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Paul Kiesel
Paul Kiesel
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States to Help Rescue Homeowners from Foreclosures

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As Congress continues to talk about providing a federal response to the foreclosure crisis, which has been going on for almost a year, attorneys general, like New York Attorney General Andrew Cuomo, are busy helping troubled homeowners at the state level.

Lawsuits are being filed by AGs across the nation, as AGs also lobby legislatures for tougher mortgage lender laws and build partnerships with mortgage servicers and community development groups to help fight the troubled homeowner battle. And it looks like these efforts are starting to pay off.

According to CNNMoney.com, “The Mortgage Bankers Association says a million home were in foreclosure in the first three months of 2008 [. . .] that number would have been larger if the AGs weren’t involved.” Therefore, the Bush Administration should tone down its assertions that the Hope Now program has been a major factor or helper of combating foreclosures, when all other evidence, as cited in dozens of InjuryBoard’s blocs since March (via news stories), shows that other parties have contributed to a majority of any homeowner relief that has taken place. The Hope Now program has mainly solved problems for homeowners that would have received help anyway, if they had spoken to their lender or servicer to begin with. The Hope Now program does not have a significant success rate, or at least it doesn’t provide any evidence, that shows people in underwater mortgages receiving adequate assistance. The successes in troubled homeowner relief is coming from a variety of sources, like state attorneys general.

In Illinois, for instance, Attorney General Lisa Madigan is going after mortgage brokers and lenders she claims used abusive lending practices, such as the TILA disclosure form violations –those violations being one of the more underrated contributors to the foreclosure crisis. In November, she filed suit against Chicago-based mortgage broker One Source Mortgage, alleging the outfit drew in hundreds of clients by advertising low rates on Option ARM loans, but failed to inform the borrowers, usually through tricky TILA forms, that those rates would adjust higher, and often 30 days after the first mortgage payment was made.

In one instance, One Source allegedly told a borrower that his interest rate of .95% would last the entire first year of the loan, however, it jumped to 7.5% after one month. The borrower was still making a monthly payment based on a .95% interest loan, but the rest of the unpaid interest was being compounded, resulting in a negative amortization loan, and a shorter period before the loan reset to the 7.5% interest rate payment (sometimes tripling the prior month’s mortgage payment). Hence, why these foreclosures have been happening in waves and in such high numbers; so many people were told disinformation by shady lenders, many of which are no longer in business or have sold the loan to a servicer.

“The vast majority of people with these loans didn’t understand them and were lied to by brokers,” said Lisa Madigan, (CNNMoney.com, 6/21/08).

The suit that represents disenfranchised borrowers is still making its way through the courts. One Source’s phone service, like many other crooked mortgage brokers, has been disconnected, and is currently unrepresented.

Fortunately, we have AGs like Madigan, whose bill is requiring foreclosure notices to include an explanation of options that borrowers have to help them retain their houses. Unfortunately, those explanations weren’t available prior to help the borrowers understand his or her options before signing on the loan, but hopefully more oversight throughout the lending industry in the future will prevent the reoccurrence of reckless lending practices from wreaking havoc on the entire economy.