One of the trickle-down effects of the economic crisis of four years ago that was triggered largely by gimmicked home loans is continued foreclosures, which not only puts families on the streets but leaves empty homes in neighborhoods, inviting crime and lowering property values. Both the Patrick administration at the state level and the Obama administration at the federal level have taken steps to ease this crisis, but resolving it will require continued pressure and vigilance.
Last August, Governor Deval Patrick signed a law requiring creditors to help eligible homeowners modify their mortgages so they can keep their homes. Banks had been in a hurry to foreclose, and when a federal investigation revealed that bank officials were signing off on legal papers they had not read and were foreclosing on homes they didn’t own, five huge banks agreed early last year to a $25 billion settlement, with some of the money going to states and the rest going to assist borrowers. This eased the crisis somewhat.
Last week, however, state Attorney General Martha Coakley wrote to roughly 300 mortgage providers asking them to confirm that they were abiding by a provision of the August law added in November allowing lenders to modify a loan even if there is a second mortgage on the home. This provision was added to discourage banks from stalling until homeowners were forced to foreclose, and the attorney general is concerned that homeowners are unaware of it and banks are not informing them. The Boston Globe reports that there was a 13 percent drop in foreclosures last year compared to 2011, but while that constitutes progress, 7,400 homes were lost to foreclosure in 2012.
To avoid more foreclosures and more trouble with the feds, the banks that were part of the national settlement are now reducing monthly mortgage payments, which has the added benefit of assuring the banks get something for their investment. Federal mortgage companies Fannie Mae and Freddie Mac are not following this strategy because they were not part of the settlement. They did, however, get a federal bailout, and they were part of the problem. The White House should require those agencies to ease off on mortgage holders just as they did with the five privately owned banks. Boston and Washington still have their work cut out for them.