Protecting Homeowners, Strengthening Our Housing Market

The following is an opinion piece by State Senator Katherine Clark:

Home foreclosures can have devastating effects on families and on our neighborhoods.  At the same time, recovery and stability in the housing sector is critical to sustained, long-term economic growth in Massachusetts. 

Unfortunately, foreclosure activity in the Commonwealth remains a persistent challenge.  According to the Warren Group, the number of foreclosure petitions filed in Massachusetts in April rose almost 47 percent as compared to last year (to 1,750 from 1,191 in April 2011), marking the highest level of petitions since September 2010 and continuing a trend since January. 

In response, last week the Senate passed important legislation to establish greater protections for homeowners.  The bill aims to prevent unnecessary and unlawful foreclosures, reduce the number of abandoned properties across the Commonwealth, and help to remove one of the biggest remaining barriers to our economic recovery.

Changes to our laws and regulations governing foreclosures should be guided by several key principles.  They must be fair, must not burden Massachusetts taxpayers, must avoid long-term negative consequences, and should not reward irresponsible behavior by either the borrower or the creditor.  I believe this bill meets this standard.  It is a common sense approach to keep people in their homes by ensuring fair negotiations and avoiding unnecessary foreclosures.

The bill requires banks and other lenders to offer loan modifications to borrowers in certain circumstances. Lenders must conduct a complete financial analysis of the borrower and determine if it would be more beneficial to receive lower monthly mortgage payments or the anticipated recovery from a foreclosure.

Loan modifications would be available for owner-occupied homes and apply to loans that are considered predatory or risky, such as adjustable rate mortgages and interest-only loans. The bill complements the work of loan modification specialists in the Attorney General’s Office who assist borrowers in their negotiations with lenders. 

Under this bill, there is a 150-day timeframe for deciding whether or not to offer the loan modification that may come in the form of a reduced interest rate or principal, or an extension of the loan repayment period. The modified loans would allow borrowers to stay in their homes, lenders to avoid foreclosure costs and potential market losses, and neighborhoods to avoid the problem of abandoned properties and vacant lots.

Among other provisions, the legislation also gives borrowers the right to go into mediation with lenders prior to foreclosure proceedings to work out renegotiated loan terms through a neutral third-party.  Under the bill, the mediation program will be run by the Massachusetts Office of Public Collaboration at the University of Massachusetts Boston.

This bill is one step forward in our collective effort to treat homeowners fairly, ensure that mortgage lenders work with families to keep them in their homes, and stabilize the housing market and our overall economy.