Florida Foreclosure Spike Puts State at Crossroads

The Palm Beach Post says that Florida Gov. Charlie Crist is making good on his campaign promises to save the Florida homeowner. But one ingredient of a comprehensive plan to save the Florida housing market still is missing and not being discussed.

Florida foreclosures are at their highest rates in years. Many homeowners and investors are victims of “exotic” mortgages, which allowed them to purchase homes with little money down and small (at least in the short term) payments.

Spoiled by historically low home loan rates, many entered into adjustable-rate mortgages several years ago that are now “adjusting” into extremely high payments. If homeowners and investors can’t pay their mortgages, it doesn’t matter if they can pay their insurance or taxes.

Most home loans once were backed by the federal government, which, in turn, allowed significant time before a house could be seized. Today’s mortgages do not have such constraints. Lenders can begin the process of foreclosure in as little as two months.

Since it takes much longer to sell a home in a depressed market, and most of these people have lost equity due to recent depreciation of values and negative amortization, many people in foreclosure have no alternative but bankruptcy.

High prepayment penalties make a mortgage refinance difficult. Especially hard hit by this are first-time homeowners, large families and lower and middle-income seniors, who live from paycheck to paycheck.

Those stuck in such mortgages, and experiencing recent increases in insurance and tax payments, find themselves unable to afford to refinance to try to lower their monthly payments.

In this crisis, the governor and the Legislature need to find a way to slow down the foreclosure process, eliminate or limit prepayment penalties and protect the consumer by slowing down the real-estate closing process.

These steps need to be taken:

– Prohibit prepayment penalties. A number of states already don’t allow them. Many believe penalties on mortgage prepayments are predatory. Florida should mandate no prepayments for borrowers in foreclosure. The same should apply to seniors, soldiers and veterans, government workers, and couples with combined incomes below $50,000.

– Right of Rescission. State law mandates a three-day right of rescission - letting the customer cancel the deal - only for refinances on homesteaded residences. Such protection should be extended to all types of mortgage refinancing, including purchases and second homes.

This would slow down the purchase process and allow people to examine the mortgage papers they receive at closing in greater detail.

– Declare a one-year moratorium. This would cease foreclosures in order to allow people more time for mortgage refinancing or working out special arrangements with their mortgage lender. In this, the governor and legislators again would have to stand up to a powerful lobby.

– Explanation of Terms and Conditions. Many homeowners in trouble with their mortgages did not understand the product they were purchasing. Propose a “Terms/Conditions Sheet” be provided stating the amount of the home loan, the mortgage rates, the escrow amounts.

And most importantly: the monthly payment, the first payment date, the term of the home mortgage, the type of mortgage it is and the actual interest rate. It would have to be signed off by the borrowers after a specific, careful review with a mortgage broker.

The closing would also not take place for 24 hours until after receipt of the borrower’s confirmation. This would guarantee that borrowers would know what Florida mortgage they are getting.

SOURCE: Palm Beach Post