MADIGAN, WORKING GROUP SAY FORECLOSURE
Attorney General Calls on Lenders to Intensify Efforts
New Illinois Law Requires Lenders Advise Borrowers of
Chicago — Attorney General Lisa Madigan today called on mortgage lenders to reenergize their efforts to reduce mortgage foreclosures in light of new data showing prevention attempts declined this year despite the rising rate of homeowners in trouble.
Madigan is a member of the State Foreclosure Prevention Working Group, a group of state attorneys general and banking regulators working to prevent unnecessary home foreclosures. The group issued its third "Analysis of Subprime Mortgage Servicing Performance" report today, concluding that while loan servicers have increased their use of loan modification as a tool to avoid foreclosure, the number of borrowers working with their loan servicers to avoid foreclosure has declined. Loan modifications for at-risk homeowners dropped by 28 percent from January to May 2008, which is the lowest rate of modification since late 2007. Overall, the report concluded, lenders have not developed an effective strategy to confront default loans before interest rates rise.
"Unfortunately, this report shows that while the foreclosure crisis continues to intensify, lenders have not effectively sustained their efforts to help borrowers avoid foreclosure," Madigan said. "Now, nearly eighty percent of borrowers who are seriously delinquent are still not getting the help they need to try and save their homes. The message from this report is clear: lenders must develop a broad and systematic approach to putting homeowners into affordable loans that will stave off the devastating effects of foreclosures in our communities."
The report indicated that 38 percent of subprime loans were in the process of foreclosure at the end of May 2008. As delinquency and foreclosure rates remain high, Madigan noted that it is critical that lenders make homeowners more aware of their options at the start of the foreclosure process. To ensure that this happens, Madigan drafted legislation which became law last week.
Beginning on Jan. 1, 2009, this new law, the Homeowner's Rights Act, will require lenders to provide borrowers with a clear statement of their legal rights and options when they are served with a foreclosure suit. This statement must advise homeowners that they can sell their home, refinance or pay off the loan during the redemption period. It will also advise homeowners to call their mortgage company to discuss alternatives to foreclosure.
The law also will require lenders to provide borrowers with an accurate statement of the outstanding mortgage balance within 10 days of the borrower's request. By telling homeowners exactly how much they must pay to avoid foreclosure, these payoff statements permit homeowners to quickly explore their options, such as refinancing the loan or selling their home to protect their equity.
The Foreclosure Prevention Working Group report asserts that mortgage servicers must develop a more systematic loan work-out system "rather than offering half measures to the small percentage of homeowners that manage to navigate the loss mitigation programs to receive some assistance."
Specifically, the report concludes that "[t]he mortgage industry's failure to develop systematic approaches to modify subprime loans to affordable, sustainable levels has led to high levels of unnecessary foreclosures. These unnecessary foreclosures have accelerated declines in property values with a ripple effect through the housing and mortgage markets, ultimately increasing the levels of losses for mortgage investors."
The Foreclosure Prevention Working Group began as a cooperative dialogue of state officials and mortgage servicers in September 2007, and is led by representatives of the Attorneys General of 11 states (Arizona, California, Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio and Texas), two state banking departments (New York and North Carolina), and the Conference of State Bank Supervisors. Since October 2007, the Group has collected data from the largest subprime mortgage servicers, with 13 of the largest 20 servicers participating, representing approximately 60 percent of subprime mortgage loans serviced. The Group's first report was issued February 7. For copies of the reports, visit www.illinoisattorneygeneral.gov or www.csbs.org.
Illinois is currently among the top 10 states nationally for foreclosure activity. In 2007, Illinois experienced 90,782 foreclosure filings, a 25 percent increase in foreclosure activity over 2006, according to RealtyTrac, a national foreclosure data service.
An estimated 1.7 million adjustable rate subprime loans are scheduled to reset across the nation through 2009, including many of the approximately 200,000 subprime loans held by Illinois homeowners. These resets likely will result in additional foreclosures in Illinois and across country.
Attorney General Madigan has worked aggressively on several fronts to address the mortgage foreclosure crisis. Madigan has sued mortgage giant Countrywide Home Loans, Inc., for deceptive and fraudulent loan origination practices. Madigan also has sued over a dozen mortgage rescue companies to stop deceptive practices and successfully participated in three multi-state settlements against major subprime lenders: Household Finance, Ameriquest and First Alliance Mortgage Company. To date, Madigan's office has obtained nearly $900 million in enforcement actions against these lenders.
Madigan urged Illinois homeowners who are facing foreclosure to immediately contact their mortgage company or a HUD-certified housing counselor for assistance. To get a referral to a certified housing counselor or to learn more about the steps to take to avoid foreclosure, homeowners can call Madigan's Homeowners' Referral Helpline at 1-866-544-7151 from 8 a.m. to 5 p.m. Monday through Friday.