Lenders Focus on Florida Refinance, Foreclosure Assistance Options
As we’ve been reporting for a couple weeks now, mortgage lenders across the country and within the Florida housing market are reacting to the troubles caused by subprime lending.
Impelled by financial and political pressures to try to curtail foreclosures, lenders are taking action on several fronts to help borrowers Florida refinance and avoid defaults. Let’s review a few:
• Fannie Mae, America’s leading mortgage lender, says it plans to help as many as 1.5 million “subprime” borrowers – people with low credit ratings – refinance out of high-interest loans.
• Freddie Mac is creating new products to make homes more affordable to buyers with poor credit. Freddie Mac doesn’t make loans directly, but pledges to buy as much as $20 billion worth of these national and Florida mortgages from participating lenders.
• Washington Mutual, another giant lender, says it will refinance $2 billion in subprime loans, helping borrowers avoid foreclosure. The new loans will come with below-market interest rates.
• Some finance companies are partnering with nonprofit organizations that act as advocates for at-risk borrowers.
• In addition to efforts by specific companies, the Mortgage Bankers Association announced a foreclosure-prevention campaign in partnership with the nonprofit group NeighborWorks America. They will link homeowners to a free counseling hotline (888-995-HOPE) provided by the Homeownership Preservation Foundation, boost the capacity for homeownership counseling within NeighborWorks, and conduct a national ad campaign for homeowners in financial distress.
All of this represents significant relief, but the magnitude of the problem is large - and growing.
“We’re struggling to provide help” to troubled borrowers, says Robert Pulster, who heads a Boston nonprofit group called Ensuring Stability through Action in our Community. “We’re seeing double the problem that we were seeing last year.”
The Florida home mortgage loan lenders themselves are careful not to overstate what the new projects can achieve. “While these efforts will help cushion the expected rise in foreclosures, we need to be clear that these offerings are not a panacea,” said Richard Syron, chief executive of Freddie Mac, as he unveiled the new products at a congressional hearing April 17.
Even when the economy and the housing market are strong, some borrowers run into financial difficulty due to events such as job loss, divorce, or illness.
Over the past year, two other factors have driven the rise in past-due loans and foreclosure filings.
One is known as “payment shock,” when adjustable-rate loans reset sharply upward. Lenders in recent years failed to consider whether the borrowers will be able to afford their loans once initial “teaser” Florida mortgage rates adjust, critics charge.
The other is simply that a decade-long housing boom stalled out. Some who bought homes near the market peak – often with no down payment – owe more than the house is now worth. So selling it offers no sure escape route from foreclosure.
But foreclosure is costly for lenders, chewing up tens of thousands of dollars in missing loan payments, home-sale expenses, and property maintenance. If foreclosures are concentrated in a community and drag down home values, that’s bad for lenders’ business prospects.
Politicians have been prodding lenders to help at-risk homeowners. In congressional hearings, Democrats have bashed the Florida mortgage industry for helping to create the problem. Nonprofit organizations have added to the pressure.
