Congresswoman says a halt to foreclosures would allow lenders and loan servicers time to ‘get their act together’

TUCSON – U.S. Rep. Gabrielle Giffords today called for an immediate three-month national moratorium on foreclosures so lenders and loan servicers can address rampant problems that have led to homeowners being wrongly removed from their homes.

“Foreclosures are at an all-time high nationally and Arizona has the third-highest foreclosure rate in the country,” Giffords said. “Standing by and doing nothing is not an option when the men and women I represent face the prospect of losing the roof over their heads. A moratorium would help make sure that homeowners facing foreclosure will be treated fairly.”

Giffords’ call for a moratorium comes amid numerous reports of turmoil in the home lending industry. A story on the front page of today’s New York Times reported that “questionable foreclosure practices” are plaguing two of the country’s biggest home lenders.

One of those lenders, JPMorgan Chase, announced Wednesday that it will freeze foreclosures for 56,000 borrowers in 23 states because of flawed paperwork. According to a front page story in The Washington Post, the problems included a bank employee who signed off on thousands of foreclosure affidavits without reviewing them thoroughly.

On Sept. 20, Ally Financial, formerly GMAC Mortgage, halted evictions and the resale of repossessed homes after it disclosed similar problems.

“One family wrongly foreclosed on is a tragedy we simply cannot accept,” Giffords said. ”The widespread disarray among lenders and loan servicers is making a bad situation worse for many homeowners. A moratorium would give lending institutions and servicers time to get their act together and prevent any more mistakes from being made.”

The congresswoman wants lenders to voluntarily follow suit and believes that a three-month halt to foreclosures would provide lenders and loan servicers sufficient time to rectify many of the problems. She also believes that there should also be mandatory mediation by an independent third party.

According to the latest figures, one in every 165 homes in Arizona is in the foreclosure process. Only Nevada and Florida have higher foreclosure rates.

Cris Yonsetto Poor, director of Family Housing Resources, a Tucson non-profit homeowner advocacy organization, welcomed Giffords’ call for a moratorium.

“Congresswoman Giffords is doing the right thing by calling for this moratorium,” she said. “As counselors, we must repeatedly make sure that the lenders have the updated information that we have sent them. When a case nears the foreclosure date but is still pending a modification, we not only call the servicer, but also call the foreclosure attorney at least weekly to request that foreclosure plans be postponed to allow more time for the modification. Often times, the two do not communicate. I hesitate to think about what could happen if we miss making one of these calls.”

Beverly Parker, housing and public benefits manager for Southern Arizona Legal Aid, also applauded the move. “It would be great to have a moratorium,” she said “With a moratorium, we would be able to work with homeowners and negotiate in a less stressful environment.”

Parker said there are frequent communications problems among divisions in a lender’s organization that leads to unexpected foreclosures. Arizona law requires that homeowners who face foreclosure be told the date of a trustee’s sale of the property. But if that sale is postponed, there is no legal requirement that the lender tell the homeowner of the new sale date, Parker said. That has led to some homeowners being evicted and having their mortgage foreclosed while they believed they still were in negotiations with their lender.

Evelia Martinez, the special projects manager for Don’t Borrow Trouble, said her foreclosure avoidance organization supports any efforts to halt foreclosures.

“We continue to see families displaced because of the servicers’ lack of action or incorrect action when assessing homeowners’ qualifications for mortgage modifications,” she said. “We have families that have been struggling in excess of two years to have their mortgages modified.”

Since January 2009, Giffords’ office has been contacted by at least 600 Southern Arizonans who were facing the risk of foreclosure. About 85 percent of those homeowners were dealing with problems caused by lender delays in processing paperwork, lenders that have lost paperwork or lenders that have not responded to repeated requests for information.

“The problems we are seeing approach gross carelessness,” Giffords said. “Just two days ago, my office helped a family that has lived in their home for 12 years. In one hand, they had a letter from their bank stating they were being reviewed for a loan modification. In the other, they had a summons to appear in court to be evicted.”

But, the congresswoman added, this was just one of many similar cases.

“Earlier this week, my office contacted a lender who was foreclosing on a constituent’s home,” she said. “The lender claimed to never have received my constituent’s signed loan modification agreement and mortgage payment. My office provided the lender with the delivery confirmation tracking number, the name of the employee who received the delivery and proof of the cancelled check. We had to prove to this lender that not only had they received the documents, but had also already deposited my constituent’s payment.”

One of the most appalling cases in which Giffords’ office got involved concerned a Gulf War veteran who was chronically two weeks late on his mortgage because he was undergoing chemotherapy. His attempts to work with his bank proved fruitless, his home was foreclosed and he was served with eviction papers.

“Only after my office stepped in did the bank agree to allow this veteran to keep his home,” Giffords said. “Human tragedies like this should not be happening.”

Giffords also is cosponsoring legislation aimed at reducing to market rates 30 million mortgages held or backed by Fannie Mae and Freddie Mac.

The Housing Opportunity and Mortgage Equity (HOME) Act was introduced in the House this week by Rep. Dennis Cardoza, a California Democrat. The bill would stabilize the foreclosure crisis through the federal government’s conservatorship of Fannie Mae and Freddie Mac. It would use the federal government’s conservatorship and backing of Fannie and Freddie mortgages to secure the current low market rates for longer fixed terms.

The bill would help stabilize the housing market by decreasing the inventory of foreclosed homes and reducing declines in property values from issues surrounding blight and abandonment. At the same time, those with mortgages backed by Fannie and Freddie would have additional disposable income, providing a direct economic stimulus.

The legislation initially was introduced in January 2009. It has been modified based on new input received from leading economists and the House Financial Services Committee. It also reflects changes in the housing market.

It was reintroduced with development from Columbia Business School Senior Vice Dean Christopher Mayer and Moody’s Analytics Chief Economist Mark Zandi. The proposal has gained increased interest as more economists realize that measures aimed at addressing the foreclosure meltdown have not been sufficient.

Mortgages currently held by Fannie Mae and Freddie Mac that meet some basic criteria will qualify for the opportunity to refinance without penalty fee barriers. To fund the program, Fannie and Freddie would issue new mortgage-backed securities to fund the refinanced mortgages and use the proceeds to pay off the existing mortgages.

Fannie and Freddie would receive the same cash flow to cover default risk that they do now, passing along the reductions in financing costs to borrowers.