Governor on board for compact
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When loans 'reset,' many will lose homes
By Dennis Willard
Beacon Journal columnist
Published on Sunday, Oct 14, 2007
COLUMBUS: On Tuesday, Gov. Ted Strickland announced a plan to address the escalating home foreclosure problem in Ohio by forming a compact with the 20 largest subprime mortgage services.
This would have been a monumental feat for the first-year governor if only representatives from those companies had been standing beside Strickland, pen in hand.
Instead, the governor was buoyed by Richard Cordray, state treasurer, Kimberly Zurz, his commerce director, and Doug Garver, head of the Ohio Housing Finance Agency.
As Strickland unveiled the terms of the compact before members of the media, he said he had not briefed the mortgage companies on the specifics, but would forward the terms later that afternoon to lenders such as Countrywide Financial, Wells Fargo Mortgage and Litton Loan Servicing.
The companies have until Oct. 22 to respond to Strickland's invitation to join him at a compact-signing ceremony Nov. 8.
Now, it may seem elementary, but a compact is an agreement between two parties.
It is something quite different from a wish, a hope, a threat or an ultimatum.
But none of those terms has the same panache as ''Compact To Help Ohioans Preserve Homeownership.''
The governor said there was nothing unorthodox about his approach.
After the news conference, Keith Dailey, his spokesman, noted the governor announced compacts earlier this year on at least two occasions with energy and higher education officials without first securing signatures or agreement.
In the higher education case, the governor briefed university officials in the morning before an afternoon announcement.
Compact's tough terms
Strickland is handing lenders a high-maintenance compact, asking them to throw a ton of time, staffing, resources, sweat equity and money at the foreclosure problem.
For example, the compact sets a start date of Dec. 1 for the mortgage companies to have one-stop toll-free numbers staffed by employees empowered to change the terms of the loans, possibly lowering the interest rate, to avoid foreclosures.
The lenders are being asked to identify, evaluate and contact borrowers in writing and on the telephone six months before their adjustable-rate mortgages (ARMs) are ''reset.'' These ARMs are suffocating Ohio homeowners. Home buyers borrow the money at below-market interest rates that allow affordable monthly payments. When that initial period expires and the interest rate is ''reset'' higher, suddenly many homeowners no longer can afford the mortgage.
The lenders are being asked to be proactive in educating borrowers about the new terms of their reset loans, including interest rates, monthly payments and options to avoid foreclosure.
Employees would staff ''live loss-mitigation'' positions and be assigned as point people for particular borrowers, and these employees would be required to document all their interactions with the borrowers or the borrowers' attorneys.
All these actions and the details are too numerous to list here must be compiled and reported to Zurz's office monthly.
Strickland has good reason for acting now because as bad as Ohio's foreclosure problem has been, it is about to become even worse.
In the coming weeks, 150,000 to 200,000 subprime ARM loans valued at $14 billion are scheduled to be ''reset'' for 2008.
Strickland's compact says ''many Ohioans will neither be able to afford the higher monthly mortgage payments resulting from these resets, nor be able to extinguish their debts by refinancing or selling their homes.''
This will lead to an unprecedented number of Ohioans losing their homes in the next 12 months.
''Extinguish their debts'' is an interesting choice of words because many homeowners will need a fire sale to avoid bankruptcy.
They will have to unload their homes at a rock-bottom price while losing any equity they amassed.
Strickland maintains that it is in the lenders' best interest to join the compact because foreclosures cost them 40 percent to 50 percent of their expected return on mortgage notes.
Everyone must wait until Oct. 22 to see how the lenders will respond to the governor's invitation, but recent history may provide a clue.
When Zurz issued a report on the foreclosure problem in September, Larry Litton, a task force member who runs one of the largest loan servicers in the country and is on Strickland's top-20 list, was noticeably absent.
On Tuesday, Zurz said Litton was out of town that day, and then she noted that no one from her office made the effort to mail the report to him to sign.
Not even for the sake of appearances.
Dennis J. Willard can be reached at 614-224-1613 or email@example.com