Lenders And Borrowers Tango In Massachusetts

January 21st, 2008

It was a bonanza for mortgage companies as they slapped 7,563 houses in Massachusetts with foreclosure notices during 2007. This is nine times that of 2005 and three times that of 2006. Since 1990 the country has not seen such foreclosure epidemic. The numbers were compiled by Warren Group.

Housing experts apprehend that this year the picture will be worse. Real estate prices will continue to tumble partly driven to a large extent by the rising number of foreclosure sales. Simultaneously another group of Massachusetts borrowers are beginning to feel the pinch of raised interests.

The lending firms and banks are under great pressure from all sides to mitigate the crisis by reducing the monthly payments to affordable levels. But Sheila Bair, head of Federal Deposit Insurance Corporation opines that the speed of voluntary response from the lenders is most unsatisfactory. Perhaps it is time that the government intervened. However she did not have any specific suggestions to offer. Many are clamouring for utilizing public funds to help people stay in their homes. The Bush administration is not amenable to this proposal.

The lending group is explaining its actions. The Mortgage Bankers Association said that about 236,000 borrowers across the country have been helped during the third quarter of the previous year. Of these 53,6000 were allowed to reduce their monthly payment amount. Others got a repayment option. They would have to make regular payments but the missed ones with penalty charges could be paid at the end of the loan term. Hope Now Alliance reported on behalf of the lenders that during the last quarter of 2007 the loan modifications had tripled in number. The number is increasing with more borrowers benefiting. Mortgage bankers further explained that 20% of the foreclosure proceedings during the third quarter were against those who had already received assistance previously.

Housing advocates are highly critical of such moves. The borrowers cannot afford the rate and so what is the point of postponing the day of reckoning? The plan can work only if the payment is sufficiently reduced. The foreclosure numbers are rising despite all the noise.

Massachusetts has created a fund to help sub-prime foreclosure victims but there are strict eligibility standards which most of the borrowers cannot meet. Under this scheme only four have qualified. The conditions are however being changed. For instance now the borrower does not have to prove predatory lending.