Advocates: Homeowners need help

CAPITAL REGION — When HomeSave, a Capital Region coalition of nonprofit legal and housing groups, was founded in 2004, the goal was to educate homeowners about predatory lending and prevent them from signing high-interest loans they wouldn’t be able to repay.

More recently, the focus of HomeSave has shifted.

Today the group assists people struggling to make mortgage payments and in danger of losing their homes to foreclosure. Those numbers are continuing to climb and housing counselors say the problem is only going to get worse.

“We saw a drop in predatory practices and now we’re tackling the foreclosure issue,” said Susan Cotner, executive director of the Affordable Housing Partnership of the Capital Region.

Last week, Capital Region housing counselors criticized the $700 billion federal bailout bill of the financial industry, saying it fails to address the needs of homeowners while assisting the institutions that provided the dubious loans that caused the financial crisis.

The bailout bill, which the House passed Friday after defeating an earlier version of the legislation, would let the government buy bad mortgage-related securities and other devalued assets from troubled financial institutions. The bill directs the Treasury Department to “maximize assistance for homeowners” and write up monthly progress reports.

“If they don’t do something to stop the great number of foreclosures, there’s going to continue to be a problem,” said Kirsten Keefe, a senior attorney at the Empire Justice Center in Albany. She and other consumer advocates would like to see the government bail out the homeowners instead, reducing the interest rates on bad mortgages and setting up payment plans so that as many homeowners as possible remain in their homes.

“I don’t know why they wouldn’t want better performing loans,” Keefe continued. “If you can stabilize the foreclosure issue, the housing market will stabilize. The bottom line is that we need stability. Why don’t we just do loan modifications so that people can pay their mortgages? It’s beyond me, why we’re not doing that.”

“I don’t think the intent was ever to consider the individual homeowner,” said Tracy Petersen, housing counselor coordinator for the Affordable Housing Partnership. “It always amazes me when they come up with their quote-unquote solutions. As a taxpayer, I’m not happy at the thought that we’re going to buy up securities that are not worth anything in the hope that they’ll be worth something in the future.”

But there is some hope for homeowners because lenders have become more willing to modify high-interest loans as the crisis has worsened. “There’s some light at the end of the tunnel for people who have a stable income,” Petersen said. “The question is: Is that income enough? We’re telling people they may have to choose between what’s more important — paying their mortgage or paying their credit cards.”

Tight credit

Many Capital Region economists expressed support for the bailout bill last week, saying the infusion of cash would unfreeze the credit market. As panicked lenders tightened lending standards, it became increasingly difficult for businesses and individuals to obtain loans, even when they had good credit. The hope is that the bailout bill will make more money available for lending at lower interest rates.

Hany Shawky, a professor in the department of finance at the University at Albany, said he didn’t think it made sense to bail out the bad mortgages. “With the other approach, the government pays everybody’s mortgage and everybody becomes happy after that,” he said. “That’s too costly and it’s not getting to the core of the market.”

Paul Calhoun, the F. William Harder professor in the department of management and business at Skidmore College, said that ultimately homeowners would benefit from the bailout. Unlike the financial institutions, the government has the luxury of time — it can wait for the bad mortgages to become valuable again, and it’s likely that they will, he said.

“It’s very hard for an individual bank to renegotiate a mortgage in a way that will force it to take a loss,” he said. “Homeowners are going to be in a better position if the government is the ultimate arbiter.”

Robert Manning, the head of the Center for Consumer Financial Services at Rochester Institute of Technology, supports paying off delinquent mortgages. “We need to figure out a way to keep more people in their homes,” he said.

He proposed a debt relief program that would put people in payment plans based on how much they can pay. “The bailout bill doesn’t address what should be done with worthy debtors,” he said.

More foreclosures

The Center for Responsible Lending projects that almost 2.2 million subprime mortgage foreclosures will occur in late 2008 through the end of 2009, up from the organization’s original estimate of 1.1 million. As a result of the foreclosures, approximately 40.6 million nearby homes will suffer price declines and an overall decline in value of $352 billion, according to CRL. The report ranked New York fourth in the country for the number of foreclosures — 122,192 — expected to occur, behind Texas, Florida and California.

