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Report: Mortgage Counseling Needed

With the subprime mortgage industry reeling from rising foreclosures – and mortgage rescue fraud a growing problem – a new study is expected to show the continuing relevance of a controversial state law requiring outside review of high-cost and high-risk mortgage loans.

HB 4050, requiring reviews by nonprofit counseling agencies of high-risk loans, was suspended by Governor Blagojevich in January, four months after it was implemented as a pilot program in ten Southwest Side zip codes. Last week the state proposed new rules for the program, expanding the pilot area to all of Cook County; a 45-day comment period is now in effect.

While mortgage brokers criticized the program for inhibiting home sales, a large majority of the transactions reviewed under HB 4050 were for refinancing mortgages, not home purchases, according to Livia Villarreal of Southwest Reach Center, a nonprofit housing counseling agency.

About half of the loans reviewed were found to be unaffordable based on the borrower’s debt-to-income ratio, she said, and many borrowers did not fully understand the terms of their loans.

Bob Palmer of Housing Action Illinois said a report on data collected by counseling agencies under HB 4050 would be released next week. Among the concerns raised will be ensuring that counseling agencies have the capacity in place to handle the increased volume of mortgage reviews expected with the expanded pilot program, he said.

According to recent reports, refinancing rates are increasing as subprime borrowers face rising rates and scramble to avoid default and foreclosure.

Foreclosures often come after troubled homeowners have refinanced their mortgages one or more times, said David McDowell of the South West Organizing Project.

A Woodstock Institute report this week found that foreclosures increased last year by 36 percent in the Chicago area, driven in part by “complicated and risky products combined with loose mortgage underwriting standards that often include no documentation of borrower income,” according to Geoff Smith.

Rising foreclosure rates have also meant rising mortgage rescue fraud. Homeowners should be wary of mortgage rescuers who promise to save homeowners from foreclosure and instead strip homes of equity, observers say. “We advise people not to sign a deed to their home without checking with a lawyer,” said Bruce Gottschall, executive director of Neighborhood Housing Service. “And if it sounds too good to be true, it probably is.”

NHS and other nonprofit housing counseling agencies offer workshops on avoiding foreclosure, provide individual counseling, and will negotiate workouts with lenders. NHS also offers fixed-rate refinance loans to help homeowners who are at risk of foreclosure. (Information is at 1-800-882-0882.)

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Category: foreclosures, housing

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