The Foreclosure Crisis

Today, the Senate Banking, Housing and Urban Affairs Committee will hear testimony “Examining Proposals to Mitigate Foreclosures and Restore Liquidity to the Mortgage Markets”.

On Monday, April 7th, the Committee met in Philadelphia, PA where Philadelphia Mayor, Michael Nutter, led the panel of witnesses discussing possible solutions to Predatory Lending and the Foreclosure Crisis. In his Statement (PDF), Mayor Nutter described the issues that Philadelphia is facing and some of the programs that the city is enacting to deal with the problems.

One such endeavor is the HERO (Home Equity Recovery Opportunity) Loan Program, which is designed to assist families that are not good candidates for refinancing. Refinancing is often a borrowers only hope to recover their home as costs and fees accrue.

Also, the Philadelphia Sheriff has instituted a moratorium on Sheriff Sales (of foreclosed properties) for the month of April, in hopes that this will give borrowers more time to work with lending companies.

This is a temporary “band-aid” – however, having “extra time” can make a big difference when going through a foreclosure.

I have witnessed foreclosure from the legal side of the process, having worked in the foreclosure department of a law firm when I first graduated from law school.

My experience was a few (okay, a few plus a couple) years ago and every state has a different system. In states that require a court judgement to affect sale, the process is very regimented. Once through the Complaint, Notice and Judgement stage, the Sheriff Sale is scheduled. Generally, up until the sale, the borrower has the opportunity to reconsile the debt. Obviously, the company’s goal is going to be to cover the balance of the loan along with costs and fees. But as the housing market cools and the “value” of loans decreases, it’s likely that the lenders are going to do what they can to get as much out of the property as they can.

Additional testimony from the April 7th hearing can be found on the Banking, Housing and Urban Affairs’ website.