Tuesday, October 26, 2010

Stop the Foreclosure Express -- Now!

Todd Swanstrom

By Todd Swanstrom and Chris Krehmeyer

It has recently come to light that lawyers processing the paperwork for foreclosures have been signing 10,000 or more documents a month without even reviewing them for accuracy and proper documentation. They are called robo-signers. Facing the threat of lawsuits for wrongful foreclosure, a number of the largest banks and servicing companies have suspended foreclosures until these problems are resolved.

Chris Krehmeyer
Instead of slowing down, the foreclosure crisis is speeding up and Missouri’s economy is being dragged down. About 11 percent of first-lien mortgages in Missouri are either delinquent or in foreclosure and 15 percent of mortgages are “underwater,” meaning homeowners owe more on the mortgage than the property is worth.

Everybody pays for foreclosures, not just those who are kicked out of their homes. Research has demonstrated that each foreclosure drives down the market value of properties located within one-eighth of a mile of a foreclosure by about 1 percent. The Center for Responsible Lending estimates that by 2012 Missouri property values will have dropped by approximately $7.3 billion as a result of foreclosures.

So while local governments are losing property tax revenue they are also forced to bear increased costs of processing the paperwork, cutting the grass for vacant properties, and even demolishing vacant structures. The Joint Economic Committee of the U.S. Congress estimates that it costs municipalities $19,227 per foreclosure.

Fortunately, skilled foreclosure counselors can prevent many foreclosures. The Public Policy Research Center at the University of Missouri-St. Louis studied 1,460 homeowners who were counseled by Beyond Housing, a St. Louis housing nonprofit. Even though most came to counseling facing a foreclosure, the study found that 84 percent were still the owner of record at the end of the study period. A national evaluation of the federally funded counseling program by the Urban Institute compared 60,892 households that received counseling with 60,892 households that did not. Households receiving counseling were 60 percent more likely to avoid foreclosure compared to those who did not.

Olga Povarich’s story is typical. An upbeat, high-energy woman, Olga came to St. Louis from the Ukraine in 1993. She works for a home health care company and cleans homes on the side. When her husband left the family, she could not keep up with the mortgage payments for the home she shares with her three children. Her lender initially told her, incorrectly, that she was ineligible for a loan modification and repeatedly lost her paperwork. Working with Beyond Housing, Olga was able to finally get a loan modification under the federal Making Home Affordable program that limited her housing expenses to 31 percent of income.

Unfortunately, Olga’s happy ending is the exception rather than the rule. Loan servicers are rushing to complete foreclosures, repeatedly losing paperwork and refusing to negotiate loan modifications to keep families in their homes.

What’s the solution? The foreclosure process in Missouri needs to be slowed down in order to make sure the paperwork is correct so we can find ways to keep as many families as possible in their homes.

Missouri has the fifth-fastest foreclosure process in the nation. Our “non-judicial” foreclosure process is not regulated by the courts, as it is in Illinois, where the process is finalized by a judge. Missouri’s process does not provide enough time to negotiate solutions that will prevent families from being pushed out of their homes.

Missouri should immediately declare a 60-day moratorium on foreclosures. During this period, local governments should establish foreclosure mediation programs, like those in Philadelphia, PA and Providence, RI. Under voluntary mediation programs, homeowners can choose to meet with their lender before a trained, neutral mediator to see if a way can be found to avoid foreclosure.

Foreclosure mediation can help homeowners and lenders find win-win solutions. By keeping the mortgage payments coming in and preserving the value of the home, loan modifications are often in the interest of the investor, as well as the homeowner. If the mediator concludes that no mutually agreeable solution can be worked out, then the foreclosure can proceed.

A foreclosure moratorium attached to voluntary mediation is the right and smart thing to do.
Swanstrom is the Des Lee Professor of Community Collaboration and Public Policy Administration at the University of Missouri-St. Louis. Krehmeyer is the President and CEO of Beyond Housing.
Copyright (C) 2010 by Missouri Forum. 10/10


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