Facing Foreclosure Help May Be Coming

November 5, 2007
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LANSING — State legislators on both sides of the aisle have introduced legislation they hope will stymie the high rate of foreclosures in Michigan, which has the dubious distinction of ranking fourth in the nation for foreclosures. The latest, and perhaps the most workable, is a proposal that would give the Michigan State Housing Development Authority, for the first time, the authorization to refinance mortgages for low-to-moderate income homeowners who are facing another hike in their adjustable-rate mortgage or for homeowners who may have missed, or are at risk of missing, a mortgage a payment.

Under a plan proposed by House Democrats and Gov. Jennifer Granholm, low-to-moderate income borrowers would be allowed to apply for a below-market, fixed-rate loan through MSHDA. MSHDA loans are financed through the sale of tax-exempt and taxable bonds to private investors.

MSHDA Spokeswoman Mary Lou Keenon said there are two programs under the plan and both would be available to residents with household incomes under $72,250 and home values of $216,750 or less, which are the usual qualifications for a MSHDA loan. One is the Adjustable Rate Mortgage Refinance Program for people saddled with high interest rate ARMs, and the other is the Rescue Refinance Program for people who have a delinquency on their mortgage and are at risk of losing their home. Keenon said the latter program is not for people who are in arrears with mortgage payments, however. Some people are already too far into delinquency, she said, and by the time the legislation passes — if it passes — there will likely be others in the same situation. 

Since its establishment in 1966, MSHDA has never been allowed to refinance mortgages. Keenon said MSHDA projects there will be 83,000 home foreclosures in Michigan by the end of this year.

“We will counsel and help everyone we can. Unfortunately, this is not going to help all 83,000 households, but it’s certainly a start at tackling a very big issue in Michigan,” Keenon remarked. “We’re not only trying to help people who have already fallen into this morass, but we’re also trying to prevent foreclosures in the future by encouraging people to look at a MSHDA loan as opposed to being lured into a subprime ARM mortgage.”

More information, as well as assistance and access to highly trained counselors, is available at www.michigan.gov/mshda or by calling  (866) 946-7432. 

The MSHDA refinancing proposal piggybacks on a Democratic House legislative package announced this summer called the Michigan Home Loan Protection Act, which its backers say would ban predatory lending practices from the subprime market, such as making loans without requiring that borrowers prove their ability to repay the loan.

The act would prohibit lenders from charging excessive late fees and fees for a payoff statement. It would prohibit prepayment penalties, prohibit the financing of any points and fees that hide the true cost of the loan, and prohibit home refinancing unless there is a tangible net benefit to the borrower. The act would further require “vulnerable” borrowers to get independent counseling, and would, purportedly, protect consumers from being steered toward high-cost loans when they actually qualify for a traditional loan.  

A few weeks ago, the Business Journal asked local mortgage experts their opinion of the Michigan Home Loan Protection Act. The consensus was that provisions of the act would be nearly impossible to enforce. Putting laws on the books that can’t be enforced just lets unethical people continue what they’re doing — unless they’re actually caught, they said.

Meanwhile, Senate Republicans have introduced reform legislation that would require individual mortgage loan officers to register with the state’s Office of Financial and Insurance Services. The Michigan Loan Officer Registration proposal would address some of the problems in the mortgage industry by preventing “bad actors” from operating in Michigan, said the bill’s sponsor, Sen. Randy Richardville, R-Monroe. Requiring that loan officers become registered, he said, “is a common sense approach” to a real problem because it seeks to ensure responsibility through accountability. The legislation would:

  • Create a seven-member Mortgage Industry Advisory Board.

  • Prohibit a mortgage broker or lender from paying a commission to unregistered loan officers.

  • Establish educational requirements for becoming a registered loan officer.

  • Develop standards for the registration renewal process.

  • Require employers to conduct a criminal records check on mortgage loan officers.

  • Specify prohibited loan officer conduct and set penalties for violations.

The Michigan Mortgage Brokers Association, Michigan Mortgage Lenders Association and the Office of Financial Insurance Services took part in crafting the legislation. If the bill is enacted, OFIS would be responsible for regulating loan officers.

Pava Leyrer, president of Heritage National Mortgage Corp. and 2007 president of MMBA, gave testimony before the Senate Banking and Financing Committee recently on the registration bill. She said the legislation would create a barrier to entry because it would call for criminal background checks. Leyrer noted that when Ohio enacted a similar bill requiring criminal background checks, about 15 percent of those who tried to register as loan officers were immediately dropped because they were found to be felons.

Under the bill, loan officers would have to submit to a background check, fill out an application, take 24-hours of classroom instruction and pass a test in order to become registered to work in the industry in Michigan, Leyrer said. Each year thereafter, they would have to take six hours of continuing education. She believes the registration process would help weed out the “bad actors.” The chairman of the banking a finance committee said last week that the committee is going to move quickly on the bill.

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