Regulator Calls for Lenders to Stop Foreclosures
Wednesday, February 11, 2009; 5:18 PM
The Office of Thrift Supervision today called for the mortgage lenders it regulates to halt foreclosures until the Obama administration puts in place a program to help struggling homeowners.
After presenting a plan to boost the financial sector yesterday, Treasury Secretary Timothy F. Geithner said that a $50 billion initiative to help homeowners facing foreclosure is not expected for at least a week. The delay and the price tag -- it was the low end of expectations -- disappointed consumer advocates and lawmakers anticipating the announcement.
OTS is joining consumer advocates and some in Congress, including Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who have called for lenders to institute a moratorium on foreclosures in the meantime. This adds to the pressure facing the administration as it finalizes details of the plan amid growing frustration about the ineffectiveness of government and industry efforts to stem foreclosures.
Geithner and Shaun Donovan, secretary the Department of Housing and Urban Development, also met with more than two dozen officials from large banks, nonprofit groups and industry groups today to discuss foreclosure prevention plans. The discussion, held at the Department of Treasury, lasted for more than an hour.
"The thing that was striking was the uniformity of support for the idea that we can no longer rely on a voluntary system" under which the financial services industry leads the foreclosure prevention effort, said John Taylor, president of the National Community Reinvestment Coalition.
There was also strong support for a program to have the government buy troubled mortgages held by lenders at a discount and put the borrowers through a modification program, he said. "I know that is going to cost some people some money, but the truth is the foreclosures keep driving us further into this recession," said Taylor.
Government officials have said the new loan modification program would be a "more aggressive version" of the one launched late last year by mortgage financiers Fannie Mae and Freddie Mac. That program has been criticized for not going far enough to help homeowners. "We want to get a plan as soon as possible because the delay is causing homeowners to suffer even more than they have," said Pam Banks, policy counsel for Consumers Union. "Time is of the essence."
The temporary moratorium being called for by OTS may be beneficial since the administration's plan could provide assistance to lenders that modify troubled loans, said Bob Davis, executive vice president for the American Bankers Association, an industry group. "I view this is a prudent reminder to banks that a new solution may be coming," he said.
ING Direct, one of the largest thrifts regulated by OTS, said it already has a moratorium in place through the end of March. "We're not living under normal circumstances and we have to act differently and help everybody to get by as well as possible," said Cathy MacFarlane, a company spokesman.
Last year, Fannie Mae and Freddie Mac temporarily suspended foreclosures during the holiday season so more people could be included in the loan modification program they had unveiled. Fannie Mae extended its moratorium for owner-occupied properties through the end of this month and said it has been able to help about 13 percent of the thousands of homeowners that were scheduled for foreclosure during the moratorium.
OTS regulates more than 800 savings and loans across the country, including American Bank in Rockville and First Market Bank in Virginia. "OTS-regulated institutions would be supporting the national imperative to combat the economic crisis by suspending foreclosures until the new plan takes hold," John Reich, the agency's director, said in a statement.
The foreclosure rate has been rising and appears to be accelerating as the recession deepens. As housing prices continue to plummet, lawmakers are also considering legislation to allow bankruptcy judges to modify loans, including lowering the principal owed on the mortgage to the current value of the home.