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FOR IMMEDIATE RELEASE |
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CONTACT: Destiny Zeiders |
State Rep. Peter J. Daley |
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Funds established to curtail foreclosures
Call for voluntary moratorium on sub-prime mortgage foreclosures
HARRISBURG, May 11 - House Appropriations Chairman, Rep. Dwight Evans, D-Phila., and House Commerce Chairman, Rep. Peter J. Daley, D-Washington/Fayette, joined today in the announcement of a rescue fund for problem home mortgages.
“While we’re working on new laws and new rules to tighten up the oversight of the mortgage industry, we have to find a way to extract people already caught in bad mortgages before they go into foreclosure," Daley said.
Evans, a leader in the budget negotiation process in Harrisburg, pledged the full weight of his office to secure the public and private funds necessary to create two mortgage “rescue funds.”
“It serves no one if people lose their homes,” Evans said. “The result is costly to those families as well as the rest of society, including the lenders and the loss in neighborhood stability.”
Evans, Daley and Rep. Mike McGeehan, the chairman of the banking Subcommittee of Commerce, called on the sub-prime mortgage industry to agree to a voluntary moratorium on mortgage foreclosures for six months to give the state time to create the mortgage rescue funds.
“We’re not asking the industry to suspend the foreclosure process,” McGeehan said, “but only to suspend any final actions authorizing a sheriff’s sale.”
According to Brian Hudson, the executive director of the Pennsylvania Housing Finance Agency, the two rescue funds will include a “Refinance Fund” which will use taxable bonds to move people from adjustable-rate mortgages to fixed-rate mortgages with the Pennsylvania Housing Finance Authority. Hudson’s agency will structure and operate the funds.
The second fund, dubbed the “workout fund,” will move people into fixed-rate mortgages where there are losses to be sustained as a result of the original contract process, where the result is a principle balance that exceeds the value of the property, inflated appraisals. The “workout fund” would use taxable bonds and a $25 million appropriation from the General Fund to cushion against some of the losses to be absorbed by the fund.
“This initiative by Representatives Evans and Daley greatly benefits hard-pressed homeowners who really can use the help. Their proposal works in tandem with the governor’s efforts to prevent foreclosures, and we have already had some favorable responses from the private sector and foundations about working together to help Pennsylvanians,” Hudson said.
The number of home mortgage foreclosures has skyrocketed in Pennsylvania over the last five years, mostly related to “sub-prime” mortgage borrowing, according to RealtyTrac, an industry data source. “Sub-prime” mortgages, by definition, go to borrowers with less than good credit, or some other higher risk factor, but those loans often contain higher interest rates, or formulas to escalate the interest rates, leading borrowers to default. In some cases, investigators have found that borrowers were misled about terms of the loans, or actual fraud has been committed by loan sellers.
“There are literally thousands of Pennsylvania borrowers already locked into “sub-prime” mortgage contracts that they are struggling to pay, as their adjustable interest rates bump upward. Many of these people ended up in those circumstances because of manipulative sales tactics, sometimes outright fraud,” said Daley.
It is estimated that foreclosures this year in Pennsylvania will hit approximately 9,000 to 10,000, with half of those being in Philadelphia.
“We are optimistic that the industry will respond favorably,” Daley said.
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