State and local governments across the nation responded to the foreclosure crisis by introducing a wave of new laws aimed at protecting homeowners and preventing foreclosures. Unfortunately, according to Alfred M. Pollard, general counsel for the Federal Housing Finance Agency (FHFA), some of these laws are hurting more than helping as the housing market struggles toward recovery.
Pollard, speaking before a House of Representatives committee Monday, cited estimates that state governments have introduced 550 bills related to mortgage servicing since 2009.
Pollard also referenced a recent study from the National Bureau of Economic Research, which found that state laws aimed at foreclosure prevention more often delay foreclosures than prevent them.
Some of the types of state laws causing unnecessary delays to the foreclosure process and costs to servicers and investors, according to the FHFA, include laws requiring mediation programs, laws that add priority liens to mortgages, and vacant property ordinances and fees.
For example, Washington D.C. enacted a mediation program to help homeowners avoid foreclosure. However, Pollard points out, “If a homeowner was considered for modifications or short sale, the value of the mediation, including its costs, is questionable as to any different outcome.”
The program is said to extend foreclosure timelines up to 132 days, according to Pollard.
The National Bureau of Economic Research found that most borrowers who achieve resolution through loss mitigation do so in the first 60 to 90 days of falling delinquent. Therefore, extending the foreclosure timeline is not an effective method of preventing foreclosure.
Furthermore, delaying foreclosure “simply add[s] to the cost for neighborhoods and communities and losses to lenders and investors,” Pollard stated.
“Simply permitting homeowners to stay in their homes for five or six hundred days or longer while not paying their mortgages, costs neighborhoods, costs lenders and, ultimately, costs taxpayers and future borrowers,” Pollard stated.