In an effort to curb the rate of foreclosed homes, new legislation proposed by Congresswoman Rosa DeLauro aims to make good communication between distressed homeowners and lenders the law.
Under the Democrat's proposal, if lenders don’t follow the proposed laws, then homeowners can sue and use the violations in defense of keeping their homes.
At the headquarters of , DeLauro criticized banks for being sloppy due to poor communication, lost paperwork and sometimes foreclosing on homes they don’t even have the title for.
“It’s chaos and it's trauma [and you lose] something you spent your entire life working for,” she said.
According to figures provided by DeLauro’s office, one in every 10 homeowners in the greater New Haven area is either in foreclosure or delinquent on their mortgages. DeLauro herself says she has heard from 450 constituents concerned about losing their homes and that her “office sees more home foreclosures than ever."
RealtyTrac, a commercial foreclosure listing service, reports that there were 9 homes in various stages of foreclosure in in December (see the graph posted above). That's one in every 1,395 homes here. The state average for December was one foreclosure for every 1,145 homes.
The Regulation of Mortgage Servicing Act has four key components that, if passed, would be used as national requirements for lenders dealing with foreclosures.
A ‘Case Manager’
Both DeLauro and Connecticut Attorney General George Jepsen told the crowd of Realtors, reporters and community leaders that homeowners often have to repeat their circumstances many times to employees who have no information about prior calls. DeLauro’s legislation would require that lenders create a “single point of contact for borrowers.”
Foreclosing or Negotiation: One or the Other
The second part of the bill would forbid the so-called “dual track process” that allows lenders to continue the process of foreclosing while at the same time negotiating with the homeowner on a modified loan. The purpose of this is to encourage lenders to discuss all possible options that could keep the person in the home.
A Third-Party Review
The final part of the bill would require a third-party review of modified loans and alternatives to foreclosures before beginning the foreclosure process. When asked who the third party would be, DeLauro said it was conceivable that another department of the company could be the third party, but she said that is not preferable. She defined third party as “an entity that is not a servicer” for the loan.
Relief on the Horizon?
Jepsen said that Connecticut and approximately 40 other states are close to finalizing a settlement with lenders that he said acted recklessly leading up to the burst of the housing bubble. The settlement, which he hopes to wrap up next week, will include 40 pages of new standards that lenders have to adhere to, in addition to money for refinancing, loan modifications and consulting with homeowners.