The number of foreclosures in the Twin Cities is at an all-time high. After the rapid growth of subprime mortgage lending over the past several years, many families have watched in fear as their monthly payments become increasingly unaffordable. ACORN members rallied outside of Homecomings Financial, one of the largest subprime lenders in the country, on August 1st to notify the lender of MN's new predatory lending legislation and to ask for a temporary freeze on the foreclosures.
The number of foreclosures in the Twin Cities is at an all-time high. After the rapid growth of subprime mortgage lending over the past several years, many families have watched in fear as their monthly payments become increasingly unaffordable.
Approximately 80% of subprime loans are Adjustable Rate Mortgages (ARMs), for which the interest rate increases after two years and then every six months thereafter. Many borrowers with these subprime ARMs were never given a choice between an adjustable or fixed rate. Still others were promised a fixed rate but given an ARM. As families with these loans watch their interest rates increase and their monthly payments skyrocket, many are falling behind on their payments and beginning to lose their homes. In fact, the Center for Responsible Lending estimated in a December 2006 report that one in five subprime loans will end up in foreclosure.
On August 1st, Minnesota's new mortgage industry legislation went into effect. This legislation will curb predatory lending practices within the subprime lending industry by creating new standards for mortgage brokers and protecting borrowers from risky and unaffordable mortgage products. While this legislation promises to decrease the frequency of future foreclosures in Minnesota, it does not address the current foreclosure crisis facing thousands of homeowners throughout the state.
High concentrations of foreclosed vacant homes have swept over neighborhoods such as North Minneapolis and Brooklyn Park. These vacant homes ultimately attract crime and will cost cities and counties money in crime prevention and the deterioration of neighborhoods.
Similarly, the mortgage industry maintains that its companies also lose money on these foreclosures and only foreclose as a last resort. Yet Freddie Mac found that half of all foreclosed homeowners never talked with the lender or servicer during the foreclosure process. Owners are often so overwhelmed by the whole situation and don't know that there is help available. While many non-profit loan counselors have been successful in helping families save their houses, these counselors do not have resources to provide enough services for the thousands of families that currently need them.
"But no matter how good a foreclosure prevention program is, we still need the lenders to do their part in cleaning up the mess they created," said Paul Satriano, Minnesota ACORN board member, who was once in danger of losing his home to a predatory loan. "We need them to do something quickly."
Right now Minnesota ACORN (Association of Community Organizations for Reform Now) is calling for a three-month voluntary moratorium on foreclosures. This temporary freeze on foreclosure proceedings would give homeowners a chance to connect with HUD-certified loan counseling agencies. Further, it would encourage servicers to use a wider range of tools to provide alternatives to foreclosure, particularly modifying loans to achieve long-term affordability, such as converting adjustable rates to a fixed rate.
Although mortgage companies have recently been making public statements about their willingness to work with delinquent borrowers and their reluctance to foreclose, this does not match the experience of many homeowners. Many homeowners who are behind on their mortgage still face front-line collection staff who typically show homeowners little understanding and present them with only the limited options of selling the home or increasing the payments to make up the arrears.
Minnesota ACORN is advocating for cities and counties throu