By Dave Gatton
December 17, 2007

A select group of mayors met with representatives from the mortgage lending industry and non-profit counseling groups in Detroit November 27 to map out ways to help the million plus families who are at risk of losing their homes next year.

Led by U.S. Conference of Mayors President Trenton Mayor Douglas H. Palmer and hosted by Detroit Mayor Kwame M. Kilpatrick, the mayors heard reports on the extent of the mortgage crisis, the development of a national counseling hotline, and the ability of the lending industry to address loss mitigation and loan modification programs to help troubled homeowners.

“This is an extremely serious issue that effects not only the threatened homeowner, but also surrounding homeowners, neighborhoods, cities, and the nation’s entire economy,” Palmer told a group of reporters following the meeting. “The federal regulators were asleep at the switch for allowing this to happen,” he said.

Prior to the meeting, the Conference and its Council for the New American City released a report on the economic impact of the mortgage crisis, saying that in 2008 home values in the U.S. would drop $1.2 trillion, gross domestic product would be stymied by a full percentage point and that the economy would produce 524,000 fewer jobs because of the crisis. The report also projected that 1.4 million homeowners could face foreclosure in 2008.

The meeting, closed to the media, was designed to engender frank discussion on how best to address the magnitude of the problem and how to minimize the negative effects that foreclosed properties could have on the value of surrounding properties and neighborhoods.

It was clear that the mayors wanted the industry, loan servicers and other lending industry representatives to aggressively move toward loan modifications to help people who were placed in loans that they did not fully understand.

“For the sake of over a million homeowners and their communities, we need to do everything we can to encourage the industry, non-profits and cities to work together to help people save their homes,” said Kilpatrick, who also serves as Chair of the Council for the New American City.

In response to the mayors call for better information on foreclosed properties, the Mortgage Bankers Association, a participant in the meeting, agreed to launch a web site data base that will help cities identify foreclosed properties and the mortgage lender or servicer responsible for the upkeep of the property. The database can be accessed at www.mortgagebankers.org/propertypreservation.

A more challenging issue identified by the group is the upkeep of property that is in the process of foreclosure. In many instances the property becomes abandoned and the loan servicer does not have authority to maintain the property properly. The property then becomes subject to vandalism, which further denigrates its value and that of surrounding properties. Often cities must bear the expense of cleaning up the property as a public nuisance.

The mayors also agreed to encourage citizens who are concerned about the affordability of their mortgage, or who are at-risk, to call the national counseling hotline 1-888-995-HOPE. Several mayors have already distributed public service announcements and other educational materials to constituents encouraging them to seek help through the hotline.

Only 50 percent of homeowners who end up in foreclosure ever call their lender or a counselor to seek help or a loan modification. Statistics show that many families can receive loan modifications if they call their lender and discuss their situation with a HUD-certified counselor.

The mayors agreed to continue discussion with the group to address and develop recommendations for the upcoming January Winter Meeting of the U.S. Conference of Mayors in Washington. Among the issues they will continue to address: the continued implementation of ad campaigns to inform borrowers about counseling services to modify loans; the need for increased counselors who are adequately trained and available to borrowers; reform of the Federal Housing Administration (FHA) enabling it to help more borrowers; development of stronger educational programs on the mortgage lending process; and legislation to end predatory lending and prevent loan abuses in the future.

Following the Detroit meeting that received major national press attention, the Bush Administration announced a deal with part of the lending industry that called for a freeze on interest rates for adjustable rate mortgages origninating between January 2005 and July of 2007.

In order to qualify the homeowner’s mortgage rate must reset between 2008 and 2010, and the homeowner must be current on mortgage payments, meet a certain credit score, and have certain loan-to-value ratios. The proposed rate freeze is not automatic. The homeowner must still call 1-888-995 HOPE, a HUD-certified housing counselor or his or her lender to determine if they qualify. It is still up to the lender to grant the mortgage rate freeze. Housing experts expect that between 200,000 and 250,000 homeowners could qualify.

The President announced a new initiative at the FHA that will expand its ability to offer refinancing to homeowners who have good credit histories, but cannot afford current payments. Over the last three months, FHA has received 120,000 applications and refinanced 35,000 mortgages. FHA officials hope to help 300,000 families by the end of next year.

The President said that the Federal Reserve would announce stronger lending standards soon and that HUD and other regulators are taking action to improve disclosure requirements to help consumers better understand their mortgages. He also called on Congress to pass FHA reform legislation and tax law changes that have passed the House but are stalled in the Senate.

The President asked Congress to act on his request to add additional funds for housing counseling services. But that effort is also stalled because the Congress and the President are at a stand-off on the level of domestic discretionary spending levels for the current fiscal year, with the President threatening a veto of an omnibus 2008 appropriations bill.