The Capital Region hasn’t been as hard-hit by bad mortgages as other parts of the state. In New York, Long Island has one of the highest numbers of subprime mortgages, which Keefe attributed to “very aggressive mortgage brokers near New York City who were peddling bad loans. . . . We haven’t had really aggressive mortgage brokers here. There’s more involvement in lending by community groups, [credit unions] and local banks.”

In contrast, many of the subprime mortgages were made by large, national mortgage lending companies such as New Century Financial Corporation, which filed for bankruptcy in 2007.

A report released last winter by the Federal Reserve Bank of New York in Buffalo showed that the 12303 ZIP code, which includes parts of Guilderland, Colonie, Rotterdam and Schenectady, had the most subprime mortgages of any Capital Region ZIP code: 310. Other areas with high numbers of subprime loans include the 12078 ZIP code of Gloversville and the 12010 ZIP code of Amsterdam.

Bni’s experience

At Better Neighborhoods, Inc. in Schenectady, the reasons homeowners default on their mortgages are varied. The agency is seeing a mix of people, many of whom are simply having trouble paying the bills due to a life-changing circumstance such as job loss, divorce or disability.

“We’re seeing people who say that the increasing cost of living is making it difficult to cover the mortgage,” said Ellie Pepper, assistant director of Better Neighborhoods. “We’re seeing a few people in subprime loans but not many. The people who are coming to our office are in fixed-rate, conventional mortgages.”

Cotner echoed this. “We’re still seeing quite a bit of changing life circumstances that are beyond people’s control,” she said. “Part of it is that people were maxed out, in terms of what they could afford, to begin with. It’s not necessarily because their interest rate just reset.”

But the dearth of subprime clients is hardly encouraging.

Earlier this year, the state Banking Department found that seven out of 10 seriously delinquent borrowers was still not on track for any loss mitigation procedures.

“They’re out there,” Pepper said of the subprime borrowers. “We expect to start seeing more of them.”

HomeSave has applied for a $100,000 grant from the state Banking Department that will enable the four housing counseling agencies in the Capital Region — Better Neighborhoods, TRIP Neighborworks Homeownership Center in Troy, the Affordable Housing Partnership in Albany and the Albany County Rural Housing Alliance — to hire additional staff to counsel homeowners in foreclosure. The housing counseling agencies are all members of HomeSave, as is Empire Justice Center, the Capital District Community Loan Fund, First Niagara and a number of other local organizations.

Pepper said many of the people in subprime loans are the victims of predatory lending. “When someone is low-income and they’ve never owned a house before and maybe they come from a generation of renters and a banker or a Realtor says, ‘You can afford this,’ you believe it,” she said. “There are plenty of people who knew exactly what they were doing, but there are plenty of people who didn’t.”

Couple’s story

Pepper recalled counseling a couple who told their mortgage broker they did not want an adjustable rate mortgage and then, at closing, discovered that that’s exactly what they were signing on to. When they pointed this out, the mortgage broker said they could refinance out of it in three years. When the husband ended up on disability, the couple was unable to pay the mortgage.

“They can’t refinance because they’re in default and their credit score isn’t good enough for them to refinance,” she said. “Now their house isn’t worth as much as it was. They can’t sell it for what they bought it for.”

The amount of time it takes to get through the foreclosure process has steadily increased, which hampers Better Neighborhoods’ ability to take on more clients, Pepper said. In early 2007, it took between four and six months to complete the foreclosure process; now it takes between seven and ten months.

Housing counselors credited New York with being ahead of the curve in addressing the subprime mortgage problem.

In August, Gov. David Paterson signed a bill that is designed to encourage borrowers who are in default to seek financial counseling and makes it more difficult for lenders to force people from their homes. The law requires lenders to send pre-foreclosure notices to people who are at least 30 days late paying a subprime mortgage.