Help for Lender Foreclosures, Not Tax Foreclosures

by Donald Hanz on Foreclosure Help

Two housing advocates in California have called on President Barack Obama’s administration to expand its foreclosure program in order to help more distressed homeowners. They said the requirement that borrowers’ loans must not be more than 5 percent higher than the value of their homes will exclude many homeowners in California.

Assemblyman Ted Lieu, author of the foreclosure moratorium legislation signed by Governor Arnold Schwarzenegger, said many borrowers in California owe more than the value of their homes by over five percent. This makes them ineligible for refinancing with Fannie Mae and Freddie Mac.

The other California advocate, Columbia Business School professor Christopher Mayer, has called for a refinancing of all Freddie Mac and Fannie Mae loans by increasing the loan-value ratio for loans. Researchers at the school’s real studies center said over 30 percent of borrowers in San Diego and San Bernardino counties owe more than the refinancing limit. In Los Angeles County, there are 29 percent of borrowers who do not qualify for refinancing because of the less-than-5-percent restriction.

In addition to Lieu and Mayer, the U.S. Congressional Oversight Panel has also claimed Obama’s plan does not do enough in helping homeowners facing foreclosures. The panel even called for help for second mortgages. But no one remembered tax foreclosures. Perhaps because tax foreclosures have been normal occurrences long before the foreclosure crisis, or perhaps because the number of tax foreclosures is not as overwhelming as the number of lender foreclosures.

But the current economic downturn has also adversely affected groups of homeowners who are facing tax foreclosures or have lost their properties to tax foreclosures. But these troubled homeowners are not receiving assistance similar to what borrowers facing lender foreclosures are getting.

Despite flaws in Obama’s foreclosure program, Lieu and Mayer applauded the administration for launching it. Lieu said Obama is making efforts to help troubled American homeowners, in contrast to the Bush administration which gave away billions of money to the banks without allocating anything to foreclosure-troubled Americans, some of whom could also be bothered by tax foreclosures.

Nevertheless, Lieu called on administration officials to increase the refinancing limit to 115 percent to help more homeowners in California save their homes from foreclosures.

Mayer also called for the provision of legal protection to mortgage servicers involved in loan modification. He said servicers are hesitant to help borrowers pursue loan modifications because of the threat of lawsuits from mortgage-backed security owners.

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