With foreclosure filings engulfing more than 7,000 homes a day nationally, the U.S. Senate Banking Committee came to Philadelphia yesterday in search of information to help stem the tide.
The hearing at the Federal Courthouse in Center City was co-hosted by Sen. Christopher J. Dodd (D., Conn.), the committee chairman, who has proposed legislation that would use the Federal Housing Administration to rescue troubled borrowers.
Dodd's voluntary program depends on current lenders' willingness to take less than they are owed in a refinancing and the willingness of new lenders to take advantage of an FHA guarantee.
Dodd acknowledged the potential ineffectiveness of voluntary programs, but, he said: "If I tried to make it mandatory, I'd probably get 10 votes" in the 100-member Senate.
It's important to note that government cannot abrogate loan contracts.
However, the experiences of Philadelphia nonprofit groups working on behalf of delinquent borrowers and of the Pennsylvania Housing Finance Agency indicate that meaningful headway against foreclosures will be scarce until the mortgage industry and mortgage investors agree to widespread and expedited reductions in mortgage payments for troubled borrowers.
The industry, particularly companies that collect mortgage payments, is "reluctant or unable to take the write-down," testified Brian Hudson, chief executive officer and executive director of the Pennsylvania Housing Finance Agency, which has a mortgage-refinancing program that depends on lenders' taking less than they are owed.
Hudson's agency hired five people for a program that buys delinquent loans at a discount from lenders and refinances them into 30-year fixed-rate loans with an interest rate of 7.95 percent with no points. The program, started last year, has completed seven loans, Hudson said.
Another agency program for borrowers no more than two months behind and whose house is still worth more than the principal owed has completed 38 loans, Hudson said.
He was not bothered by the limited scope of the loan programs so far - against the backdrop of an estimated 35,500 delinquent subprime-mortgage loans in the state - because, he said, the agency was just beginning to advertise. He said 500 potential loans were under review.
The agency, with the backing of Sen. Bob Casey (D., Pa.), who co-hosted yesterday's hearing, is receiving $3.49 million in federal money for outreach to troubled borrowers.
Activist groups in Philadelphia, such as the Association of Community Organizations for Reform Now and Community Legal Services, are pushing for an extension of the city's one-month moratorium on sheriff's sales as a way to pressure the mortgage industry to modify loans to make them affordable.
Dodd's legislation - the Hope for Homeowners Act of 2008 - would insure up to $400 billion in mortgages for up to 1.3 million borrowers. To put that in context, lenders made $2.72 trillion in subprime and other risky mortgages from 2004 through 2006, according to Inside Mortgage Finance.