Looking hard for good economic news, I want to be comforted by the slowly declining jobless rates. While far too many people in our community are still unemployed, at least we’re on an upswing instead of a downward spiral. But there is another economic story not being told: The Puget Sound region is one of only three areas in the country where the number of foreclosure-related home sales is still rising. While foreclosures are down nationally, Washington’s rates are nearly 30 percent higher than one year ago. Remember, last year was bad news: 30,000 families lost their homes when foreclosures increased by 70 percent. So this will be worse than bad news.
One big reason for the expected increase in foreclosure is that variable-rate “teaser” loans reset to much higher interest rates, making it nearly impossible for working families to pay their mortgages. This could collectively cost families a staggering $19 billion in home equity. This is a large-scale transfer of wealth from ordinary homeowners to banks.
While not every foreclosure is preventable, there are some alternatives.
President Obama’s Home Affordable Modification Program provides eligible homeowners the opportunity to modify mortgages to make them more affordable. But the results have been disappointing – only 17 percent of eligible homeowners have been helped. Many involved in the foreclosure process have voiced the same concern: entering into loan modifications is made difficult by unresponsive lenders. The banks don’t need to talk to you.
That is why it is essential that homeowners have a third party to review each troubled loan and determine if there are ways to avoid foreclosures that can benefit lenders, homeowners and the entire community.
Last session, I sponsored legislation that would have required banks and lenders to participate in good-faith mediation, and that established clear criteria for loan modification. SB 6648 would have required banks and other lenders to mediate: simply to send a person to meet, with authority to modify the deal. The bill would establish universal standards for all lenders, so that homeowners are not harmed by the same lending practices that contributed to creating the foreclosure crisis. The bill failed due to fierce opposition from lenders, but I’m determined to see it passed next session.
Mediation would help people like Cindy Murray, who lived in her Thurston County home for over a decade but fell behind in her payments. In response, Cindy’s lender increased her payments but, in doing so, miscalculated and doubled her monthly payment amounts. She has spent the last 18 months fighting to keep her home as the bank has been unresponsive to her pleas to fix the mistake. Cindy’s experience is all too common. Most of the banks and lending institutions to whom we entrust our money and our mortgages are in the business of making a profit from our funds and are allowed to get away with refusing to communicate. Even when it would benefit them in the long run to modify a loan, banks and lending institutions are often unwilling to negotiate.
Oddly, the banking industry opposes mandatory mediation even though most mediated changes would help the bank as well as the homeowner. Many buyers facing foreclosure bought their homes during the housing bubble, and those homes suffered rapid depreciation in value. Mediation would create the opportunity for the borrower and the lender to examine the net present value of a home, the borrower’s ability to repay, and whether a loan modification would be in the best interest of both parties. Oftentimes banks won’t see much profit from a foreclosure sale because of the depreciated price, and a loan modification would actually prove more profitable for the bank – and allow the homeowner to stay in the home.
If taxpaying homeowners can bail these banks out, especially the big ones judged “too big to fail,” then certainly the banks owe homeowners a good faith effort to modify their loans so they can stay in their homes. Our Republican friends need to quit their lockstep obedience to the banks, and help their constituents maintain their homes—the very symbol of Family Values.
Senator Adam Kline represents the 37th District in Southeast Seattle, and currently chairs the Senate Judiciary Committee