League of Women Voters of Milwaukee County

Mortgage migraine: Home loan troubles in Milwaukee, Wisconsin and the US

Focus: The roots and possible remedies for today's foreclosure crisis.

1. This nation faces the worst housing scenario - falling prices and financially overburdened homeowners - since the 1960s. (Source: Global financiers UBS Securities, Oct. 25, 2007 Milwaukee Journal Sentinel.)

   
   

2. About 6.5% of mortgaged homeowners had defaulted on their loans by fall 2007, including 1.4% nationwide and 1.6% in Wisconsin who were being foreclosed. The rate of new foreclosure court filings hit 0.65% - a 55-year high. Worse is expected in 2008. (Source: Mortgage Bankers Association US market survey and remarks, September 2007). Wisconsin' courts recorded 20,995 foreclosure actions in 2007, up 27.5% from 2006 and 70% higher than 2005. Milwaukee County filings totaled 5,687, up 50% from 2006. (Source: www.ForeclosuresWI.com) More than 1 million foreclosure properties were listed for sale nationwide in January 2008. (Source: www.RealtyTrac.com)

   
   

3. The future looks worse. More than $1 trillion in adjustable-rate loans are due to reset to higher interest rates in the next four years, at a pace of $40 billion to $50 billion per month - a bill many borrowers can' pay. The result: " tidal wave of defaults and foreclosures." (Source: Wells Fargo Bank economist Scott Anderson, Oct. 27,2007, Milwaukee Journal Sentinel/McClatchy News Service.)

   
   

4. Misfortune - death, divorce, unemployment, illness and injury - doesn' fully explain this crisis, nor do the facts that housing costs are rising faster than incomes and real estate sales are soft. Aggressive lending, particularly costly but quick subprime mortgages, was rampant in recent years, peaking in 2006-2007. High-cost loans accounted for 45% of Milwaukee County mortgages in 2006. (Sources: University of Wisconsin-Milwaukee Employment &Training Institute, Oct. 2007; Association of Community Organizations for Reform Now, Sept. 2007; Metropolitan Milwaukee Fair Housing Council, March 2007; University of Wisconsin-Extension Service, Dec. 2002)

   
   

5. Government regulators and lawmakers agree that both relief and reform are needed, but are divided on what to do. Among the proposals pending before the US Congress in 2008: stricter governance of mortgage bundlers Fannie Mae and Freddie Mac, retooling the Federal Housing Administration insurance program to assume privately-written mortgages considered endangered but salvageable, prohibiting lenders from steering customers with prime credit into costlier subprime loans and licensing mortgage originators to better track " apples" across state lines. (Source: Cox News Service, Jan. 13, 2008)

   
   The Federal Reserve Board has urged lenders to consider freezing the interest rates on all adjustable-rate mortgage customers who are paying on time now but due for payment hikes they can' afford. President George Bush has suggested a five-year freeze, a move which the US Securities and Exchange Commission ruled would not violate lenders' fiduciary duties. (Source: Bloomberg News, Jan. 12, 2008.)

   
   In Wisconsin. Milwaukee-area legislators Sen. Jim Sullivan and Rep. Jon Richards late last year co-sponsored the Homeowner Protection Act (SB298 and AB 568) to curb abuses in the foreclosure conveyance business. This industry, whose members call themselves mortgage rescue operators, are property investors who promise defaulting borrowers a way to save the house - by selling or signing over title to the investor, with a buyback provision.

   
   This legislative proposal, pending in January 2008, would require a written contract on all foreclosure conveyance transactions, with a five-day right to cancel; define misrepresentation or deceit in such deals as a legal fraud; require that repayment schedules be scaled to borrower finances; prevent eviction proceedings if a customer complaint is pending against the investor and establish penalties up to $10,000, a year in jail and/or 150% damages for violations. (Source: www.legis.wi.gov/senate/sen05/news)

   
   

6. As public debate continues over relief and reform, private legal actions are underway. Wisconsin has one possibly pivotal case - Susan and Brian Andrews vs. Chevy Chase Bank , a 2005 case in US District Court in Milwaukee. In 2007, the Andrews won a class-action case which awarded affected borrowers the right rescind their mortgage and collect damages. The case is on appellate-court review. (Source: WisBar magazine, December 2007.)

   
   

   -- Michele Derus, Jan 15, 2007

   
   

   
   
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