Michigan tries to slow foreclosures

Michigan Foreclosure News & Information

Mark Hornbeck / Detroit News Lansing Bureau

LANSING -- Scrambling to do something about Michigan's rampant home foreclosure problem before the holidays, Gov. Jennifer Granholm and lawmakers are working on a flurry of bills to ease the squeeze on cash-strapped homeowners.

Various measures would place a moratorium on foreclosures, require advance notice and give those who can't meet their monthly payments some breathing room to refinance. The key bills being considered would require mortgage lenders to give 45 days' notice in advance of a home being placed in foreclosure and mandate that the lender report to the state. There is no such time frame set in law now. A bill in the Senate would require 90 days' notice.

Using that information, the state banking regulator would determine whether a subprime loan should be extended for 30 days, giving the lender and borrower a window to work out a new payment plan. That legislation passed the Democratic House last month and is supported by Granholm, but faces an uncertain fate in the Republican Senate.

"I'm fairly confident something will get done on this very soon. Everybody agrees that the mortgage foreclosure process in this state doesn't work well in the economic situation we're in," said John Llewellyn, chief lobbyist for the Michigan Bankers Association. "But if you don't have the economic capability to live in your house, then you're in trouble. That won't change."

Another fact unlikely to change soon: Because of the financial market meltdown, the auto industry collapse and other economic woes plaguing Michigan, this state will continue to have a high rate of foreclosures. Nearly 2 percent of all households -- a total of 87,210 -- were in foreclosure last year, ranking Michigan third in the nation.

The state's foreclosure rate -- the percentage of all loans in foreclosure -- has doubled since mid-2006 to 3.6 percent in the second quarter of this year, according to a Mortgage Bankers Association survey, well above the U.S. rate of 2.75 percent.

In addition, more than 25,000 homeowners with subprime loans were in foreclosure in the quarter, about 1in every 7. A subprime loan is made to a borrower who does not qualify for the lowest market interest rates because of credit problems or other underwriting deficiencies.All involved say the foreclosure process in Michigan is highly flawed. Borrowers contend they don't have enough time or opportunity to restructure their loans. Lenders say they're not getting enough information up front from homeowners to head off a problem. Neighbors are miffed because homes abandoned in foreclosures sit vacant for months, devaluing surrounding properties.

"What's clear ... is we don't have a foreclosure process that works for anybody," said Rep. Andy Coulouris, D-Saginaw, who chairs the House Banking &Financial ServicesCommittee.

Coulouris is among those who say an improved system will include a mediated settlement plan the state can monitor. Ken Ross, state commissioner of the Office of Financial and Insurance Regulation, also backs the House bills.

"This legislation ... would give an opportunity for those who have subprime loans and might be able to pay some amount to take a breather from the process before they go into the foreclosure loop," he said.

Mortgage lenders say they're already responding to the need to restructure loans for those who can do it, so the need for state oversight is minimal.

"The market is responding to this national crisis in an aggressive way," said Murray Brown, director of development for the Michigan Mortgage Lenders Association. He added that putting in a 30-day freeze law here would put Michigan out of step with other states and make it more difficult for subprime borrowers in this state to get credit in the future.

Sen. Randy Richardville, R-Monroe, who chairs the Senate Banking & Financial Services Committee, said the House bills are "aiming in the right direction" and stand a better chance of final passage than a measure introduced by Sen. Hansen Clarke, D-Detroit, calling for a two-year moratorium on foreclosures.

Richardville said he may prefer expanding the lled "Save the Dream" plan that broadens the traditional role of the Michigan State Housing Development Authority from helping residents buy their first homes to helping people stay in their homes.

He said legislation might also need to address another problem: When a house returns to a bank, it's often in disrepair, sometimes because the owner vandalized it in protest of foreclosure.

"Letting people stay in their homes and pay rent until they get back on their feet is one possibility we're looking at."