the story.”
Hodes, along with Rep. Carol Shea-Porter, has pledged to push for legislation that would compel lenders to rewrite mortgages to make them more affordable for distressed homeowners.
Last month, Hodes introduced a bill that would do just that. It is unlikely that the bill will be considered during a lame-duck congressional session in December, but Hodes promised to reintroduce the proposal when a new Congress convenes in January.
“I think this plan is a good start to a solution,” he said. “We need to provide a menu of options for working out [the mortgages of] homeowners in distress.”
Hodes’ proposal would allow bankruptcy judges to modify the terms of debtors’ primary-residence mortgages. The provision would help people like Skiff, who file for bankruptcy to buy time to save their homes but end up defaulting again because they still cannot afford the amount of their monthly payments.
“When you just keep them locked into this same mortgage that they weren’t able to pay before they went into bankruptcy, how are they supposed to be able to pay it after bankruptcy plus the [debt from the missed payments]?” said Peter Wright, who is representing Skiff through a clinic at the Franklin Pierce Law Center in Concord. “It ends up just being a foreordained result where they’re going to fail.”
Banking industry leaders argue the change would increase the number of bankruptcy filings and heighten the risks for investors in primary-residence mortgages, resulting in higher fees and interest rates for new homeowners. That could result in mortgage rate increases of at least 1 percent, cautioned Ralph Coppola, president of the Mortgage Bankers and Brokers Association of New Hampshire.
“Anyone that’s issuing mortgage funds, they’ll be further evaluating their costs and risk factors,” Coppola said. “We’d be concerned that it’s going to have an effect both on the cost to do a loan and the rate that the consumer is going to have…. I think it’s going to hurt the consumer and make the problem worse.”
Hodes dismissed the warning, saying an “unprecedented” economic crisis and an increasing number of foreclosures outweigh the concerns of industry leaders.
Hodes said he realizes that people who file for bankruptcy to save their homes face “serious consequences,” including blemished credit scores and financial limitations set by a budget issued by the bankruptcy court.
His bill, therefore, also calls for measures that are less damaging to homeowners, including a provision that would mandate lender participation in the government’s HOPE for Homeowners program, which was signed into law in July and took effect Oct. 1.
Borrowers who qualify for the program can refinance into fixed-rate, government-insured mortgages. The voluntary program, which had garnered fewer than 200 applications nationwide as of mid-November, has not been well-received by mortgage lenders, who must take a loss when they write down the principal of a loan as part of the program.
Although the government revised the program’s rules last month to entice more lenders to participate, Hodes said mandating lender participation is necessary to jump-start the program.
“The voluntary nature of it gives lenders and servicers an out,” he said. “I think we need to be more aggressive about it.”
A third option
Plans that force the hand of hesitant lenders aren’t the only foreclosure-reduction proposals that could come before Congress in January. Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, is shopping a plan that would use about $25 billion of government money to entice lenders to modify mortgages voluntarily.
The plan is similar to one the FDIC is using to rework mortgages held by IndyMac Bank, which the FDIC took over this summer after the bank failed. It would allow lenders to modify mortgages, reducing payments to as low as 31 percent of borrowers’ income, by lowering interest rates, reducing the principal of the loan or extending the time a borrower has to repay the loan. The government would pay lenders $1,000 per modified mortgage and would absorb up to half of the losses on mortgages where borrowers default for the second time.
Hodes and Shea-Porter said they support the plan. Although Treasury Secretary Henry Paulson has said he wouldn’t use money from the bailout package to pay for the FDIC proposal, Shea-Porter said she thought it would be a good use of that money.
“What we wanted right from the beginning was to put this toward the person on Main Street who was having trouble paying the mortgage but could do it if they got it modified,” she said.
Even as the two lawmakers promise to push for the proposals’ passage, housing experts and political scientists aren’t sure the plans will win enough support in the new Congress, even though Democrats will control Congress and the White House.
Sen. Judd Gregg (R-N.H.) said he will not support a bill identical to Hodes’ legislation that was filed in the Senate.
Jennifer Lucas, an assistant professor of politics at St. Anselm College, cautioned that Republicans still hold enough seats in the Senate to block legislation they oppose.
“Part of the issue is whether some of the moderate Republicans might be willing to cross over and vote with the Democrats on some of these issues,” Lucas said.
Rosemary Heard, president of CATCH Neighborhood Housing, a Concord-based organization that provides foreclosure counseling and other services, said she hoped Congress and Barack Obama’s administration would take action to reduce foreclosures. But she didn’t think Congress would be able to muster the political will to force mortgage companies to take big losses.
“The servicers have to be part of the solution, so it would require something on a national level that would require them to agree to write down their mortgages across the board,” Heard said. “I frankly can’t see that happening.”
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