Patrick to press mortgage companies
Says lenders can help prevent foreclosures
Governor Deval Patrick plans to introduce an ambitious program today to assist Massachusetts communities in preventing foreclosures by pressing lenders to accept losses on their mortgages so that homeowners are able to sell their properties and pay off smaller loan balances.
The initiative would start with a pilot program in cities with the highest incidence of foreclosures, including Lawrence and Springfield, where delinquent borrowers with subprime mortgages are prevalent. Other cities being considered are Boston, Brockton, New Bedford, and Worcester.
"We're identifying where the maximum need is," said an administration official briefed on the plan, who did not want to be identified prior to the governor's official announcement. "We want to stabilize these neighborhoods, and we need the lenders to be part of the solution."
In one key part of the plan, the state would press lenders to agree to a "short sale" with homeowners late on their monthly payments. In a short sale, lenders accept less than the full value of the loan, so that the homeowner can sell the house at today's market price - typically less than he or she paid for it - and use the proceeds to pay off the smaller loan balance. Short sales are a way for borrowers to prevent foreclosure.
Further details of the governor's plan will be released later this week, administration sources said. But Patrick is expected to discuss it at hearings today sponsored by Representative Barney Frank, chairman of the House Financial Services Committee, at Roxbury Community College. The hearings will examine charges of discriminatory lending in the nation's subprime lending industry.
Mayor Thomas M. Menino will testify at the hearing that 75 percent of Boston's foreclosures are in four communities with large minority populations in Dorchester, Roxbury, Mattapan, and Hyde Park, said his spokeswoman, Dorothy Joyce.
The administration is trying to roll out the program as the number of subprime borrowers facing an increase in their monthly payments increases. Subprime mortgages became popular during the housing boom because they offered a below-market interest rate for the first two years of the loan. After that, the rate and the payments increase, often by hundreds of dollars a month.
Between now and the end of 2008, First American LoanPerformance, a California business research firm, estimated that about 35,000 Massachusetts homeowners are bracing for increases in their monthly payments.
"We want to very quickly get in front of those," another administration official said.
But Thomas Callahan, executive director of the Massachusetts Association for Affordable Housing, which provides mortgages to homebuyers with modest incomes, said the administration does not have leverage, legally, to force lenders to cooperate. He said most subprime lenders are out-of-state companies that are not regulated by the state. While Callahan supports the plan, it "is getting very limited cooperation from the lenders," he said.
Administration officials said that some lenders are participating. The program caps more than two months of talks between the state Department of Housing and Economic Development and some of the nation's largest lenders, including Wells Fargo amp; Co., Countrywide Financial Corp., Citi, J.P. Morgan Chase, and HSBC, the officials said. Charles Nilsen, a board member for the Massachusetts Mortgage Bankers Association, said lenders are wary of the administration's program. They already have a financial incentive to resolve problem loans, he said, because they do not want to bear the steep expense of a foreclosure. "We're fearful in industry if the government gets a little too heavy-handed," Nilsen said. Under the plan, lenders would have to respond quickly to borrowers who contact them because they cannot pay their mortgage. If a lender is unwilling or unable to reduce a customer's payments to make a loan affordable, it would immediately refer the borrower to housing counselors or to state lending programs, the officials said. In July, for example, the Massachusetts Housing Finance Agency said it would provide $250 million to refinance borrowers up to 60 days late on their mortgage payments who have credit scores of 560 or higher. But often subprime borrowers don't qualify, because their credit scores plunge as they fall behind on their payments. The administration said lenders should refer borrowers to MassHousing before that happens. The Department of Housing also would link delinquent borrowers with prospective buyers interested in a short sale. They could do so through local housing groups that provide mortgage assistance to homebuyers with modest incomes, of the officials said. Juan Ortega, a real estate agent in Lawrence, said he arranged some short sales in his city, including one house that sold for $100,000 less than its value at the market peak. "There are plenty of buyers who want to buy those properties," he said. Kimberly Blanton can be reached at blanton@globe.com. 