LANSING – Stepping in where the federal government has failed to act, House Democrats today passed an aggressive plan to fight the epidemic of foreclosures by establishing programs to allow homeowners saddled with risky adjustable-rate mortgages (ARMs), and those who have missed mortgage payments, to refinance and secure a fixed-rate loan. The plan, which will allow more Michigan residents to avoid losing their homes, is part of the Democrats' comprehensive approach to help jumpstart the state's economy.
"Federal policies have utterly failed to prevent the meltdown of the subprime mortgage market," said State Representative Marc Corriveau (D-Northville). "This refinancing legislation puts Michigan at the forefront of states' efforts to protect hard-working men and women from losing their piece of the American Dream."
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.
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.
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 13,415 foreclosure filings in October, according to the latest figures from RealtyTrac, an Irvine, Calif.-based online foreclosure firm. That represents an 63 percent increase from October 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.
As part of the effort to help Michigan's working families who are facing foreclosure, State Representative Bert Johnson (D-Detroit) has sponsored House Resolution 52, which calls for a partnership between private and public entities to address the foreclosure crisis and promote a renewed commitment to home ownership, housing preservation and community development. Furthermore, HCR 52 calls for state and federal support of a Detroit Housing Commission pilot program that would create protected tax zones. There would then be an effort in these zones to restore reverted properties and place qualified families into the renewed homes.
The foreclosure epidemic affects everyone – not just the homeowners at risk of losing their most valuable possession," said Johnson, who is Vice-Chair of the House Banking and Financial Services Committee. "Every time we can prevent a foreclosure notice from being issued, we are helping to build stronger neighborhoods."
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.
¹ Brooks, Rick and Constance Mitchell Ford. "The United States of Subprime: Data Show Bad Loans Permeate the Nation; Pain Could Last Years," The Wall Street Journal, Oct. 11, 2007.