Legislation sluggish for helping at-risk homeowners

Dayton Daily News - October 28, 2007

National legislation to help those facing foreclosure yet to be pushed through; state works on own measures.
By Jessica Wehrman

Dayton Daily News

WASHINGTON — — Over five years, Rex and Janet Puckett of Dayton developed a habit: They would periodically pack up their belongings to prepare for impending foreclosure, then unpack again a few weeks later.

The couple refinanced their three-bedroom ranch home, near Jamaica Run Golf Course southwest of Dayton, in 2001 with the expectation that they’d get $25,000 to do updates including a new roof.

Instead of $25,000, they got somewhere less than half of that, with the rest going to fees. Rex Puckett endured a heart attack and a stroke which doctors pinpointed in part to his high stress levels. The company that renegotiated their loan has since gone out of business, and the Miami Valley Fair Housing Center finally helped the Pucketts renegotiate their loan. The Pucketts kept their house.

No national help yet

As the foreclosure crisis continues to squeeze families like the Pucketts, no relief as yet has come from Washington. Congress has held numerous hearings on the issue, but has yet to send a bill to President Bush for his signature that tightens lending policies or helps homeowners at-risk of foreclosure.

Bush, meanwhile, threatened to veto a House bill passed earlier this fall that forgives the tax burden homeowners face when they are foreclosed upon or when part of their mortgage is forgiven. Sen. George Voinovich, R-Ohio, is pushing a similar version of the bill in the Senate and said he is working with the administration to iron out disagreements on it.

Voinovich is convinced Congress will not recess for the year without doing something. Thousands of adjustable rate mortgages will reset by the end of this year, putting more homeowners’ monthly payments out of reach. “There’s a crisis out there,” he said.

Sen. Sherrod Brown, D-Ohio, said Congress can only do so much. He said President Bush should use the power of his office to “jawbone” companies into renegotiating loans with homeowners at risk of foreclosure. “The president has not used the power of his office,” he said.

The foreclosure problem is particularly acute in southwest Ohio. According to a Policy Matters Ohio report released last spring, Montgomery County ranked second only to Cuyahoga County in foreclosure filings in 2006, with 5,076 filings. The report was compiled using data from the Ohio Supreme Court.

Katie Turner of Dayton barely escaped becoming one of those numbers. Turner, already struggling with depression, refinanced in the aftermath of her husband’s 1997 death and watched her adjustable rate mortgage go from $527 to more than $865 over a three-year period. When she got behind on payments — a result of her Social Security check being stolen — her mortgage again increased to more than $1,000.

The Miami Valley Fair Housing Center helped her renegotiate her adjustable rate loan with the same company.

It’s sweet relief for Turner, who still remembers how her husband Gil gushed over the two-bedroom home when he bought it in 1988.

“He was like, ‘Wife,’ — he always called me wife — ‘it’s got everything except the picket fence,'” she said. “This is my dream house. I love this house.”

Jim McCarthy, the fair housing center’s president, said the center first started seeing trouble brewing in 1999, when its clients — primarily people who couldn’t get a loan because of low income or discrimination — suddenly became clients who received loans only to see their terms change rapidly.

His agency also suddenly saw older people with long-term, low-interest loans coming in and paying them because they were refinancing into a subprime loan. McCarthy and other center staff investigated, and found they were being push-marketed by subprime lenders. “We were all sort of flabbergasted by the degree to which we were seeing craziness in the markets, craziness in the documents coming into the office,” he said.

By the fall of 2001 the center, with the blessing of the Montgomery County Commission, began working on education, outreach and intervention programs for people at risk of foreclosure. He said so far, the center has helped 361 families or homeowners renegotiate their loans to avoid foreclosure.

“We started sounding the warning to elected officials back in 2000,” McCarthy said. “And here we are in 2007 and now finally some elected officials get it and are saying all the right things, but it’s still going be a long time before we see a real legislative cure to this.”

Why the inactivity?

A host of reasons are given for Congress’ inactivity. First, Congress is wrestling with a slew of other issues in addition to its traditional duties of passing spending and authorizing bills. Many of them are points of contention — Congress and the President are fighting over issues including the war in Iraq and children’s health insurance.

And finally, it’s not an easy issue to tackle: The crisis includes at-risk homeowners, mortgage lenders and brokers, and industries influenced by the subprime market. There’s no easy fix.

Last week, Rep. Barney Frank, D-Mass., introduced a bill that created a new set of consumer protection rules for U.S. mortgage lenders, brokers and investors. The bill would require “a mortgage originator to act solely in the best interest of the consumer, including finding the residential mortgage loan that best meets the needs of the borrower,” and would bar lenders from steering borrowers toward high-cost loans.

In Ohio, Gov. Ted Strickland has asked subprime lenders to work with the state to modify loans, identify and notify at-risk borrowers, waive late fees and penalties and take other steps to prevent foreclosures. If lenders choose not to participate, he said, he will seek legislation to prevent foreclosures. The proposal got a chilly response last week from lenders, who called the proposal well-intentioned but ill-conceived.

Rex Puckett is just glad somebody could help him. A contractor by trade, he’s disheartened by the sight of homes abandoned by homeowners who didn’t escape foreclosure. Even as he and his wife packed and unpacked, he still worked on his beloved home, emptying his savings account to take care of the place where he and Janet raised their children.

“It’s the last little corner of Montgomery County that’s kind of country,” he said. “It’s home and we have good memories here.”

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