Massachusetts is once again leading the pack in protecting consumers by passing legislation to protect families from getting thrown out of their homes. "An Act to Stabilize Neighborhoods" has been two years in the making and was sponsored by Senator Susan C. Tucker, an Andover, MA Democrat. She filed the bill two years ago after hearing about evictions of tenants in her district who were ravaged by foreclosures. The bill was unanimously approved (with some minor amendments) by the Senate in April and by the House last week. On Saturday, Governor Deval Patrick signed the bill in Brockton, MA - a city that's seen 2,500 foreclosures since the economic downturn.
The State Banking Commission will be responsible for fine tuning much of how the bill is implemented, which in many states could mean the end of the homeowner. Massachusetts however has proven to be fairly diligent when it comes to protecting the consumer.
Here are some of the major elements of the bill:
- The law encourages banks and homeowners to work out a loan. Banks that do not negotiate to modify the loan in good faith will have to wait five months to foreclose as opposed to the previous 90 day waiting period.
- Tenants who rent homes that become subject to a foreclosure will be protected against no-fault evictions.
- Encourages redevelopment of foreclosed properties by providing a local option to exclude nonprofits from property taxes during the term that the nonprofit rehabilitates the home and converts it into affordable housing.
- Criminalizes mortgage fraud.
- Requires mortgage counseling for low income seniors in order to receive a reverse mortgage. The provision does not take effect until August, 2012 to ensure that there is sufficient counseling capacity.
Loan modifications have been the source of endless hardship and frustration for homeowners. Recent articles have made it painfully clear that HAMP has been used by banks and servicers as a means to suck money out of already cashed strapped homeowners with no real hope of help.
NPR recently ran a story about Fannie Mae using HAMP to their own advantage, "and according to Caroline Herron, a longtime Fannie Mae executive who left the agency before returning as a consultant on the HAMP project, Fannie Mae ran HAMP to benefit its own bottom line, not to help troubled borrowers," the story reads.
In July a Bank of America analyst went so far as to say that HAMP had an "implicit goal" of making liquidations orderly, according to a recent Huffington Post article. In other words, HAMP was nothing more than a tool to allow banks to stall foreclosure while still making money as not to flood the market with inventory. Somehow, according to the analyst who wrote the report, the purpose of HAMP (or Making Home Affordable) was to help banks better foreclose on families.
Since it would appear that the objective is, in most cases, to foreclose, this bill will hopefully give homeowners, at the very least, ample time to get a lay of the land while negotiating to keep their home.
Banks and mortgage servicers in Massachusetts aren't too happy about the new bill. Their complaint of course is that the bill could slow down their ability to throw people out of their homes and sell the property.
Mark Rodgers, Citi Mortgage's spokesman told The Boston Globe, "We have a responsibility to recover the property either for ourselves or the investor-owner of the mortgage, so it can be marketed and sold promptly." This is slightly contradictory to a comment Rodgers made on a blog post claiming that Citi has helped 990,000 homeowners since 2007.
Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, told the Boston Globe that they were shocked at how quickly the bill was passed this week - a bill that was two years in the making. He also said lenders fear the law will drag out the foreclosure process for months.
"This is a very difficult bill for the industry," Cuff said. And if that wasn't enough he added, "This bill is all geared for the consumer protection side."
The bill is a good starting point. Its strength is in the protection for renters who end up, as far as lenders are concerned, as collateral damage and an inconvenience in foreclosures. Tenants can no longer be arbitrarily evicted without cause, as was common practice for many foreclosing financial institutions.
As for homeowners struggling with mortgages, in order to foreclose in less than 150 days, the lender is required to file an affidavit stating that they met with the homeowner over the phone or in person, the time and place of that communication, parties participating, relief offered to the borrower, a summary of the creditor's net present value analysis, and certification that any modification or option offered complies with current federal or state law or policy.
"Our goal is to get borrowers and lenders to the table to save those loans that can be saved," Senator Tucker told the Boston Globe in April.
The loan modification offer would have to comply with accepted federal or state modification standards, including participating in the Home Affordable Modification Program. The more common and preferred by servicers in-house modifications are not considered acceptable. This is crucial, because when servicers create their own modification programs they write their own rules and don't have to bother with the pesky guidelines. In the case of my mod for example, Ocwen Financial Corp. increased the original principal by $15,000 (basically starting from scratch with a generous tip), they charged off $12,000 to the IRS (I have yet to be told why), and the paperwork and accounting practices are so convoluted that it would take a team of legal experts and CPAs to decipher it.
Mediation is conspicuously missing from the bill and would help alleviate some of the anxiety that homeowners feel when being railroaded by a bank. On the other hand if the mediators are trained by the banks and mortgage brokers, homeowners will get shafted. Of course mediation costs money and bills are harder to pass when they have a price tag.
The bill also criminalizes mortgage fraud, punishable by fines and imprisonment. The number of violations that turned up on my mortgage and paperwork alone could more than cover the cost of a few mediation sessions, so maybe that's something to work towards.
The bill was two years in the making and involved an impressive list of groups and organizations that banded together to get it passed -- they are listed at the end of this post. This bill and its overwhelming acceptance by the legislature will hopefully serve as an inspiration and model to other states as a way to help homeowners who are trying to stay afloat.
Sean Caron, a lawyer with Citizens Housing and Planning Association said, "What's been most impressive to me through this entire process is that this was the result of a lot of different grass roots and advocacy groups working together. And that it is possible to make a change that will help people."
The banks have shown the amount of clout they have with Congress and have been allowed to run amok with the lives and finances of families for too long. In this case at least, the people and organizations of Massachusetts have put some rules in place that may not level the playing field, but it will make it harder to bulldoze.
To read stories from homeowners or to submit your own go to www.shamethebanks.org
The Organizations that made the passing of this bill possible are:
Citizens Housing and Planning Association, Massachusetts Alliance Against Predatory Lending, City Life/Vida Urbana, Massachusetts Association of Community Development Corporations, Planning Office of the Archdiocese of Boston, Chelsea Collaborative, Brockton Interfaith Community, Merrimack Valley Project, Neighborhood of Affordable Housing (NOAH--E. Boston), Greater Boston Legal Services, Harvard Legal Aid Bureau, Massachusetts Law Reform Institute, Greater Four Corners Action Coalition, Boston Community Capital, Unitarian Universalist Church of Bedford, Boston Tenant Coalition, Boston ABCD,Emerging Leaders Program at UMass-Boston, UMass-Boston Center for Social Policy, Metropolitan Boston Housing Partnership, Massachusetts Catholic Conference, Chelsea Neighborhood Developers, Lawrence Community Works, Oak Hill CDC, Central Massachusetts Housing Alliance, HAPHousing, WATCH CDC in Waltham, Unitarian Universalist Social Action Network, JALSA, Massachusetts Communities Action Network, Lawyers Committee for Civil Rights, ARISE for Social Justice/Springfield, Lawrence Community Works, Community Labor United, NE Conference of the NAACP, Mass. Jobs With Justice, Coalition for Social Justice, National Lawyers Guild, Charles Hamilton Institute for Race and Justice, Green Rainbow Party, Chinese Progressive Association, Arlington Community, Mass. Advocates for Children, Boston NAACP, New England United 4 Justice, H.O.M.E, VLP, Union of Minority Neighborhoods, Mass. Coalition for the Homeless, National Consumer Law Center, United Auto Workers.