These banks step in to avert foreclosure
A handful of community-development institutions offer modified interest rates to at-risk borrowers.
By G. Jeffrey MacDonald | Correspondent of The Christian Science Monitorfrom the June 30, 2008 edition
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Last year, Rudy Villareal was living the nation's housing crisis. His two subprime, adjustable-rate mortgages were due to reset at 12 and 13 percent. At those rates, losing his family's first home was an all-too-real possibility.
But Mr. Villareal, a City of Chicago laborer with a wife and 11-year-old son, got a home-saving break through a for-profit program financed by socially minded depositors. Chicago-based ShoreBank saw his solid payment history and put him in a 30-year, fixed-rate mortgage at an affordable 6.75 percent.
"Everybody else wanted me to have perfect credit, but it doesn't always work that way," he says. "Now I'm not stressed out to the point of, 'What am I going to do next?' "
While millions of Americans are struggling to hold onto their homes in the midst of a housing-finance crisis, a handful of mission-driven banks are riding to the rescue.
For now, they are offering programs that will help just a few pinched homeowners and neighborhoods on the precipice of blight.
"Most banks are running as fast they can away from this issue," says David Reiling, CEO of Sunrise Community Banks, a family of three community-development banks trying to help improve troubled neighborhoods in Minnesota's Twin Cities area. "We're running into the fire."
The rescuers are arriving none too soon. This month, the Mortgage Bankers Association reported that 8.8 percent of mortgage loans were either past due or in foreclosure at the end of March. That rate – the highest since the association started keeping track in 1979 – represents 4.8 million loans. More than 1 million of those loans are already in foreclosure, and that number is expected to climb as adjustable-rate mortgages reset at higher rates in the months ahead.
The problem's scale is too vast for a sweeping remedy to come from just a few community-development banks, which are for-profit institutions that cater to underserved communities.
Nevertheless, on a micro scale, this banking niche is plugging gaps in a federal relief program and enabling at least a few hundred homeowners and perhaps more to keep roofs over their heads.
The HOPE NOW Alliance, a federally supported program that freezes certain borrowers' interest rates for as long as five years, has observers saying homeowners need assistance that goes further. According to an April report from the Washington, D.C.-based Pew Center on the States, HOPE NOW "excludes borrowers who have already defaulted on their loans and are already on track to lose their homes in foreclosure." It also excludes borrowers whose rates reset before this year.
In most cases, homeowners at risk of foreclosure need their loans permanently modified to include affordable fixed rates, says Elizabeth Renuart, staff attorney for the National Consumer Law Center, a Boston-based advocacy group with a focus on consumer-credit issues.
"These are adjustable-rate mortgages, so even if there's a moratorium [on rate increases] and there's a fixed rate for a temporary period of time, there's going to be a reckoning at some point," Ms. Renuart says.
Where possible, community-development banks are vying to fill this void. For instance, in Milwaukee, where courts are hearing dozens of foreclosure cases every day, Legacy Bank quietly began refinancing loans in April for a handful of individuals identified through an informal referral network that includes churches and schools.
"If we announced this program, it would be like driving a bus up to the front door of the bank" because demand would be overwhelming, says Margaret Henningsen, the bank's vice president and founder.
These new Legacy customers are primarily African-Americans and Hispanics who fell behind on payments only after their loans reset at higher rates. They're not bad risks, Ms. Henningsen says, because they had always paid on time when their monthly payments were a manageable size. Now if they pay on time over a 12-month probationary period with Legacy, they become eligible for a 15- or 30-year fixed-rate mortgage.
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