MA Attorney General Testifies in Support of New Legislation Aimed at Preventing Unnecessary Foreclosures

Attorney General Martha Coakley testified before the Joint Committee on Financial Services on Thursday in support of legislation that would prevent foreclosures. Specifically, the legislation would require loan modifications when it is in the financial interest of the borrower and the lender.

Senate Bill 868/House Bill 3516, An Act to Prevent Unlawful and Unnecessary Foreclosures was filed in January 2011 by AG Coakley and co-sponsors Senator Karen Spilka (D-Ashland), and Representative Steven M. Walsh (D-Lynn).

“The single biggest thing that we can do to spur economic recovery is to address the foreclosure crisis – this bill is part of that solution,” AG Coakley said. “This bill proposes a reasonable means to achieve large-scale loan modifications for homeowners, allowing people to stay in their homes and avoiding the negative impact of increased abandoned properties in our communities. It does this without asking the banks to sacrifice their bottom lines to do it.”

Coakley continued, “The one thing that we cannot accept, however, is to do nothing. We’ve seen the consequences of that, and too many families and our entire economy are still suffering as a result of it.”

In her recent testimony, AG Coakley pointed out that despite promises from the major banks, modifications are not occurring in Massachusetts on the scale needed to prevent further harm to communities and families. She contended that loan modifications based on a net-present value test — as proposed in the legislation — are economically sound for both lenders and borrowers.

If implemented, the bill would require creditors to modify loans when an analysis shows that it’s more profitable to modify the loan than to foreclose. The legislation only applies to loans that have been identified as having certain risky features, typically associated with subprime loans, and in which the banks knew or should have known that they were destined to fail.

More specifically, the loan modification legislation requires that creditors:

• Analyze a borrowers current monthly statement
• Analyze according to a net-present value test whether offering the borrower a loan modification to an affordable monthly mortgage payment is more valuable to the creditor than the losses it will incur upon foreclosure
• Take into account the interests of the creditor, investors and taxpayers where the creditor has received federal or state money.

The bill does not require loan modifications in all circumstances, nor does it require loan modifications that do not make economic sense.

In instances where the modification of a loan with risky features is more profitable, the creditor must identify what the affordable monthly payment would be and offer a plan that 1.) reduces the interest rate of the loan, 2.) reduces the principle of the loan, or 3.) increases the amortization period. The result is a continuing — though decreased — income stream for the lender or investor, the value of which exceeds the expected losses of a foreclosure and allows for borrowers to stay in their homes.

The legislation would also codify two recent Supreme Judicial Court Decisions, Ibanez and Bevilacqua, by requiring a creditor commencing foreclosure to show it is the current legal holder of the mortgage.

“This legislation take a common sense approach and requires that creditors complete a series of steps before foreclosing on an owner-occupied property,” said Representative Steven Walsh. “In the city of Lynn I have seen firsthand how foreclosures can devastate middle to low income families in neighborhoods I represent and this legislation can provide some extra tools to keep families in their homes and help to rebuild communities.”

Related posts:

1. Marblehead Real Estate Attorney Found Liable in Connection with Foreclosure Rescue Scheme; is Banned from Future MA Real Estate Transactions
2. Putting a Positive Spin on Foreclosures; The City of Boston Acquires, Resells and Helps Revamp 12 Foreclosed Properties
3. AG Coakley to Testify at State House on Director Compensation Legislation For Charities
4. Too Little Too Late? Utility Offers $10M for CT Power Outage Relief; Attorney General to Investigate Whether Utility Broke Laws Following October Storm
5. RI Business-Backed Group Offers Support for Revised Pension Reform Bill

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Posted by erik devaney on Nov 11 2011. Filed under Politics. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry