Legal Services NYC (LS-NYC) is the larges provider of free civil legal services to the poor. They provided testimony to the Congress of the United States Committee on Oversight and Government Reform, which they titled:
Failure to Recover: The State of the Housing Markets, Mortgage Servicing Practices, and Foreclosures
Their testimony is dated March 19, 2012. Testimony covers three distinct areas:
- current impact of foreclosures in the communities they serve;
- servicer practices that have exacerbated and prolonged the foreclosure crisis and increased the likelihood of wrongful foreclosures; and
- reforms they believe will shape a healthier and more just economic recovery for homeonwners and all of New York State.
Foreclosure Crisis - Impact on Communities in NY
Historically, low-income communities of color were targeted for predatory mortgages. LS-NYC identifies the fundamental problem to be not only economic hardship resulting in a default, but more importantly the problem is high-cost mortgage loans. Which leads to the next issue.
Foreclosure Crisis - Unscrupulous Practices of Lenders and Their Servicing Agents
Lenders often refuse to negotiate affordable modifications. They employ a number of different tactics to barr distressed homeowners from seeking relief, thereby forcing foreclosures. Some of the unscrupulous tactics these pretender lenders and their servicing agents use are:
- Unnecessary delays
- Unexplained and excessive fees
- Improper denials
- "Supposed" investor restrictions
Foreclosure Crisis - Aggressive Enforcement of Strong Servicing Standards Needed
The LS-NYC makes recommendations for mandatory National standards which are needed to stop servicers from abusing homeowners. Some of these include:
- Evaluating homeowners for modification PRIOR to foreclosure
- Homeowners should be allowed to use the failure to offer a loan modification in their foreclosure defense
- Need to standardize and make available to the public Net Present Values tests for modifications
- Hardship modifications should be permanent, affordable and available without waiver of homeowner's legal rights
- Loan modification denials should be accompanied by documents backing up the denial
- Homeowners deserve to have access to FULL documentation as to investor restrictions barring loan modification and documents related to servicers' attempts to obtain a waiver from investors
- Servicers must be required to seek waivers and investors should be encouraged to grant the waivers
- Fees to servicers must be limited
- Force-placed insurance should be replaced by default reliance on replacing or continuing existing coverage at a reasonable price
- Servicing transparency via transfer notices and periodic statements
- Application of payments and use of suspense accounts should be fair and reasonable
Principal Reduction is Necessary to
Restabilize Housing Market
Especially for homeowners who are upsidedown in their mortgage, principal reduction is not only in the homeowner's best interest, but it is also in the best interests of investors. Loan modifications with principal reductions have lower re-default rates. Yet servicers refuse to offer principal reduction as a remedy to eventual foreclosure.
See the full report on The State of the Housing Markets, Mortgage Servicing Practices and Foreclosures.