INDIANAPOLIS – The American dream of owning a home has become a nightmare for many Hoosiers who have been caught up in Indiana’s foreclosure epidemic.
That’s why a legislative panel was assigned to study the issue last summer. It has now reached consensus on a number of recommendations.
The administration has also been busy as the Indiana Housing and Community Development Authority last week unveiled a foreclosure prevention network.
“There are far too many Hoosier homeowners having trouble making ends meet. They need to know help is available,” Lt. Gov. Becky Skillman said. “The earlier homeowners reach out for help, the more options they have to avoid foreclosure.”
Problems linked to mortgage fraud and high foreclosures have plagued the nation, with Indiana leading the pack.
A study by the Mortgage Bankers Association indicated that 2.98 percent of all loans in Indiana are in foreclosure, compared with 1.28 percent nationally.
This puts Indiana behind only Ohio in terms of foreclosure rate.
The Center for Urban Policy and the Environment also studied Indiana’s foreclosures from 2002 through 2005 and found a higher concentration in urban areas. These areas are also spreading each year.
Thomas Dinwiddie, an attorney for the Indiana Mortgage Bankers Association, testified about the rise of the subprime mortgage market in the U.S. By making loans available to less creditworthy borrowers, the subprime industry has led to record levels of homeownership. But the number of loan defaults has correspondingly increased.
Dinwiddie also said that Indiana’s high foreclosure rate is not as highly correlated with the subprime market as it is in other states.
Help now available
To reduce the number of home foreclosures in Indiana, the state launched an initiative to assist Hoosiers.
It includes a Web site and telephone hotline for free mortgage foreclosure counseling and offers education for at-risk homeowners. The address for the Web site is www.877gethope.org and the hotline number is 877-GET-HOPE.
The Indiana Housing and Community Development Authority also will start a public awareness campaign, “Don’t Let the Walls Foreclose in on You.” Brochures and posters are being distributed to encourage Hoosiers to call the help line or visit the Web site.
A media campaign is expected to roll out early next year with targeted outdoor advertising, newspaper advertising and 60-second radio commercials in areas of the state experiencing higher rates of foreclosure.
Sherry Seiwert – executive director of the state housing authority – said the cost of the program is about $1.2 million annually. The agency is contributing $300,000 while the General Assembly put in $400,000. The group is raising money to cover additional costs.
“If a homeowner thinks they are even beginning to get in trouble, now is the time to call,” Seiwert said. Even if the foreclosure process has already begun, the counselors might be able to help with loss mitigation.
But legislators aren’t waiting to see the results from the prevention network. They are moving ahead with dozens of recommendations from the Interim Study Committee on Mortgage Lending Practices and Home Loan Foreclosures.
“Our goal is to protect Hoosier homeowners and our neighborhoods,” said the panel’s chairwoman, Sen. Connie Lawson, R-Danville. “I believe this committee’s recommendations continue the work started last session to improve the mortgage lending and foreclosure climate in our state.”
One recommendation requires lenders to provide prospective borrowers a summary including the maximum interest rate that could be applied to a loan as well as the maximum monthly payment that could be required.
Lawson said this would be an “eye-opener” to many borrowers who focus solely on the current required payment.
“This is where consumers get in trouble,” said committee member Sen. Tim Lanane, D-Anderson. “They don’t understand exactly what they are looking at when an adjustable rate mortgage adjusts.”
But committee member Rep. Randy Borror, R-Fort Wayne, questioned whether this change will make any difference, especially since it will be one more piece of paper in a large stack for the borrower to sign at closing.
“I question that as being a solution to the problem,” he said. “You are signing your name so many times to so many documents. You can push back closing to review the documents if you so choose. You are in control of that process.”
Another key recommendation, according to Lawson, is to restrict lenders from imposing prepayment penalties on high-risk loans.
She said there are people with adjustable rate mortgages who would benefit from refinancing but they can’t get out of the original loan because of excessively high prepayment penalties.
Other suggestions include:
•Recommend school corporations include a financial literacy program for primary and secondary students.
•Increase civil and criminal penalties for fraudulent lending practices and violations of state lending laws.
•Require that mortgage-closing documents include a one-page document that must be signed by the borrower including the names and license or registration numbers of all parties involved in the mortgage transaction.
There were also some ideas that did not receive the committee’s blessing but could come up during the legislative session.
Several members of the panel wanted to prohibit lenders from offering stated-income or reduced-documentation loans.
Most banks or mortgage companies require payroll stubs or W-2 forms for evidence of the homebuyer’s ability to make payments on a loan, but some do not.
And, on the fraud side of the foreclosure problem, some want to hold lenders accountable for activities of the loan brokers or appraisers involved in fraudulent loan transactions.
Borror said the state needs to tighten its laws for appraisers and mortgage brokers, but he cautioned against overregulating the industry.
“We must also understand that there is an element of personal responsibility any time anyone enters into a home contract for a home or car, whatever,” Borror said. “I am not someone who is going to propose multiple regulations across industry lines where we kill the golden goose.
“It’s a delicate balance.”