Forestalling foreclosures

May 14, 2007

For homeowners floundering under burdensomely high subprime mortgage payments, help is on the way - but it's unlikely to meet the demand or head off the 2.2 million more foreclosures expected in the coming two years.

Since Congress began looking into skyrocketing foreclosures tied to the subprime lending industry, federally chartered financiers Freddie Mac and Fannie Mae have pledged to provide loans with more reasonable terms, and at least two national banks, Citigroup Inc. and Bank of America Corp., have promised $1 billion in mortgage refinancing to help borrowers in trouble. But what look to be big bailout plans may not be enough to keep houses lost in foreclosures from blighting neighborhoods. States need to step up as well, and some are.

Maryland, with one of the lowest foreclosure rates in the country, was out in front of the problem last June when it established its Lifeline Refinance, a program that will provide $20 million in relief for borrowers falling behind on loans with adjustable rates and balloon payments. Trouble is, no one is taking advantage of it; fewer than a dozen people have applied, even though the program can serve 100. The state must get the word out and be ready to meet the need.

Ohio, which is leading the nation in home foreclosures, has put together a $100 million package to refinance loans. Massachusetts Gov. Deval Patrick was shamed into assisting homeowners who were facing foreclosure after they protested outside his office - Mr. Patrick once served as a director of one of the nation's biggest subprime lenders. He is talking about criminal prosecutions of predatory lenders and making certain misleading tactics a crime.

A faster way to forestall foreclosures is for homeowners at risk to call their lenders directly. A 2005 survey by Freddie Mac and Roper Public Affairs found then - before the subprime crisis hit - that 50 percent of homeowners in foreclosure never even bothered to contact their lender. Housing counseling groups also can intervene, but homeowners have to first make that call.

Until now, Sen. Christopher J. Dodd, a Connecticut Democrat and chairman of the Senate banking committee, has used persuasion to get some lenders to voluntarily lower interest rates for homeowners in trouble. But others are ready to introduce legislation that would require changes in the industry to ensure that borrowers can repay their loans.

More rigorous standards should be the norm, and the mortgage industry needs to better police itself and act more responsibly - because as foreclosures rise, calls for tougher regulations are sure to follow.

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