Federal and state lawmakers are looking at ways to stem the growing ranks of homeowners who are unable to meet their mortgage payments.
Nearly two million adjustable-rate mortgages are scheduled to be reset higher this year, while the rising foreclosure rate is expected to pick up speed. This week, members of the Congressional Joint Economic Committee highlighted the costs of foreclosure to homeowners as well as to their communities.
“It makes good economic sense to make sure families and neighborhoods are protected from rogue lenders and lax government oversight,” argued Sen. Charles Schumer, D-NY.
The committee report found that each foreclosure in the U.S. costs the homeowner $7,200, the lender $50,000 and the local government $19,000. Even the value of the homes neighboring the foreclosure drop in price by an estimated $1,500. All told, the price tag for just one foreclosed home is nearly $80,000. Schumer is proposing hundreds of millions of dollars in federal aid to help homeowners.
“It’ll save homeowners from losing their equity, save cities and local governments from losing their tax revenues, and save neighborhoods from taking a big hit,” said Schumer.
So far Democrats like Hillary Clinton, D-NY, and Chairman of the Senate Banking Committee, Christopher Dodd, D-CT, have called for action, including modernizing the Federal Housing Administration and instituting a grace period for borrowers in default. Both are seeking the Democratic presidential nomination.
White House Balking
But the White House is clearly not on board. Spokesman Tony Fratto told the Los Angeles Times, “individuals need to make smart decisions in taking on debt, and there has to be some responsibility for making those decisions.” He added that federal action would only encourage risky behavior.
Democrats, meanwhile, are under pressure from local community activists, especially one Boston group, the Neighborhood Assistance Corporation of America (NACA), which is already working with Citigroup and Bank America to help borrowers refinance.
“We are going to dare to come together in every single city, wherever there is foreclosure in any neighborhood, we’re going to organize in such a way that we’re going to stop the foreclosure,” Rev. Graylan Hagler promised at a NACA press conference earlier this week in Washington, DC. “We’re going to stand up against all these folks that have preyed upon these communities.”
And community groups are only gaining more fodder for their arguments, as the National Association of Realtors this week revised its annual forecast and predicted a 1.2% drop in the nation’s home prices in 2007, the first potential annual price drop in 38 years. If that happens, it will only boost the number of borrowers in default.
With local leaders up in arms, states are now jumping on the bandwagon as well. A panel of Massachusetts banking regulators is recommending the stat provide refinancing and financial assistance to borrowers facing foreclosure.
In Ohio, the state’s Housing Finance agency has instituted a program to refinance one thousand loans to a fixed rate. The Ohio program is not a bailout and is not for homeowners already in foreclosure, but for those whose mortgage is set to adjust to a higher rate. Details of the program are still being finalized, and lenders are still waiting to hear what the fixed rate and mortgage insurance rate will be. States have in fact been leading the fight against mortgage fraud for the past few years.
States Coming Together
“The states are very aggressively coming together, and this is really unprecedented, to share resources, establish a national licensing system which would hold mortgage brokers and lenders accountable throughout the country,” said John Ryan, Executive Vice President of the Conference of State Bank Supervisors.
But Ryan warns, “bailout” is not the correct term; states simply can’t afford that. “I don’t see broad state bailouts, in general I see the states working with non-profit organizations on counseling, trying to help those that can be helped.”
Lawmakers on Capitol Hill aren’t calling for a broad-based bailout either, instead funneling money to local groups that can help homeowners. Democrats can expect an earful from constituents if they do release any kind of number on what any bailout could cost taxpayers.
After a CNBC report on a potential government bailout, hundreds of viewers wrote into the Realty Check blog page, the overwhelming majority opposing any kind of government intervention. “No free lunches,” “Government meddling,” “Don’t aid consumers’ mistakes!” were just some of the subject lines. The bulk simply said, “No Bailout.”