HUD Highlights Unintended Consequences of Robo-Signings. Solution Needed ASAP
The following content was published on HUD's blog by Secretary Shaun Donovan....
How We Can Really Help Families
The recent revelations about foreclosure processing -- that some banks may be repossessing the homes of families improperly -- has rightly outraged the American people. The notion that many of the very same institutions that helped cause this housing crisis may well be making it worse is not only frustrating -- it's shameful.
No one should lose their home as a result of a bank mistake. No one. That is why the Obama Administration has a comprehensive review of the situation underway and will respond with the full force of the law where problems are found. The Financial Fraud Enforcement Task Force that President Obama established last November has made this issue priority number one. Bringing together more than 20 federal agencies, 94 US Attorney's Offices and dozens of state and local partners to form the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud, the Task Force is examining this issue and the Attorney General has said publicly that if it finds any wrongdoing the members of the task force will take the appropriate action. The Federal Housing Administration and Federal Housing Finance Agency have launched reviews to make sure servicers are in full compliance with the law. The Office of the Comptroller of the Currency has directed seven of the nation's largest servicers to review their foreclosure processes, fix the processing problems and determine whether there is specific harm that has been caused in individual cases.
The message all these institutions are sending is the same: banks must follow the law -- and those that haven't should immediately fix what is wrong. Given the problems that have already been found and admitted to by some servicers, the Obama Administration fully supports the voluntary moratoria that are already in place and others should they be deemed necessary. Some have suggested, however, that all foreclosures in every state, under every servicer, should be stopped. But a national, blanket moratorium on all foreclosure sales would do far more harm than good -- hurting homeowners and home-buyers alike at a time when foreclosed homes make up 25 percent of home sales.
For instance, in Cleveland, where there are over 18,000 vacant homes, lives Millie Davis who recently earned her Master's Degree in Urban Planning from Cleveland State University and just bought her first home - one that had fallen into foreclosure and sat abandoned for years. Had a blanket moratorium been in place, that sale would have fallen through -- not only deferring her dream of homeownership but leaving neighbors on the block to stand by and watch as their property values continue to plummet.Right now, families who have watched their home values decline over the last few years want nothing more than homebuyers like Millie to buy the vacant homes in their neighborhoods. These homeowners are at risk, too - and the best hope they have is for the "Foreclosed" signs in front of the vacant, abandoned properties on their block to come down, so that the value of their homes can start rising again.
And we've seen this happen in communities like Huber Heights, Ohio -- a suburb outside of Dayton -- where some blocks saw home values plummet by 30 percent due to neighboring homes going into foreclosure. It was only when those foreclosed homes started to sell again that home prices in that neighborhood began to stabilize -- and even increase in some instances.
Another unintended consequence of a blanket moratorium on foreclosure sales, even where problems haven't yet been found, is that it could cause servicers to take their eyes off the ball when it comes to helping at-risk homeowners stay in their homes well before their problems reach the crisis of a foreclosure. By the time the home gets to foreclosure, it's often too late to help families stay in their homes -- they may be too far behind or in some cases, they've already left the home. Banks need to provide more help, more people, more resources to those families facing a crisis long before they ever get to a foreclosure -- so more families can keep their homes. And where foreclosure is not avoidable, having been processed legally and appropriately, banks should help families transition to sustainable housing situations with dignity.
We've seen real progress in the housing market. Foreclosure starts are down by 30 percent from a year ago. In the last 18 months, 3.3 million families have received restructured mortgages with more affordable monthly payments, which is more than twice as many foreclosures that have been completed during that time. With vacant and abandoned homes more than three times as destructive to the values of neighboring homes as occupied homes that are just beginning the foreclosure process, a blanket moratorium would only slow down that progress. President Obama has said that we can't stop every foreclosure -- and he's right. But the more quickly we provide help to families -- whether it's to stay in their homes, to ensure they can buy new homes, or to help them to transition to affordable rental housing -- the sooner our neighborhoods will stabilize -- and the sooner our economy will recover.
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It's very clear that the Obama Administration doesn't support a 50 state foreclosure moratorium, but I haven't seen them offer up much in terms of a sustainable solution yet. The FHFA did supply loan servicers with guidance on dealing with foreclosure processing deficiencies, but they only went as far as saying "the servicer must work with counsel" to resolve any issues, leaving the crux of the mediation process to take place on a loan by loan basis.
In the end, borrowers have a case based on contract law. If banks want to move forward and resolve this issue, maybe they should try offering up a deal to borrowers?
How about we give the victims of "robosigning" another chance to stay in their home? Banks would modify the note and agree to give the homeowners a specific amount of months to catch up on missed payments, if they can't pay, the bank forecloses as usual sometime down the road. There will still be a delay in the disposition of bank REO assets and consequently the home price stabilization process, but at least we'd be moving forward. Seems like servicers are going to have to give these "victims" an incentive to overlook this technicality. You catch more flies with honey....
This is going to take some "out of the box" thinking from the Administration. The longer the problem stays on the front page, the worse it will be for the housing market. Unfortunately it's already happening...the bigger issues are taking a hold of headlines...