MONROE – Stepping in where the federal government has failed to act, State Representatives Kate Ebli (D-Monroe), Kathy Angerer (D-Dundee) and Kathleen Law (D-Gibraltar) today unveiled their aggressive plan to fight the epidemic of foreclosures. The plan, which will allow more Michigan residents to avoid losing their homes, is part of a comprehensive approach to help jumpstart the state's economy.
"The problem of risky adjustable-rate mortgages affects everyone – not just the homeowners who receive a foreclosure notice," Ebli said. "Foreclosures hurt entire neighborhoods and communities because homes are left abandoned, lowering property values. By reversing the trend of foreclosures, we will provide a boost to our economy and create an environment that attracts businesses and jobs to Michigan."
The plan allows at-risk low- and moderate-income borrowers – homeowners facing a spike in housing expenses due to their adjustable-rate mortgage, or residents who have already missed payments due to financial constraints – to secure a fixed-rated loan through the Michigan State Housing Development Authority (MSHDA). The agency provides loans financed through the sale of tax-exempt and taxable bonds and notes to private investors – not from state tax revenues.
"This legislation attacks the problem of foreclosures head on, by providing an important avenue for homeowners on the verge of losing their homes with a way to refinance their mortgage at a more reasonable rate," Angerer said. "This plan puts Michigan at the forefront of state-led efforts to protect families from losing something they have spent their lives working for."
The MSHDA program allows borrowers who meet income and credit score requirements to avoid dramatic increases in their housing expenses by securing a fixed-rated loan. It would allow homeowners who have missed payments on their adjustable-rate mortgages, and who are unable to work out an agreement with their lender to avoid a foreclosure, to apply for a fixed-rated loan.
"Too many Michigan families are at risk of losing their most valuable possession and seeing the American Dream slip away," Law said. "Being forced out of a home is one of the most traumatic experiences any family can go through. During these difficult economic times, we must do everything we can to support Michigan's working families, and this plan does that."
Across the country, 29 percent of home loans last year were high-rate mortgages, up from 16 percent in 2004, according to a Wall Street Journal analysis published on Oct. 11. Michigan's Detroit-Livonia-Dearborn area has one of the nation's largest proportions of new high-rate mortgages, at 32.1 percent. [1]
The analysis, in which the Journal examined more than 250 million mortgage records, finds that the subprime crisis cuts across income, race and community, and affects a far broader range of Americans than typically assumed. More and more borrowers are likely to fall behind, because as much as $600 billion of adjustable-rate subprime loans are slated to ramp up to higher rates by the end of next year.
Michigan ranks fourth in the nation in foreclosures, with 14,242 foreclosure filings in September, according to the latest figures from RealtyTrac, an Irvine, Calif.-based online foreclosure firm. That represents an 81.52 percent increase from September 2006.
Michigan ranks second in the nation when it comes to the percentage of subprime adjustable-rate mortgage delinquencies, according to MSHDA. The agency says that 17.7 percent of the mortgage delinquencies in the state are subprime adjustable-rate mortgage delinquencies.
According to federal data, subprime borrowers who are steered by brokers into signing adjustable-rate mortgages are often not informed of the inherent risks nor given the option of fixed-rate loans. Some lenders and brokers write loans they know borrowers cannot afford for the sole purpose of pocketing the fees. Federal home-loan agencies Fannie Mae and Freddie Mac estimate that 30 to 50 percent of all borrowers with subprime loans could have qualified for more affordable mortgages.
This plan builds on the Michigan Home Loan Protection Act, a Democratic House legislative package announced this summer. The Michigan Home Loan Protection Act will:
- Ban predatory lending practices, such as encouraging borrowers to default.
- Protect consumers from being steered toward high-cost loans when they would otherwise qualify for a traditional loan.
- Give aggrieved homeowners legal recourse so they can independently enforce these consumer protections against unscrupulous lenders.