The Federal Housing Finance Agency (FHFA) had sharp words early this week for state and local governments that have passed laws meant to help homeowners facing risk of foreclosure.
A top official for the agency, which is charged with minimizing taxpayer losses from Fannie Mae and Freddie Mac, told members of Congress that those laws are slowing down the foreclosure process, ultimately to the detriment of everyone involved.
"In short, many state laws that stretch out the period for legitimate foreclosures — after every effort is made to avoid foreclosure and to keep homeowners in their homes — result in no added benefit for the homeowner and produce harm to the housing finance system and to neighborhoods," FHFA General Counsel Alfred Pollard said in written testimony for a Brooklyn field hearing before the House Oversight Committee.
"It would be very valuable for states and localities to pause in their passage of rules that may create impediments to smooth foreclosures and to review the balance between homeowner protections and the movement to efficient and professionally undertaken foreclosures," Pollard added.
In his testimony, Pollard singled out certain cities and states for enacting laws that he said contribute to the problem.
He cited a Washington, D.C., mediation law that can extend the foreclosure timeframe by up to 132 days. Other examples include a Worcester, Mass., ordinance requiring a $5,000 bond be posted at the time of foreclosure in order to ensure proper maintenance of the home, and a Nevada law forcing owners of foreclosed properties to pay the legal fees of homeowners associations that seek unpaid dues from the former occupant.
Pollard also criticized a New York state law that requires a mediation conference before a foreclosure can proceed.
"Because of frequent postponements, each with an average 45-day time frame, these conferences have added to delays that may approach six months or a year," Pollard said. "In some instances, the conferences have proceeded over such a long time that information brought forward by borrowers is simply stale, and the process must begin again."
But a New York consumer advocate suggested mortgage servicers — not the state's mediation law — are to blame.
Meghan Faux, deputy director of South Brooklyn Legal Services, which represents homeowners in New York's mandatory conferences, on Monday testified that servicers routinely delay the process and refuse to negotiate loan modifications.
"Banks and lenders still routinely violate federal and state regulations as well as the provisions set forth in the settlement conference procedures, often without consequence," Faux said in written testimony.
"These delays, and plaintiffs' refusal to provide accurate, complete information to the borrower, make it difficult to negotiate effectively at the conferences and ensure that homeowners' applications are properly reviewed," she said.
In an interview, National Consumer Law Center attorney Alys Cohen said Pollard's comments reflect the FHFA's view that foreclosures should be expedited above other options for troubled loans.
"And that view is what has made it so hard to get loan modifications under Fannie and Freddie loans," Cohen said. "And it's a short-sighted point of view."