Federal and State Foreclosure Initiatives Provide Relief to Pennsylvania Homeowners

The mortgage crisis hit the nation hard and fast.  Everyone – homeowners, lenders, potential homeowners, and communities - has suffered from this downturn in the housing market.  With the rising cost of gas, food, and utilities, those who already own homes are struggling to keep them and those who are considering homeownership are too afraid to even think about it.

According to the Pennsylvania Housing Finance Agency (PHFA), Pennsylvania had the 12^th highest prime foreclosure rate in the United States in 2007, and the subprime foreclosure rate was 15^th highest in the United States.

In an effort to allay some of the fears of homeowners and provide real relief in this mortgage crisis, Pennsylvania and the federal government have heeded the call to action with legislation aimed at stabilizing the housing market and giving citizens a measure of security in these hard economic times.

This package is not only rescue-oriented, it also puts the dream of homeownership back into the hands of many who believed they could not risk buying a home in this economy.

At the federal level, the American Housing Rescue and Foreclosure Prevention Act of 2008 was signed into law on July 30, 2008. The act is designed to stabilize the overall housing market and help families keep homes that are facing foreclosure. The federal law seeks to achieve this goal through measures such as increased tax credits for low-income households and first time home buyers, and by encouraging the use of housing bonds to finance rental properties and affordable housing projects. 

The Housing Assistance Tax Act of 2008 provides $400 million in tax-exempt financing for Pennsylvania. This allows PHFA to issue tax-exempt housing funds and offer help to consumers at a lower rate. This is particularly beneficial to homeowners who want to refinance their mortgages.

The new federal law also gives first-time homeowners a measure of relief by way of access to a refundable tax credit of 10 percent —up to $7,500 — of the purchase cost of their home.

In addition, it provides $100 million to Pennsylvania for grants, which will be used toward redeveloping abandoned and foreclosed houses.

In Pennsylvania, we answered the cries of beleaguered homeowners with our own legislative measures.  Following my call for action in February, the Philadelphia City Council and the county sheriff took huge steps to ease the region’s mortgage foreclosure crisis.  The city council passed a resolution asking the Sheriff’s Department for a moratorium on mortgage foreclosure sales. Sheriff John D. Green responded by immediately suspending April’s foreclosure sales. This was a great way to stem the damage being done by the mortgage crisis by allowing homeowners time to get their financial houses in order and provide policymakers with a window of opportunity to deal assertively with this crisis. 

At the time, nearly three-quarters of loans were traced to lenders who originated mostly or exclusively sub-prime loans.  In low-income neighborhoods, approximately 30 percent of refinanced loans were sub-prime.

Working with Gov. Rendell, I also strongly supported legislation to protect unknowing consumers from predatory lenders and mortgage originators.

The five bill package that was signed into law will:

• ACT 56:  Require anyone selling mortgages to pass a state background check and be licensed. Previously, mortgage companies, rather than individuals, had to be licensed.

•  ACT 57:  Forbid mortgage companies from imposing prepayment penalties on mortgages, up to $217,000, when a borrower tries to refinance with another company.

• ACT 58:  Require mortgage lenders to report foreclosures to the state Housing Finance Agency, which will track them and recommend changes, publish a list of approved credit counseling agencies and notify borrowers of counseling options when they are threatened with foreclosure.

• ACT 59:  Impose fines up to $10,000 on appraisers who inflate home values to get buyers to borrow more money than the house is worth.

• ACT 60:  Require the state Banking Department to make public all enforcement action against mortgage brokers, pawn shops, money transfer agents, even repossession firms - but not depository institutions such as banks.

A foreclosure can be devastating for an individual with dreams of building stability and wealth with homeownership.  It is also a lasting blight on the homeowner who loses equity they have built in their homes, money they have saved for their home, as well as their good credit rating.

Foreclosures also have a lasting negative effect on communities.  These vacant homes that can’t sell, as a direct result of the mortgage downturn, become ripe for vagrants and criminals, creating blighted communities that in turn lower the property values.

It is important that we not only stem the mortgage crisis going on right now, but also take steps to prevent a reoccurrence of these same problems in the future.  These measures will strengthen the flow of dollars to our mortgage markets, support regulation and provide oversight.  These are all crucial steps in the repairing of our economy and restoring the confidence of our constituents.