Lenders balk at Patrick foreclosure program

Governor Deval Patrick's foreclosure-prevention program, which he unveiled yesterday, has so far failed to win broad support from mortgage lenders.

The plan would help homeowners who cannot afford their mortgage payments to keep their houses or, failing that, prevent foreclosure by letting them sell their properties before a lender seizes them. Under the plan, the state would provide counseling or financial assistance to homeowners and recruit neighborhood organizations to work with homeowners and lenders to resolve delinquent mortgages in danger of foreclosure. A pilot program will target six cities with neighborhoods hit especially hard by foreclosures: Boston, Brockton, Lawrence, New Bedford, Springfield, and Worcester.

The Patrick administration in recent weeks has tried to pressure subprime lenders, whose mortgages are fueling the foreclosure crisis, to agree to provide financial assistance for financially distressed homeowners unable to pay sharply rising monthly payments. Subprime mortgages, which peaked in 2005 and 2006, were given to buyers with poor credit who could not qualify for a traditional mortgage.

But lenders have balked at the part of the administration's plan that calls for them to let customers sell their homes at the lower prices of the current real estate market and pay off a reduced mortgage balance. In such cases - known as short sales - lenders would take a loss on the loan. The administration also asked subprime lenders to pay $5,000 for each house they foreclose on. The money would pay the expenses of moving the occupants to a rental property.

Kevin Cuff, director of the Massachusetts Mortgage Bankers Association, said the Patrick administration has not spelled out the circumstances under which lenders would be required to provide such assistance to homeowners. Agreeing to a "blanket policy" for short sales or transition assistance "would be an imprudent business decision," he said.

So far, just two lenders - Option One Mortgage Corp., a subprime lender, and the Massachusetts Credit Union League - have said they will cooperate with the governor's plan. Dan Crane, director of the state's Office of Consumer Affairs and Business Regulation, said the administration is still negotiating with other lenders.

Jim Blake, president of Harbor-One Credit Union in Brockton, a league member, said subprime lenders "haven't recognized their full responsibility in this issue. It's important that every bit of influence be placed upon them to participate in the solution." Credit unions were not major subprime lenders.

The goals of Patrick's plan are "keeping more people in their homes and stabilizing neighborhoods," Crane said.

Home buyer counseling and negotiation with lenders on behalf of homeowners are also central to the plan. The state said NeighborWorks America, a counseling agency created by Congress in the 1970s, would be the "single point of contact" for homeowners. NeighborWorks' counselors - who can be contacted at 1-888-995-4673 - will assist homeowners or refer them to counselors or financing in Massachusetts, said Chris Harper-Fahey of NeighborWorks.

To prevent foreclosure, it is critical that homeowners seek help as early as possible, she said. "Nothing is worse than doing nothing," Harper-Fahey said.

Separately, legislation aimed at reducing foreclosures passed the state House of Representatives yesterday, 148 to 3. The bill requires the state to audit lenders and grade their performance in serving communities where they operate. It charges mortgage brokers a $500 annual licensing fee, with proceeds going toward counseling for first-time home buyers. The bill must be reconciled with similar but broader legislation the Senate passed in July.

Kimberly Blanton can be reached at blanton@globe.com. Binyamin Appelbaum of the Globe staff contributed to this report.