Foreclosures draw closer scrutiny as they continue to climb

December 12, 2010
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LANSING — Foreclosure numbers are often used to show how poor an economy is, but stopping foreclosures, even temporarily, could undo the Michigan housing market’s progress, some experts say.

Other experts, however, are calling for a halt in foreclosure practices while they are under scrutiny.

The state Mortgage Lenders Association and the Association of Realtors say that blocking or slowing foreclosures would make the housing situation worse for residents. It would exacerbate problems that Michigan is already experiencing with falling home values and empty homes because lenders could no longer afford to make loans, said Murray Brown, legislative consultant for the Mortgage Lenders, based in Shelby Township.

“The supply of mortgage credit would dry up” if foreclosures were officially suspended, Brown said.

“Unless you are a portfolio lender, you wouldn’t have the available supply of funds from the markets to make the loans,” Brown said, and lenders would be unwilling to give mortgages during a moratorium.

“We would not support any kind of foreclosure moratorium,” said Brad Ward, director of public policy and legal affairs for the Association of Realtors.

“I think it would definitely halt the recovery that we are just starting to see in Michigan,” he said.

Unit sales are up and prices are just starting to stabilize, Ward said. Those developments influence a lender’s willingness to loan money.

Attorney Gen. Mike Cox, and other state attorneys general are currently investigating mortgage foreclosure processes, said Joy Yearout of his communications office.

As a result of that inquiry, Gov. Jennifer Granholm has called for lenders “to temporarily suspend foreclosures until the fraudulent activity has been investigated,” said Katie Carey of the governor’s communication office.

Brown said, “The improprieties that have been highlighted nationally have not been highlighted in Michigan because Michigan has a different system of foreclosure.”

Michigan has a six-month redemption period, which most other states don’t have, Brown said. That gives homeowners time to sell their house or get financial assistance to keep their property.

“We did pass legislation that imposed a pause in the process of 90 days to allow people to meet with their lender to work out a modification of the loan,” Brown said.

The goal of the legislation was to keep people in their homes, Brown said. It had some success, but not as much as lenders would have liked.

“Many people did not opt to request mediation with their lender,” he said. “When they did opt to meet with their lender, they did not supply the proper documentation to make it possible for the lender to modify the loan.”

Carey said new legislation has been proposed that would stop foreclosures unless the lender participates in the Michigan State Housing Development Authority’s Help for Hardest Hit program.

The state program can distribute up to about $500 million in federal funds to help homeowners and is projected to benefit more than 49,000 households with payment assistance and principle reductions, MSHDA said. Eligible homeowners must be receiving unemployment compensation or unable to afford their payments because of reduced income.

However, the Legislature won’t act on the proposal this year, said Callie Collins, chief of staff for Sen. Tupac Hunter, D-Detroit, one of the lead sponsors.

The Mortgage Lenders’ Brown said many states have a process where lenders and borrowers try to work something out to avoid foreclosure. In many cases the lender doesn’t want the home in foreclosure because that means bigger losses, he added.

That approach would be more effective than the legislation because borrowers would better understand their options and the lender’s position, Brown said.

“The foreclosure process is very costly for the lender and the homeowner,” he added.

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