Michigan Tries To Slow Foreclosures With New Laws
June 18 2009 DETROIT MI On May 20th Governor Granholm signed new laws into effect that will put more pressure on lenders to work out loan modifications as opposed to just foreclosing.
The new laws PA 29 PA30 amp; PA 31 go into effect July 5th and force lenders to perform several addition steps before foreclosing. Interesting that the effective date falls right after Independence Day.
The new laws only apply to foreclosures started after July 5th and only on real estate that is the primary residence of a mortgage borrower. The laws also expire in two years. The state legislators appear to be pretty optimistic the housing crisis will be over by then. More likely there wont be anyone with a mortgage that hasnt been foreclosed on or had their mortgage modified by then.
Lenders will be required to give written notice to a defaulting borrower providing the name and phone number for a real person the borrower can speak with. Whats more this person has to have the authority to negotiate and approve a loan modification. Anyone thats had to deal with the customer service department at a lender can tell you how frustrating it is to get someone on the phone that can make a decision. So this is great news.
Lenders will also be required to send a defaulting borrower a list of state approved housing counselors and gives borrower the right to require a lenders authority person to meet with the borrower and the counselor to work out a loan modification. Once a borrower asks for this meeting the foreclosure is put on hold for 90 days.
The laws basically mimic Obamas Making Home Affordable program by requiring a borrowers housing related debt be no more than 38 of their gross monthly income. Also outlined is how to get to the 38 figure lowering the interest rate to as low as 3 for at least 5 years and/or extending the loan term to up to 40 years and/or deferring up to 20 of the principal balance until the end of the loan term sale or future refinance.
If the borrower qualifies under this outline but the lender refuses to approve the loan modification then the lender must go through a judicial foreclosure. This means they have to take the borrower to court a lengthy and costly endeavor. In other states where judicial foreclosure is required it can easily take 18 months for this to happen. This is a huge penalty to lenders and should force most of them to approve a loan modification.
The new laws were written so that federally chartered lenders cannot claim federal preemption and ignore state laws. A great move by the state legislators.
The only problem is that the laws dont apply to FNMA FHLMC FHA and VA mortgages. These loans are expected to follow Obamas loan modification plan but that plan is voluntary. So homeowners may still be in a pickle if they have one of these loans.
Also there arent enough counselors available to meet with borrowers and representatives from their lenders. This may work in a borrowers favor though as lenders may prefer to wait until a counselor is available versus pursing the judicial foreclosure process.
Id like to see figures on how many mortgages fall under the requirements of these new laws. Its estimated that FNMA/FHLMC currently control over twothirds of the loans in this country. Adding in FHA and VA probably pushes this number close to 75 or more. That means that these new laws may help only 1 in 4 mortgage borrowers.
About the writer: Drew Sygit writes and speaks about the mortgage real estate industries. He holds mortgage industry designations CMPS CMC CRMS CMLO CALO has an MBA and is an approved industry instructor. Hes presented spoken and/or written for HUD the Financial Planning Association Financial Planners Association of Michigan Michigan Association of CPAs Institute of Continuing Legal Education Oakland Real Estate Investors Association North Oakland County Board of Realtors and numerous industry publications. He also publishes his own blog: http://drewsmortgagenews.blogspot.com. He can be reached at dsygitTheLendingEdge.com.
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