The following is from the Office of Sen. John Keenan, D-Quincy.
Legislation approved by the Massachusetts State Senate would reduce the number of unnecessary foreclosures by requiring banks to work with homeowners when a loan modification would be financially beneficial to both sides, Sen. John F. Keenan announced.
Banks would also be required to formally prove ownership of a mortgage before beginning the foreclosure process, and would be prohibited from charging other parties for the cost of clearing up titles to properties that they illegally foreclosed on.
“Homes continue to be foreclosed upon at rates not seen since the Great Depression,” Sen. Keenan said. “Both lenders and borrowers share blame in creating the problem. However, banks have been less willing to help find solutions, and in some cases, have been outright obstructive and deceptive.
“A healthy state economy requires a healthy housing market. This legislation recognizes the rolebanks play in fixing our housing market and requires them to take a seat at the table.”
The bill requires banks to analyze whether modifying the terms of a troubled mortgage could befinancially beneficial to both sides prior to starting the foreclosure process. If so, the bank will have to work with the homeowner to either reduce the interest rate, extend the terms of the mortgage up to 45 years, forgive some of the principal, or undertake other fixes. Borrowers would also be able to request the assistance of a professional mediator to help forge a deal.
“Too often we see examples of banks unwilling to negotiate with homeowners struggling to make mortgage payments, even though a simple refinancing would solve the problem. Instead, banks are quick to move through the foreclosure process, despite knowing they will lose more money re-selling the house than modifying the original mortgage,” said Sen. Keenan. “Meanwhile, our local neighborhoods are impacted by the increased numbers of vacant homes.”
Banks would be allowed to review the personal finances of borrowers, and would not be required to offer mortgage modifications to those unable to afford the new loan terms. The Office of the Attorney General, along with the state Division of Banks, would have oversight of the modification process and make sure banks undertake a “good-faith effort” before starting the foreclosure process.
The nation’s five largest banks earlier this year agreed to pay $25 billion to settle a lawsuit brough tby 49 states, including Massachusetts, following the discovery of widespread mortgage foreclosure fraud and other abuses. Among the offenses were initiating foreclosures without actually owning mortgages, “robo-signing” documents without reviewing them to make sure they were accurate or legal, and deceiving borrowers about eligibility for voluntary mortgage modification programs.
The Senate bill includes a pair of consumer-friendly amendments offered by Sen. Keenan that would require lenders to assign no more than two representatives to a specific application, and require banks to provide borrowers with a concise summary of the modification’s interest and principal costs compared with the interest and principal costs of the existing mortgage.
“Borrowers should be able to pick up the phone and talk to one or two people about their mortgage, not constantly shuffled to a different person every time they call,” Sen. Keenan said. “In addition, borrowers deserve to know how much money the lender stands to make from the modification.”
The legislation also requires the lender to record all mortgage assignments prior to beginning the foreclosure process. This step would ensure that the lender foreclosing the property is the actual owner of the mortgage.
The House passed a similar version of the bill last month. Sen. Keenan expects that a conferenc ecommittee will work out the differences between the two bills quickly and a final vote will takeplace prior to the end of the legislative session on July 31.