Massachusetts mortgage debt climbs

By Brian Goslow

Millions of older Americans are carrying more mortgage debt than ever before with more than three million at risk of losing their homes, according to an AARP Public Policy Institute research report released this summer.

There were 2,541 new foreclosure filings in Massachusetts in July, according to www.RealtyTrac.com, a website that tracks foreclosed properties nationwide.

The “Nightmare on Main Street: Older Americans and the Mortgage Market Crisis” study reported that as of December 2011, approximately 3.5 million people 50 and older were “underwater” — the term for homeowners who owe more than their home is worth — leaving them with no equity.

The percentage of Americans in that age group whose loans are seriously delinquent increased 456 percent — from 1.1 percent in 2007 to 6 percent in 2011; 16 percent of loans to the 50 and older population are underwater.

Citing the Federal Reserve, the AARP report stated that in 2010, two-thirds of the families with a head of the household age 65-74 have debt. More than half of them owe $45,000.

“Among the 50 plus population, the highest foreclosure rates are for those 75 and older,” said Debra Whitman, AARP executive vice president of policy, during a recent press conference announcing the findings. “America’s oldest homeowners have been struggling to maintain their financial security as their incomes are falling and their mortgage payments and property tax and health care costs have increased. Two-thirds of families over 75 have no money in their retirement savings.”

Adding to the problem, by age 75, one member of a couple may have passed away, leaving a single individual to struggle with the expenses. “While a person’s household income may have dropped dramatically, expenses, especially for housing, often don’t change,” Whitman said.

“We continue to see a housing market that is in turmoil. Underwater homeowners face difficulty with financing and can’t sell their house. Mortgage underwriting standards are extremely tight where only borrowers with excellent credit have access to mortgage support and mortgage financing.”

Foreclosure affects more than the finances of those involved in the process — it has lasting health consequences as well. A 2011 National Bureau of Economic Research study found “the presence of homes lost to foreclosure in a given neighborhood is associated with increases in medical visits for mental health conditions (anxiety and suicide attempts), preventable conditions (hypertension), and physical complaints that could be stress-related.”

A subsequent American Journal of Public Health study reported that mortgage delinquency was associated with increased incidents of mental health impairments and that people who were delinquent were more likely to develop depressive symptoms, and likely to cut back on food purchases and prescriptions drugs. The stigma of foreclosure was also thought to lead to isolation. “The importance of measuring the extent of this crisis and examining its impact on older Americans cannot be overstated,” the study noted.

The government sought to address the foreclosure crisis with its Making Home Affordable Program in 2009, which aimed to assist homeowners obtain loan modifications through its Home Affordable Modification Program (HAMP), and help with the refinancing of underwater loans through the Home Affordable Refinance Program (HARP), which unlike the former, was limited to loans owned by Fannie Mac and Freddie Mac. Through March 2012, approximately 990,000 homeowners had received permanent HAMP modifications while 1.8 million received trial modifications.

Two new programs were added the following year: The Home Affordable Unemployment Program (UP) for homeowners with loans not owned by Fannie Mac or Freddie Mac, and the Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HHF).

The inability to sell their home is a major problem for retirees; in the past, home equity was used as a primary savings for retirement. The decline in housing values means those expected resources are no longer available when retirees need them. In addition, a slow housing market means people who wish to move closer to their families or into assisted living facilities aren’t able to do so because they can’t sell their homes.

Financial reporter Jane Bryant Quinn said an increasing number of seniors are moving in with their children because they’re broke. “They ran through their savings, they can’t pay their taxes, they’re underwater,” she said. “They’re broke and turn to their kids.”

AARP and its partners are in the beginning stages of considering how to assist Americans who find themselves unable to sell their homes but need to move into assisted living facilities for health and safety reasons.

The findings of the “Nightmare on Main Street” report and possible strategies for dealing with them were discussed at “The Foreclosure Crisis: Ending the Nightmare for Older Americans,” an AARP Solutions Forum moderated by Quinn. Panelists included Janis Bowdler, National Council of La Raza, a national Hispanic civil rights and advocacy organization; James Carr, National Community Reinvestment Coalition, which promote access to basic banking services; Deborah Leff, U.S. Department of Justice; David John, The Heritage Foundation; and Paul S. Willen; Federal Reserve Bank of Boston.

