HOWARD PITKIN – Neighborhood erosion

As more homeowners appear headed for foreclosure, more sources of aid are looking to get involved.

Statewide, the number of annual lis pendens petitions – written notice that a lawsuit has been filed concerning the title or some interest in real property – climbed 23 percent to 4,328 for the first quarter of 2007, versus 3,523 for the same period a year ago, according to data from The Warren Group, parent company of The Commercial Record. The current mark is 35 percent higher than the first quarter of 2005, which had 3,202.

Gov. M. Jodi Rell recently put together a task force to try to determine the size of the problem, and how to help people facing foreclosure. At the national level, Freddie Mac has earmarked $20 billion to help troubled borrowers, and a coalition of three advocacy groups – the National Association of Consumer Bankruptcy Attorneys, the Consumer Federation of America and the Center for Responsible Lending – is hoping to see some banking reform initiatives introduced soon in the House and Senate.

Rell’s task force, which had its initial meeting in early May, was put together to examine not only the foreclosure issue, but also the other problems stemming from the larger issue of subprime lending. The scope includes opportunities for refinancing, consumer education, state policies and what kind of assistance or guidance may be available to affected families. In addition to determining the number of families in foreclosure, the task force will try to identify the families currently holding subprime mortgages that are due for a steep upward adjustment of the rates – possibly putting the family in jeopardy of foreclosure.

“One of the issues that we want to drill down on is: How do we find these people?” said Connecticut Department of Banking Commissioner Howard F. Pitkin, who is co-chairman of the task force with Connecticut Housing Finance Authority President Gary King.

“There are a lot of people in that circumstance,” Pitkin said. Ideally, the task force can find them and help them find a way to keep their homes, he noted.

“Foreclosures can erode a complete neighborhood,” Pitkin added.

The problem is a sizeable one, with the governor’s office reporting that there are approximately $8.1 billion in subprime loans currently outstanding on Connecticut properties, and nearly 10 percent of those loans are past due.

A ‘Considerable Uptick’

Nationwide, there were 1.2 million foreclosures reported in 2006, up 42 percent from 2005, according to a report for the Congressional Joint Economic Committee, citing data compiled from RealtyTrac, First American LoanPerformance, the U.S. Department of Labor and the Office of Federal Housing Enterprise Oversight. Based on the pace of foreclosures so far in 2007, the report projects the current year’s total number will match or surpass the 2006 level.

Connecticut ranked 17th in its rate of foreclosures last year, which was higher than any other New England state, according to the report. The rate was one foreclosure for every 118 households, or 0.8 percent of the state’s households.

The report also isolated the percentage of subprime loans delinquent by 60 days or more for the month of February for the past few years. Statewide, the number has climbed from 5.7 percent to 7 percent to 10.8 percent in 2005, 2006 and 2007, respectively.

At a more local level, the February 2007 percentages were Bridgeport, 10.4 percent; Danbury, 9.6 percent; Hartford, 9.8 percent; New Haven-Meriden, 11.4 percent; New London-Norwich, 11.7 percent; Stamford-Norwalk, 8.8 percent; Waterbury, 11.0 percent; and the Worcester, Mass.-Connecticut metropolitan statistical area, 18.3 percent.

Pitkin hopes to have the findings of the state task force completed for submission to Rell by sometime in the coming fall. Another source of foreclosure relief might show itself in Congress within a matter of days.

“We know that we have folks in both the House and Senate that are seriously looking at it,” said Maureen Thompson, legislative director of the National Association of Consumer Bankruptcy Attorneys (NACBA). “And we’re hoping that they’ll be introducing it soon.”

Thompson’s association, in collaboration with the Consumer Federation of America and the Center for Responsible Lending, recently proposed some bankruptcy law changes to help subprime borrowers facing foreclosure. The proposals include enabling homeowners to refinance high-cost loans; removing time-consuming credit counseling requirements; curbing excessive fees during bankruptcy; ending mandatory arbitration in bankruptcy; creating a minimum homestead exemption for the elderly; and changing the bankruptcy code so that home mortgage loans are treated like other forms of secured debt.

The associations explained their push for changing the bankruptcy code in a joint statement released in April: “The problem is that as currently enacted, the bankruptcy code favors home mortgage lenders over virtually all other secured and unsecured creditors,” said the groups. “The amendment disfavoring protection of the debtor’s principal residence was added at a time – 1978 – when home mortgages were nearly all fixed-interest rate instruments with low loan-to-value ratios and were rarely themselves the source of a family’s financial distress. As a result, bankruptcy law singled out the home mortgage loan as the major debt for which the bankruptcy court is powerless to provide relief.”

NACBA attorneys are reporting a “considerable uptick” in the number of people coming in regarding bankruptcies, and most of that trend is being driven by foreclosures, Thompson said.

The association’s recent survey of its membership highlighted the concern. Of the bankruptcy attorneys with clients experiencing mortgage problems, 83 percent reported that subprime mortgages are a bigger problem than five years ago.