News

LANSING – Stepping in where the federal government has failed to act, House Democrats and Gov. Jennifer M. Granholm today unveiled their aggressive plan to fight the epidemic of foreclosures by establishing programs to allow homeowners saddled with risky adjustable-rate mortgages (ARMs), and those who have missed mortgage payments, to refinance and secure a fixed-rate loan. The plan, which will allow more Michigan residents to avoid losing their homes, is part of the Democrats' comprehensive approach to help jumpstart the state's economy.

The plan allows at-risk low- and moderate-income borrowers – homeowners facing a spike in housing expenses due to their adjustable-rate mortgage, or residents who have already missed payments due to financial constraints – to secure a fixed-rated loan through the Michigan State Housing Development Authority (MSHDA). The agency provides loans financed through the sale of tax-exempt and taxable bonds and notes to private investors – not from state tax revenues. 

"Foreclosures don't just hurt individuals and families, they hurt entire neighborhoods and communities by leaving homes abandoned and lowering property values," said State Representative Pam Byrnes (D-Lyndon Township). "In fact, reckless lending has devastated the stock market and threatened our entire economy. We have heard from consumers, and we are taking action to protect them."

The MSHDA program allows borrowers who meet income and credit score requirements to avoid dramatic increases in their housing expenses by securing a fixed-rated loan. It would allow homeowners who have missed payments on their adjustable-rate mortgages, and who are unable to work out an agreement with their lender to avoid a foreclosure, to apply for a fixed-rated loan.  

"This refinancing legislation puts Michigan at the forefront of states' efforts to protect hard-working men and women from losing something they have spent their lives working for," said State Representative Rebekah Warren (D-Ann Arbor).

Across the country, 29 percent of home loans last year were high-rate mortgages, up from 16 percent in 2004, according to a Wall Street Journal analysis published on Oct. 11. Michigan's Detroit-Livonia-Dearborn area has one of the nation's largest proportions of new high-rate mortgages, at 32.1 percent. [1]

The analysis, in which the Journal examined more than 250 million mortgage records, finds that the subprime crisis cuts across income, race and community, and affects a far broader range of Americans than typically assumed. More and more borrowers are likely to fall behind, because as much as $600 billion of adjustable-rate subprime loans are slated to ramp up to higher rates by the end of next year.

Michigan ranks fourth in the nation in foreclosures, with 14,242 foreclosure filings in September, according to the latest figures from RealtyTrac, an Irvine, Calif.-based online foreclosure firm. That represents an 81.52 percent increase from September 2006.

Michigan ranks second in the nation when it comes to the percentage of subprime adjustable-rate mortgage delinquencies, according to MSHDA. The agency says that 17.7 percent of the mortgage delinquencies in the state are subprime adjustable-rate mortgage delinquencies.

According to federal data, subprime borrowers who are steered by brokers into signing adjustable-rate mortgages are often not informed of the inherent risks nor given the option of fixed-rate loans. Some lenders and brokers write loans they know borrowers cannot afford for the sole purpose of pocketing the fees. Federal home-loan agencies Fannie Mae and Freddie Mac estimate that 30 to 50 percent of all borrowers with subprime loans could have qualified for more affordable mortgages.

This plan builds on the Michigan Home Loan Protection Act, a Democratic House legislative package announced this summer. The Michigan Home Loan Protection Act will:

•        Ban predatory lending practices, such as encouraging borrowers to default.
•        Protect consumers from being steered toward high-cost loans when they would otherwise qualify for a traditional loan.
•        Give aggrieved homeowners legal recourse so they can independently enforce these consumer protections against unscrupulous lenders.