Foreclosure Crisis – Alert Indiana Swings Into Action

November 13th, 2007

Like any other State, Indiana is reeling under the clutches of foreclosure epidemic and the sufferings of Hoosiers are mounting. It is for this reason a legislative panel set up last summer has analyzed all the relevant factors and arrived at a consensus on a number of recommendations to be offered. On its part, Indiana Housing and Community Development Authority opened up a foreclosure prevention network.

Lt. Gov. Becky Skillman admitted that there are a lot of Hoosier home owners undergoing the ordeal of foreclosures and need immediate help to create awareness about the ways and means open to them to avoid foreclosures.

The U.S. nation is led by Indiana State in problems of high foreclosures linked to mortgage fraud. In this context it is alarming that 2.98 per cent of all loans are under foreclosure process in Indiana, as compared to the national average of 1.28 per cent as revealed by a study of Mortgage Bankers Association and is behind only Ohio State. Another study by The Center for Urban Policy and the Environment also reveals higher concentration of foreclosure activities in the urban areas and they are spreading up, during the period from 2002 to 2005.

The sub-prime mortgage lending Industry is blamed of extending loans to less-credit worthy people, whereby the sub-prime mortgage market has flourished manifold in U.S. but the defaults in loan repayment have also risen to record levels as a direct consequence of this. But the solace is unlike other States, Indiana’s high rate of foreclosures is not correlated with the sub-prime market alone.

With a view to arrest the trend in increased foreclosures in Indiana, the State has come forward to help the Hoosiers in this regard. The steps taken are launching a website www.877gethope.org and a hotline number 877-GET-HOPE, where the distressed home owners can get guidance, education and counseling on foreclosures freely.

In addition, there is also help coming from The Indiana Housing and Community Development Authority in starting a campaign titled “Don’t Let the Walls Foreclose in on You” and distribution of posters and brochures have commenced to encourage Hoosiers to seek help by visiting the website or calling the helpline.

Targeting the areas worst affected by increased foreclosures in the State, a media campaign is also expected to start outdoor advertisements, radio commercials and news paper advertisements to spread the message. The financial outlay of this program is expected to be approximately $1.2 million per year, of which $300,000 is contributed by the Housing Authority, $400,000 is offered by General Assembly and fund raising is planned for the balance money.

Even at the very beginning of sensing trouble, the home owners in distress are advised to make the call for help and in case the foreclosure process has already started, even then they may get help in minimizing the sufferings.

The recommendations of the Interim Study Committee on Mortgage Lending Practices and Home Loan Foreclosures are started to be implemented by the legislators to improve the situation of mortgage lending and foreclosure climate.

One of the recommendations is insisting upon the lenders to provide information on the maximum interest rate that could be applied and the exact maximum of monthly payment expected, to the prospective borrowers in advance. This is being singled out because it is where the borrower fails to notice the pitfall – the adjustable rate mortgage and its enlargement to high proportions gradually.

Another view doubting this measure is since the borrower goes on signing a pack of papers at the time of availing the mortgage loan, it will not bring forth any advantage other than being considered as yet another paper to sign.

Levying pre-payment penalties by the lenders is another important concern expressed by the recommendations of the committee. Therefore it is stressed that lenders should be restricted from imposing penalties on prepayment in respect of high-risk loans. Because of these excessive high penalties borrowers are unable to get out of the original loan, even though they have options of re-financing.

The following are other noteworthy suggestions:

Primary and secondary students should be taught a financial literacy program by schools.
State lending laws should be stringent in dealing with fraudulent lending practices by increased penalties of civil and criminal nature.

Transparency of mortgage documents to include names and license or registration numbers of all the parties involved in the transaction mortgage in a separate sheet.

There were other suggestions, though not met with consensus of the committee, can come up in the near future for implementation –

Prohibiting lenders from encouraging stated-income loans or reduced documentation to verify the credit history of the borrowers.
Insisting upon submission of W-2 forms or pay-roll copies of borrowers to verify the repaying capacity by all lending institutions.
Holding the lenders responsible for the fraudulent methods of brokers and appraisers in loan transactions.

It is also the view of informed circles, while it is welcome that the State tightens up the laws for appraisers and mortgage brokers engaged in such fraudulent transactions, caution should be observed in not over-regulating the same. Individual responsibility on the part of the borrowers is important and by over-reactions in rules and procedures the Industry should not suffer.

Via