Nine Mortgage Lenders Agree to Compact to Slow Foreclosures
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COLUMBUS, Ohio (AP) - Nine mortgage lenders who hold about 55 percent of Ohio's subprime home loans agreed to abide by policies designed to help struggling homeowners avoid foreclosure.
The agreement is a result of months of negotiations between the administration of Gov. Ted Strickland and subprime lenders, who had balked at an initial proposal Strickland offered last fall.
The agreement calls on lenders to make modifications to existing loan agreements when borrowers are unable to make payments. The lenders also agreed to make "good faith attempts" to contact defaulting borrowers as soon as possible.
Each company came to a separate agreement with the state based on its own business models and practices. Some made specific promises to contact borrowers a certain time before an adjustable rate mortgage was scheduled to reset to a higher rate, while others did not.
The agreements are not legally binding. They expire June 30, 2009, a point at which leaders said they expect Ohio to have seen the worst of the foreclosure crisis.
"While there may not be legally enforceable sanctions if these agreements are not lived up to, we believe it is quite significant that they would be willing to put their honor and prestige on the line like that," Strickland said.
Citing a study by the Ohio Supreme Court, Strickland said there were 83,230 new foreclosure filings in 2007 - a 5 percent increase from the previous year. He praised the agreements as the first of their kind in the country. But the nonbinding nature of the agreements and the differences from company to company made it difficult for state officials to predict how the agreement would change the rate of foreclosures.
Strickland proposed an agreement in October that was based on recommendations made by a state task force on the mortgage crisis. Lenders did not sign the proposal, saying in some cases that it would have forced them to violate contract laws.
Ohio Department of Commerce Director Kim Zurz said the original compact called for across-the-board rate freezes, something lenders found unacceptable.
"We had tried to push the envelope about as far as we could" as a way to start negotiations," Zurz.
Praise offered by Strickland and other leaders for mortgage companies was in stark contrast to public statements they made before an agreement was reached.
During his February State of the State address, Strickland had harsh words for mortgage lenders and said the state would explore ways to increase regulations without the cooperation of the lenders.
"Instead of working with us, the subprime lenders stayed silent," Strickland said on Feb. 6. "That is unacceptable. Quite frankly, they should be ashamed."
The companies that signed the agreement are: Carrington Mortgage Services, Citi, GMAC RESCAP/Homecomings Financial, HSBC Finance Corp., Ocwen Financial Corp., Option One Mortgage, Saxon Mortgage Services, Select Portfolio Serving and Litton Loan Servicing.
Officials said three large subprime lenders doing business in Ohio had yet to enter an agreement.
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In the overall principles guiding the compacts, there is no set definition of what constitutes a "substantial" loan modification. And while the majority of the nine lenders said in their agreements how much notice they would give borrowers before a rate reset, some - such as HSBC and Carrington - do not have clear guidelines.
In his original compact proposal, Strickland asked companies to give six months' notice before an adjustable rate mortgage was to reset.
He said reporting requirements -- in which companies would have to show how many loan modifications they offer, how many were accepted, and how many foreclosure proceedings were initiated -- were a large step forward because they did not exist before.
"We do believe this will work to meet our overarching goal, which is keeping more Ohioans in their homes," said Strickland spokesman Keith Dailey.