How to Stop the Oncoming Florida Foreclosure Boom

The Palm Beach Post says Gov. Charlie Crist is making good on his campaign promises to save the Florida homeowner.

The Legislature passed legislation to stop crazy increases in homeowners’ insurance, and followed that up with mandates freezing insurance rates, barring the cancellation of existing policies and calling another special session to address property tax relief.

Yet, one crucial ingredient of a comprehensive plan to save the Florida housing market still is missing and not being discussed. Foreclosures in Florida are at their highest rates in years.

Many homeowners and investors are victims of “exotic” Florida mortgages, which allowed them to purchase properties with little money down and with what seemed like small payments.

Spoiled by historically low Florida mortgage rates, many of us entered into adjustable-rate mortgages several years ago that are now “adjusting” into extremely high payments. If homeowners and investors can’t pay their mortgages, it doesn’t matter if they can pay their insurance or taxes.

Most Florida home loans once were backed by the federal government, which, in turn, allowed significant time before a house could be seized. Today’s home mortgages do not have such constraints. Florida home mortgage lenders can foreclose in as little as two months.

Since it takes much longer to sell a home in a depressed market, and most of these people have lost equity in their homes due to recent depreciation of values and negative amortization, many people in foreclosure have no alternative but to go into bankruptcy.

High prepayment penalties make a Florida mortgage refinance a difficult task. Especially hard hit by this are first-time homeowners, large families and lower middle-income seniors, who live from paycheck to paycheck.

Those stuck in such Florida mortgages, and experiencing recent increases in their insurance and tax payments, find themselves unable to afford to refinance to try to lower their monthly payments.

In this crisis, the governor and the Legislature need to slow down the foreclosure process, eliminate or limit prepayment penalties and protect the consumer by slowing down the real estate closing process.

These steps need to be taken:

– Declare a one-year moratorium. This would cease foreclosure proceedings for 12 months in order to allow people more time to refinance or work out other arrangements. In this, the governor and legislators again would have to stand up to a powerful lobby.

– Prohibit prepayment penalties. A number of states already don’t allow them. Many believe that a prepayment penalty is predatory in nature. In the alternative, mandate no prepayments for borrowers in foreclosure. The same goes for seniors, soldiers and veterans, government workers, and couples with combined incomes below $50,000.

– Right of Rescission. Florida law mandates a three-day right of rescission - letting the customer cancel the deal - only for refinances on homesteaded residences. Such protection should be extended to all types of refinances, including purchases and second homes.

This would slow down the entire purchase process and allow people to examine the Florida mortgage papers they receive at closing in greater detail.

– Explanation of Terms and Conditions. Many homeowners in trouble with their mortgages did not understand the product they were purchasing. Propose that a new “Terms/Conditions Sheet” be provided stating the amount of the mortgage, the interest rate, the escrow amounts.

And most importantly, the monthly payment, the first payment date, the term of the Florida mortgage, the type of mortgage it is and the actual interest rate. It would have to be signed off by the borrowers after a specific review with a Florida mortgage broker.

The closing would not take place for 24 hours until after receipt of the borrower’s confirmation. This would guarantee that borrowers would know what Florida mortgage they are getting.