New Legislation Tackles Foreclosures

The new Senate Banking Committee chairman is working on legislation to address a potential wave of foreclosures and to assist families who are in danger of losing their homes.

Citing a recent study by a consumer advocacy group, chairman Chris Dodd, D-Conn., warned that the United States is facing massive foreclosures due to subprime lending practices and a "homeownership crisis of unprecedented proportions."

Sen. Dodd said he will hold hearings soon, possibly in two weeks, and he urged members of the U.S. Conference of Mayors for their input on how to avert this "looming" crisis. "If left unaddressed, the ripple effect on our cities will be enormous," he told the mayors. After this speech, Sen. Dodd told reporters that he is working on legislation that would give homeowners a grace period so they can get back on their feet.

The committee chairman also indicated that the legislation might include a rescue fund. "That is a possibility but it would have to be paid back," he said.

Last week, RealtyTrac reported a surge in foreclosures in the fourth quarter and it appears that resets of adjustable-rate mortgages are partially to blame. "As more and more loans reset, we saw a surge to finish the year, with the fourth quarter producing more foreclosure filings than any of the three previous quarters," said RealtyTrac chief executive James Saccacio. Overall, foreclosure filings rose 42% last year to 1.26 million, up from 885,000 in 2005, according to RealtyTrac, an online marketplace for foreclosed properties.

The consumer advocacy group, Center for Responsible Lending, released a study in December showing 20% of all subprime loans originated in the past two years will wind up in foreclosure.

In citing that study, Sen. Dodd said, "2.2 million families with nontraditional or subprime loans made since 1998 have faced or will soon face foreclosures because of mortgage lending practices that have been described as predatory in nature."

Economists with the Mortgage Bankers Association criticized the study. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com