OHIO Rep. James A. Traficant Jr. wants to help financially strapped homeowners avoid foreclosures on their mortgages. That's a fine goal. To accomplish it, Mr. Traficant successfully pushed for an amendment to the housing authorization bill that was passed by the House last month. His amendment would authorize $30 million in counseling services for homeowners who have lost their jobs or whose income has dropped through no fault of their own. The $30 million would go to federally approved nonprofit groups to give homeowners a financial assessment along with help in developing a budget and in negotiating payment plans with the mortgage lender and other creditors. That's fine too. But the second part of Mr. Traficant's amendment calls for a six-month delay on lenders who are about to foreclose on delinquent homeowners. It is a bad idea.
Under the amendment, homeowners who are three months delinquent on their mortgages can ask for help, postponing a foreclosure for six more months. But many lenders and homeowners already negotiate their problems on a case-by-case basis, holding off foreclosures for as long as 18 months in some cases. That's when a frank financial assessment and honest negotiation are needed, not when the lender has given up and is about to foreclose. By one estimate, fewer than 5 percent of all Federal Housing Administration borrowers who are in default are ultimately reinstated. Lenders and investors will face six more months of lost income. Future home buyers could bear the cost of that with higher mortgage payment rates, priced higher because of extended default periods.
Mr. Traficant's amendment grew out of his own experiences as a sheriff in a depressed part of Ohio; he refused to sign eviction notices against unemployed workers. His heart is in the right place. Homeowners who acknowledge financial problems when they arise, and not several months down the pike, can benefit from more funds for financial counseling. But the six-month foreclosure delay should be dropped from the housing bill in the upcoming House-Senate conference. Mr. Traficant is apparently willing to negotiate. One can help homeowners keep their homes without disrupting the mortgage markets in a way that results in higher interest payments for everyone.