States trumping the feds on providing mortgage aid

Growing weary of waiting for the glacial pace of the federal government to address the mortgage crisis (it wasn't until last week that the Fed even admitted there was a recession), state governments are jumping in with aid even if it means conflicting with mortgage lenders. From a Wall Street Journal story:

State governments are acting more aggressively to help homeowners avoid foreclosure, frustrated by what they view as the federal government's inadequate response to the mortgage crisis. But some of the programs are putting states at odds with mortgage lenders.

Ohio officials announced Tuesday that they had enlisted more than 1,000 local attorneys to work with certain borrowers free of charge to try to block foreclosures.

Wednesday, an Illinois lawmaker introduced a bill, backed by the state's governor, that would impose a moratorium of as long as 60 days on foreclosures. The measure would apply only to borrowers who enter housing counseling and is meant to give them more time to work out a deal with lenders.

Maryland Gov. Martin O'Malley signed emergency legislation Thursday to give borrowers at least 150 days to cure defaults, effectively creating a short-term moratorium on foreclosures. The state also is requiring mortgage-servicing companies to provide the names of borrowers whose adjustable-rate mortgages are about to reset to higher rates, and it is asking companies to stop levying late fees and other charges on borrowers whose request for a loan workout is being evaluated.

The state actions come as Congress considers a variety of plans to aid the housing market, including a $15 billion plan that includes a tax credit to buyers of properties facing foreclosure and grants for communities to buy and refurbish foreclosed properties. But there is little in the plan that would help individual borrowers facing foreclosure, and state officials say they can't wait for federal help...

These latest efforts by states are more aggressive -- and in some cases more controversial -- than earlier programs, most of which provided counseling services or offered to refinance certain home loans into state-backed mortgages with better terms. However, the counseling and refinancing programs aren't helping as many homeowners as hoped, in part because borrowers seeking state help tend to be in such bad financial shape that their situations don't lend themselves to easy solutions.

As a result, the programs are targeting more troubled borrowers. Beginning May 1, borrowers in Massachusetts will have 90 days to cure any defaults before their mortgage company can initiate a foreclosure. Massachusetts officials have already obtained 30- to 60-day delays in the foreclosure process for more than 630 borrowers facing the loss of their homes. More than half were able to avoid foreclosure through modifications, refinances, short sales and other initiatives, state officials say.

Under Ohio's new legal effort, pro bono attorneys will counsel certain homeowners facing foreclosure, try to broker deals with mortgage companies, and represent borrowers in mediation or in court.

"There are defenses to many more of these proceedings than we ever thought," said Ohio Attorney General Marc Dann. For instance, the party bringing the foreclosure action may not own the mortgage, he said, or attorneys may be able to show that the mortgage was "fraudulently induced."

Such efforts "will help promote the conversation between borrowers and lenders," said Paul Richman, vice president of state government affairs for the Mortgage Bankers Association. "It's something we don't have a problem with so long as it's not being used to create unnecessary and frivolous delays in the legal process." However, the association opposes foreclosure moratoriums.