Lenders act to limit US foreclosures

Major lenders embark on a rescue mission to halt the wave of foreclosures sweeping the nation and delaying a housing market recovery.

from the April 26, 2007 edition

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All of this represents significant relief, but the magnitude of the problem is large and growing.

"We're struggling to provide help" to troubled borrowers, says Robert Pulster, who heads a Boston nonprofit group called Ensuring Stability through Action in our Community. "We're seeing double the problem that we were seeing last year."

The lenders themselves are careful not to overstate what the new projects can achieve. "While these efforts will help cushion the expected rise in foreclosures, we need to be clear that these offerings are not a panacea," said Richard Syron, chief executive of Freddie Mac, as he unveiled the new products at a congressional hearing April 17.

Even when the economy and the housing market are strong, some borrowers run into financial difficulty because of events such as job loss, divorce, or illness.

Over the past year, two other factors have driven the rise in past-due loans and foreclosure filings.

One is known as "payment shock," when adjustable-rate loans reset sharply upward. Lenders in recent years failed to consider whether the borrowers will be able to afford their loans once initial "teaser" rates adjust, critics charge.

The other is simply that a decade-long housing boom stalled out. Some who bought homes near the market peak – often with no down payment – owe more than the house is now worth. So selling it offers no sure escape route from foreclosure.

But foreclosure is costly for lenders, chewing up tens of thousands of dollars in missing loan payments, home-sale expenses, and property maintenance. If foreclosures are concentrated in a community and drag down home values, that's bad for lenders' business prospects.

Politicians have been prodding lenders to help at-risk homeowners. In congressional hearings, Democrats have bashed the mortgage industry for helping to create the problem. Nonprofit organizations have added to the pressure.

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