Weekly Briefing

Five simple, common sense tactics to control the state foreclosure mess

The national home mortgage foreclosure crisis continues mostly unabated. Here in North Carolina, the gavel will bang down on as many as 60,000 homes this year. Nationwide, the number may exceed two-million. Last month, we reported in this space about the ongoing battle in Washington and the apparent determination of the Bush Administration and some of its allies in Congress to stymie any meaningful reform proposals that might curb the tide. A month later the congressional logjam continues and it remains unclear what, if anything, congressional leaders will be able to accomplish this summer.

Fortunately, the picture is not quite as bleak in the North Carolina General Assembly. To their credit, state lawmakers continue to chip away at those parts of the problem that are within their sphere of influence. Last year, legislators responded to the issue by approving three excellent bills. The first made the foreclosure process fairer and helps protect homeowners from some abusive loan servicing practices. The second protects home buyers from predatory lending practices and ensures they can afford to repay the loans made to them. Finally, a third requires notice to tenants (and an opportunity to terminate the lease) when the property they are renting is foreclosed upon.

This year, forward-thinking legislators are again trying to do their part by convincing budget writers to include new money for three proven foreclosure prevention tools in the 2008-'09 appropriations bill. Each proposal has what ought to be the two keys to success in the budget making process: a proven track record and a modest price tag. Unfortunately, this year's tighter-than-average budget will make approval difficult - even when, as is the case with all three, the proposals are likely to help stabilize tax revenues at the local and state levels.

Meanwhile, lawmakers have also introduced at least two other substantive bills that will, if adopted, build upon last year's improvements to assure that average consumers are not victimized by scam artists. Like the three budget proposals, both ought to pass with little controversy. Again, however, the combination of special interest lobbyists and the tight schedule of the legislative "short session" could make things constitute formidable roadblocks.    

Budgeting to make a difference

#1 - Expanding the North Carolina Housing Trust Fund - For years, the state Housing Trust Fund has been the Rodney Dangerfield of state public policy - a remarkably successful but under-the-radar program that just couldn't seem to find the respect it deserved. A couple of years ago, however, more than a decade of tireless advocacy by supporters and dozens of endorsement from an array of businesses and nonprofits began to pay off as the General Assembly lifted the appropriation above token status. The last two state budgets have appropriated a combined total of more than $30 million for the Trust Fund - far less than is needed, but somewhat better than previous years. This year, the budget target is $20 million in recurring funds.

By all accounts, the Trust Fund is the state's most flexible housing resource - able to finance home ownership and rental apartments, new construction, rehab and emergency repairs. It provides the state's largest source of funds for financing supportive housing for the homeless, victims of domestic violence, persons with mental illness, and others with special needs. It provides the state's largest source of funds for financing emergency repairs and accessibility modifications that allow elderly and disabled low-income homeowners to continue living in their homes. In all: a model program that could (and ought some day soon) to be tripled in size.

#2 - Expanding the Home Protection Pilot Program - Like the Trust Fund, this program is administered by the widely respected and award winning state Housing Finance Agency. It assists workers who have been laid off from their jobs and who meet other strict criteria with counseling, a "stay" of foreclosure and, in some cases, zero interest bridge loans that cover mortgage payments until the worker can get back on his or her feet.

Consistent with its name, the program is only three years old and is currently operating in only 61 counties due to limited funds. If fully funded however, it could help thousands of households throughout the state. A bill to at least make the program statewide currently awaits review.

#3 - More funding for housing counseling and legal assistance - What's the simplest and most effective public health tool for aiding communities beset by a health crisis? Often, the answer is simply putting doctors and/or nurses on the ground to provide direct service and advice to those who need them. So it is in the foreclosure crisis.

Many, many of the families currently facing foreclosure are not in such a position because they "deserve" to be there or because they're "deadbeats" or greedy strivers who've overreached. For a distressingly large percentage of those confronting foreclosure the culprit is simply the mind boggling complexity of the loan contracts they've signed and the law that governs the area. In other words, thousands of North Carolina families will lose their homes this year because they've thrown their hands up and quit. Try as they might, they can't understand the intricacies of their loan agreements, assess the threats and demands of their loan "servicers" or even begin to know how to defend themselves in a foreclosure proceeding - even if they've been the victims of an unlawful, predatory loan.

It is on behalf of such families that consumer and housing advocates are seeking new appropriations to underwrite the cost of expanding the state's network of private, nonprofit housing counselors and Legal Aid attorneys. Right now, 90% of the homeowners who find their way to a lawyer provided by Legal Aid of North Carolina will avoid foreclosure. Unfortunately, the vast majority of those who seek such help will have to be turned down due to lack of staff.

Upgrading the law itself

#4 - Regulating mortgage "servicers" - One of the most glaring loopholes in the law that currently governs the business related to foreclosures is the absence of any licensing and registration requirement for so-called "mortgage servicers." These are the companies that process monthly mortgage payments but too often mishandle loan payments and charge illegal fees. These often highly profitable businesses can run the gamut from responsible corporate citizens to fly-by-night outfits that act as little more than abusive collection agencies.

After extensive study commission hearings this past winter and spring, a group of several House members worked with the Commissioner of Banks to fashion a proposal that would bring order and common sense regulation to this field. The bill currently resides in the House Financial Institutions Committee.

#5 - Reining in foreclosure "rescue" scams - One of the more despicable phenomena in the foreclosure world is the practice in which a small number of bad actors prey upon distressed homeowners with so-called "rescue" scams.  There are a variety of such scams and so far 14 states have taken action to attack them.

North Carolina could take a strong first step down this road by regulating abuses involving so-called "subject to" transactions in which investors take title to homes without taking care of the homes' mortgage - thus leaving former home owners and tenants vulnerable to harm.  A bill that would address this form of abuse passed the House last year and currently awaits action in the Senate Judiciary I Committee.

Going forward

Addressing the inequities, abuses and negative societal consequences of the ongoing foreclosure crisis is, in many ways, the epitome of good government in action. By correcting the flaws in the market and helping those injured by those flaws, government can make the private economy work more effectively and efficiently for the common good. It ought to be the kind of action that all of us demand and expect from our public officials. Let's hope that this year state legislators keep doing their duty. 

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This entry was posted on Wednesday, May 28th, 2008 at 8:06 am and is filed under Weekly Briefing. You can follow any responses to this entry through the RSS 2.0 feed.