Groups Call For Forbearance For Troubled Mortgages

A coalition of housing activists and civil rights groups has called for a six month moratorium on foreclosures to provide time for financially troubled homeowners with time to solve their problems.

The Leadership Council on Civil Rights, The Center for Responsible Lending, The National Council of LaRaza, and the NAACP called on lenders to voluntarily adopt such a moratorium in the wake of reports of increasing mortgage delinquencies and the bankruptcies and/or failure of some 30 subprime lenders.

At a Washington, DC news conference on April 4, spokespersons for several of the organizations predicted a wave of foreclosures would soon result from what they called "reckless and unaffordable loans." They laid the blame for the current situation at the feet of lenders, real estate agents, and the investors who purchased the subprime loans.

Josh Nassar of the Center for Responsible Lending blamed the loans' terms for the rising foreclosure threat and said that some people have faced a payment shock of over 30 percent when their rates reset. The Center estimated that about 20 percent of the sub-prime loans made in the past two years will go into default.

The civil rights groups are involved in this coalition because a large number of these loans are held by African-American and Latino borrowers. The advocates cited 2005 data indicating that 50 percent of all mortgages held by African-Americans and 40 percent held by Latino borrowers were sub-prime compared to only 19 percent of those given to white borrowers.

The group also asked lenders to help those affected by problems by refinancing them into 30-year fixed-rate loans.

While the press conference was called to ask lenders to adopt a moratorium and as yet none have done so, the speakers did not rule out stronger action. Among those discussed were lawsuits against lenders, real estate agents, and investors under federal antidiscrimination housing law, suits under consumer laws, congressional pressure, and grass-roots advocacy.

The Mortgage Bankers Association (MBA) and the American Bankers Association (ABA) were quick to respond to the group. The Associated Press quoted James Ballentine, director of housing and economic development of the ABA as saying the call for a six-month moratorium was an "overreaction to problems in the mortgage market." Ballentine said there are many reasons that borrowers default that don't necessarily mean that a lender took advantage of them. He specifically cited medical bills and the loss of a job.

The MBA, in a written statement from John M. Robbins, CMB, its chairman, said, "Nobody wins when a home goes into foreclosure. Consumers lose their homes and suffer a ding on their credit rating, and lenders and investors lose significant amounts of money."

He said that the industry has developed a number of loss mitigation tools such as forbearance and payment plans to help those who are in danger of foreclosure and lenders are already using these to help borrowers stay in their homes.

That is why, Robbins said, we "applaud Freddie Mac and others who have opened the door to creating special 'rescue products' to help those borrowers. MBA is working with its members and other stakeholders to develop these new products as effective tools to keep people in their homes."

"Forbearance is certainly an effective tool in some cases, but it is not a sustainable long term solution. If we have learned one thing coming out of the Katrina and Rita disasters, it is that blanket policies rarely have the desired blanket effects. Each loan is an individual transaction and situation, one which needs to be addressed individually between the lender and the borrower."