Some of the participants felt it was time to stop looking for the government to solve the mortgage and foreclosure problem.

“We’re used to looking for mass solutions, mass refinancing,” said David John of the Heritage Foundation, a Washington, D.C.-based think tank. John asked whether it was time to move away from HAMP and mass financing programs and focus on specific responses for specific groups of troubled borrowers.

“We’re talking about real people, real individuals (as opposed to faceless programs),” John said.

Willen, who said he attended the forum “as a researcher and concerned citizen and not a representative of the Federal Reserve Bank of Boston,” said the idea that “renegotiation and principle reduction is sort of a magic bullet for the housing market. It is something that has really prevented us from solving a lot of the problems of the last six years.”

He questioned the logic of those who believe that a lender looking at foreclosing on a property would be better served by writing down the cost of the loan since it wasn’t going to recover the value of the house if the borrower walked away from his or her obligations. Willen pointed out, that even if the borrower is underwater, meeting the mortgage payments still has value.

Willen felt there was no grand proposal that would solve the mortgage problem and that each situation should be handled the same way it began — one-on-one. “Mortgages are given individually; each has to be reconsidered individually.” He said what’s needed are “small things tailored to individual situations; there are different problems and different solutions” for each individual.

Many families who have faced foreclosure have been frustrated because they don’t have the means to hire legal representation for their hearings.

“Here they have what is the most significant legal moment of their lives, yet they have to face it without legal assistance,” said Leff, of the U.S. Department of Justice. She noted there’s a new Justice Department initiative to improve access to council for those with modest means facing foreclosure and who can’t afford a lawyer.

“Foreclosures: A Crisis in Legal Representation,” a 2009 study by the Brennan Center for Justice at New York University School of Law, found foreclosure can often be avoided if people have the right legal help. “Many borrowers have legitimate legal defenses to foreclosure and those could be raised with skilled advice and assistance,” Leff said. “A lawyer can help people negotiate the byzantine loan modification process.”

Leff noted that recently instituted mediation programs appear promising, but more studies are needed on whether the process leads to more families keeping their homes. At this point, only a few jurisdictions have engaged in independent studies in this area.

“We need to know the comparative impact of intervention — what is the difference if you do or do not have mediation?” Leff said. “We have to learn what kind of housing counseling is available by region and what kind of legal assistance is most effective.”

Two and a half billion dollars was put set aside earlier this year as part of a $25 billion National Mortgage Settlement negotiated by 49 state attorney generals and the federal government with the country’s five largest loan servers that were found to have engaged in mortgage servicing abuses and having illegally foreclosed on thousands of borrowers throughout the country.

The $2.5 billion payment is intended to avoid preventable foreclosures, to ameliorate the effects of the foreclosure crisis, to enhance law enforcement efforts to prevent and prosecute financial fraud, or unfair or deceptive acts or practices and to compensate the states for costs resulting from the alleged unlawful conduct of the defendants.

Of this settlement, almost $45 million was designated for Massachusetts, most of which was to be used for the establishment of a Consumer and Community Foreclosure Relief Fund to be used at the discretion of each state’s attorney general to fund or assist programs aimed at avoiding preventable foreclosures, provide compensation for borrowers and communities found to have been the victim of unfair or deceptive acts or practices, and enhance law enforcement efforts to prevent future alleged or deceptive acts or practices.

A subsequent study by Enterprise Community Partners, a national affordable housing group, to determine whether individual states were using their money as intended, found that $6.9 million of Massachusetts’ payment went to penalties and fees while the remainder was used for the creation of the HomeCorps program, which includes loan modification, borrower representation and borrower recovery initiatives. It is run through Attorney General Martha Coakley’s office.

One issue that has frustrated many families facing foreclosure is the inability to find out who actually owns their mortgage when it’s been bought by a second party or the original lender is acquired by another institution. Payments may have been made to one company who now serves as an agent for a larger company, while the latter has no copy of the transaction in their records.

The state recently passed a new law to address this confusion.

In early August, Massachusetts Gov. Deval Patrick signed legislation that added significant procedural hurdles to foreclosing on real property in the state; it goes into effect on Nov. 1. As of that date, a foreclosure cannot be commenced until all acts of mortgage assignments from the original holder to the current holder are recorded at the local registry of deeds.