Pennsylvania Home Loan Fund Would Help Battle Bad Mortgages

A group of Democratic lawmakers hopes a multimillion-dollar “rescue fund” will help Pennsylvania mortgage holders trapped in bad home loans straighten out their personal finances.In the process, they hope to keep the state from being swept up in the wave of bad credit mortgage foreclosures that has drowned borrowers in states with pricier housing markets.

Today in Philadelphia, Reps. Peter Daley of California, Washington County, and Dwight Evans and Michael McGeehan of Philadelphia will soon introduce legislation for a $25 million fund to essentially underwrite new mortgage assistance programs via the Pennsylvania Housing Finance Agency.

Brian Hudson, executive director of the agency, said the state’s assurance of $25 million would allow the agency to sell $50 million in taxable bonds.

That money would be used to help homeowners restructure mortgages, reduce the difference between the loan amount and the home’s appraised value, or pay the loans outright in favor of a new Pennsylvania mortgage with better terms.

The state money will cover the housing finance agency’s losses.

The trio of state lawmakers also is expected to call for a voluntary, six-month moratorium on home mortgage foreclosures.

The $25 million rescue and the new foreclosure cease-fire are the capstones on a package of six other bills, proposed by Gov. Ed Rendell, looking to clamp down on the market and the handful of nonbank, subprime Pennsylvania mortgage lender groups who prey on underqualified and uneducated borrowers.

The bills are to be discussed today at Independence Hall Visitors Center in Philadelphia, the third and last in a series of statewide House Commerce Committee hearings on the subject.

Some bankers and home mortgage groups think the bills overreach and will drive up borrowing costs for all consumers.

Extra supervision of the lending institutions won’t, and can’t, do anything about borrowers who fraudulently overstate their income, start to rack up credit debt after closing on a home loan, or simply take on bad risks in hopes of cashing in on rising home values.

But default rates, and concerns that some predatory lenders have pushed borrowers into making bad decisions, have pressed states into action.

Virginia, Colorado, New York, Massachusetts and other states are exploring crackdowns on predatory lending and the subprime market.

Legislators and governors in those states say they have been driven, in part, by inaction and a lack of regulation on the federal level.

The Pennsylvania’ mortgage reform package must be ratified by both the House and Senate, then approved by the governor, before it becomes law.

• The proposals would impose stricter licensing on individual lenders and real estate agents, as well as appraisers.
• Another provision would require the state to maintain banker and mortgage broker list comprising those facing discipline.
• The bills also would try to restrict the prepayment penalties for subprime borrowers who are able to pay off their original loans early via a mortgage refinance.

Hudson said Pennsylvania actually is faring much better than other states with higher housing prices, such as California and Florida, when it comes to the total number of mortgage foreclosures.

In 2003, Pennsylvania was in the top 10 in total mortgage loan foreclosures. Today, it’s 25th or 26th, he said.

Foreclosures have increased fourfold in Allegheny County over the last decade, from 1,100 to nearly 5,000 annually, for a variety of reasons. Proponents of reducing property tax rates say seniors often lose their homes because they can’t afford spiraling school taxes.

More often, homeowners are stuck with mortgages they simply can’t pay, often because bad credit forced them into variable-rate mortgages or the subprime lending market.

A variable-rate “balloon mortgage” is one that starts at one interest rate, then balloons two years or more down the road, increasing the monthly payment by hundreds of dollars in some cases.

Subprime lenders arrange loans for home buyers who can’t qualify for traditional bank mortgages because of poor credit scores.

Either way, default is sometimes the result, and for those who can’t get mortgage refinancing in time, the impact can be catastrophic.

Nationally through 2008, another 2 million adjustable-rate mortgages are scheduled to “reset,” meaning new, higher rates will kick in. Analysts are predicting another spike in delinquency and home foreclosures next year.

“The key to all of this is education, education, education,” Hudson said.

It’s better to turn down a home loan with bad terms than be forced to deal with the consequences - borrowers, for example, may find that they qualify for prime rate home loans if they bothered to investigate, but due to their naivete they are “steered” toward the subprime market.

SOURCE: Pittsburgh Post-Gazette