Patrick plans to aid subprime loan victims

Toussaint Losier

In an effort to provide help for homeowners facing foreclosures in the ongoing subprime loan crisis, Gov. Deval Patrick unveiled last week a new $250 million home mortgage assistance program that would provide counseling as well as fixed rate financing.

Rather than using taxpayer money, Patrick said funding for the program will mostly come from Fannie Mae, the federally sponsored housing corporation that provides mortgage assistance to low- and middle-income homeowners. Fannie Mae will provide roughly $190 million, while MassHousing, the state’s affordable housing bank, will supply $60 million.

“For many Massachusetts homeowners, the subprime crisis has turned the American dream of homeownership into a nightmare,” Patrick said in a prepared statement. “Too many of our residents were put into loans they couldn’t afford. This innovative mortgage loan program will give some of our most vulnerable citizens a fighting chance to keep their homes.”

Subprime or “second chance” lending targets borrowers who cannot qualify for lower interest rates because of their credit history. These sorts of mortgages often begin with a low initial interest rate that resets after two years to a higher adjustable rate.

A recent report by the Center for Responsible Lending predicted that 1 in 5 subprime loans will end in foreclosure.

According to the Association of Community Organizations for Reform Now (ACORN), the nation’s housing crisis includes as many as 2.2 million homes at risk of foreclosure following a decade of subprime lending the group categorized as “reckless.” Last year, lenders filed 1.2 million foreclosures against homeowners behind on their mortgages — 300,000 more than the previous year.

This year, about 1.5 million foreclosure filings are expected.

In 2006, there were 15,887 foreclosures filed in Massachusetts, the 25th highest amount in the country. So far this year, Suffolk County has seen an increase in the number of homeowners who lenders have actually foreclosed.

A study by ACORN found that there have been 263 foreclosures during the first five months of 2007, compared to only 103 in 2006. These foreclosures have largely been concentrated in Dorchester and Roxbury.

State officials were careful to describe this new program as only one part of a multifaceted solution. Patrick’s new program is geared toward those with modest income burdened by unaffordable loans.

Borrowers are eligible if they are no more than 60 days behind on their mortgage payments and have a credit scores no lower than 560. Late mortgage payments must be a result of a resetting of homeowners’ interest rates, not their own actions, like refinancing.

Under the program, housing agencies are expected to negotiate on behalf of each homeowner who qualifies and press lenders to restructure their loan rather than pursue a foreclosure, a costly process for both lenders and borrowers.

Yet in spite of this new program’s benefits, it is unclear how many will actually qualify.

Mattapan resident Deborah Nicholas, 48, and her husband have used up nearly all their income and savings to pay their mortgage. But when they prepared to refinance their mortgage, they found that their lender had overestimated their income on paper and their broker had added additional charges to their loan. He had also appraised their home for more than its actual value.

“We will definitely go into foreclosure,” said Nicholas. “We cannot refinance and [the rate is] going to adjust. We have been doing it for the six months and we are paying all the time. I cannot continue working 80 hours a week.”

After learning of her inaccurate paperwork, Nicholas began working on ACORN’s predatory lending campaign. Though the organization has not been able to help her case, she has remained committed to helping others who have been victims of predatory lenders.

“[Lenders] take advantage of people who cannot read well, cannot speak well,” Nicholas said.

According to Chris Leonard, campaign director for ACORN’s Boston chapter, many borrowers encouraged by subprime lenders to refinance find themselves in situations like the one Nicholas faces.

“Governor Patrick seems to be proactive in taking on this problem of mortgage foreclosures, but a lot of people might not qualify for this [program] because they have refinanced,” said Leonard. “The lenders always push people to do this, even to where you see it written into mortgages and people wondering why they got a check for $10,000.”

While Massachusetts may be taking the lead on mortgage assistance, Leonard pointed out that it remains one of only a handful of states that does not require a court hearing prior to the finalization of a foreclosure. Nationally, ACORN is calling for the Federal Reserve to increase its regulation of mortgages.

“It’s wonderful to provide assistance to families that are in crisis, but we need to stem the tide through regulation,” explained Caroline Murray, director of the Anti-Displacement Project, based in Springfield, Mass. “We need to stop lenders that are engaging in these practices before they trap more families.”

Murray said that the city of Springfield has one of the highest rates of foreclosure in the state. Because of the city’s aging housing stock, predatory lending affects families looking to renovate older homes along with new homeowners.

“Out here, you will see lenders come into a neighborhood and go door-knocking for customers,” said Murray.

Steve Meacham, a tenant organizer with City Life/Vida Urbana, believes that new legislation needs to protect both homeowners and tenants. According to Meacham, up to 60 percent of recently foreclosed properties are not owner-occupied buildings, and he wants to see some protection put in place for tenants when an absentee landlord seeks to displace them because of foreclosure.

“What we need is a public program that assists nonprofits that want to buy buildings that have been foreclosed on, particularly affordable buildings where tenants are organizing to resist displacement,” said Meacham. “Then you can get a local community development corporation (CDC) with government money to buy the building at an affordable price, rather than having everyone get kicked out when the building gets auctioned off. People can stay in their homes and the CDC can turn it into an affordable building, limited equity condos or cooperative housing.”