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Details Expected on Foreclosure Plan

While they continue their work helping families facing foreclosure, housing counselors are awaiting more details about the Obama administration’s new foreclosure prevention program.

“People are definitely asking how the new housing policy will effect them,” said Andre Gaither, director of the South Chicago office of Neighborhood Housing Services. “At this point the information we have is sketchy.” More details about the plan will be released March 4.

But anyone facing trouble with their mortgage will benefit from seeing a certified housing counselor, who can negotiate with a lender to make sure a mortgage workout is affordable, he said.

Studies have shown that most homeowners facing foreclosure seek no help at all; many of the rest deal directly with their mortgage servicers, often ending up with resolutions that actually increase monthly payments.

“They really need to come to us,” said Gaither. “We’re working for them.”

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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.)

Mortgage Counseling Law Defended

Lenders who refuse to operate in the pilot area for a new state program which tracks mortgage fraud and provides consumer counseling could be illegally redlining, said State Senator Jacqueline Collins (D-16), defending the controversial program at a recent community meeting.

“If any lenders are pulling out, they are the ones who are redlining, and we need to prosecute them,” said Collins, chair of the Senate Financial Institutions Committee and a sponsor of the Predatory Lending Database Pilot Program Act, also known as HB4050.

The bill establishes a data base for all mortgage loans in a ten-zip-code pilot area on the Southwest Side and requires mortgage counseling for borrowers whose credit rating or loan terms indicate vulnerability to predatory lending.

Lenders Pull Out

A list of about two dozen lenders said to have suspended or limited lending in the area was circulated to members by the Illinois Association of Mortgage Brokers in September. It was based on written confirmations from each company, said IAMB executive director Marve Stockert. Lenders are concerned the new requirements have the potential to complicate title and lien issues, he said.

“Nobody is saying they aren’t going to lend in the area ever again,” he said. “They’re taking a wait-and-see attitude.”

Stockert echoes the observation of many HB4050 supporters that “there’s a lot of misinformation” circulating about the law. One example: “They’re saying people can’t get loans, and that’s not true.”

Indeed, the second of two lawsuits currently challenging HB4050 (filed November 15 by attorney David Richardson) has three plaintiffs who claim they were unable to obtain mortgage loans as a direct result of the law.

‘Loans Being Made’

Southwest Reach Center, one of a dozen counseling services taking referrals in the pilot area, has had 100 transaction reviews under the program in its first two months, said director Livia Villarreal. “That’s 100 people who have secured financing,” she adds.

“We are getting calls every day,” said Mike Reardon of Neighborhood Housing Service of Chicago Lawn and Gage Park. “Loans are being made and homes are being sold.”

Some 145 banks and mortgage companies have financed loans in the pilot area in the first two months of the program, said Geoff Smith of the Woodstock Institute.

‘Legislative Redlining’

At several heated community forums, the major objection to the new program is the predominantly minority composition of the population of the pilot area. Felicia Stovall, an Englewood community activist with the Coalition to Rescind HB4050, calls it “legislative redlining.” And both lawsuits charge the program discriminates against African Americans and Hispanics in its choice of pilot area.

Collins said she initially pressed for a county or statewide program but was blocked by the real estate lobby. “The people who keep saying it’s discriminatory are the same ones that fought us when we wanted to make it statewide,” she said.

The final legislation left the choice of a pilot area up to the Illinois Department of Financial and Professional Regulation, which is charged with implementing the law, and directed it to include areas with higher rates of predatory loans and home foreclosures.

That requirement skewed it toward Black and Latino communities, where historical redlining has allowed predatory lenders to move in, Smith said. Minorities are steered into high-cost, high-risk mortgages – even when they have credit ratings that would qualify them for prime loans – at much higher rates than whites, he said. The pilot area has a home foreclosure rate nearly twice the Cook County average, he said.

“This bill doesn’t target minorities,” said McDowell of SWOP, which was a major proponent of HB4050. “The predatory lenders have been the ones targetting the minority community for years.”

SWOP pushed to have its neighborhood included in the pilot area, as did several of the bill’s legislative sponsors, according to McDowell. The Southwest Side has been hard hit by predatory lending and is on pace to see over 1800 foreclosures initiated by the end of the year, he said.

Other community concerns include electronic information transferral and government data collection, but these are no different than existing mortgage brokerage communications with lenders or the information given on tax returns, McDowell said.

Counseling and Enforcement

The counseling sessions required by the program focus on ensuring that purchasers understand the mortgage product they are getting and know their options, Villarreal said.

“Sometimes the mortgage broker has done a good job and [consumers] know exactly what they’re getting,” she said. “In other cases it’s totally different than what they thought they were getting.”

In particular, consumers too often think they are getting fixed-rate mortgages when they aren’t, and their interest payments will be subject to annual increases, she said

“A lion’s share of the foreclosure cases we’ve seen involved people who didn’t understand what mortgage product they bought,” said Jim Capraro of Greater Southwest Development Corp., which cosponsors the Reach Center with the Instituto Progreso Latino.

Another purpose of the program is to establish a data base to track all mortgage loans in the pilot area, in order to enable regulators and law enforcement to crack down on violators. Fraudulent loans are often hidden in the secondary mortgage market, McDowell said, and predatory lenders often change affiliations and tactics.

Counselors can flag loans for possible fraud, said program administrator Philip Dalmage of IDFPR, who said the department is exploring a joint task force with the Attorney General’s office to investigate cases of suspected fraud. “Enforcement is a big priority for the department,” Dalmage said.

In response to the controversy, IDFPR is holding a public hearing on HB4050 and proposals to amend it next Monday, November 27, at 1 p.m. on the concourse of the Thompson Center, Randolph and Clark. People wishing to testify are asked to submit witness cards and written testimony, said Susan Hofer.

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