Rising levels of mortgage delinquency and foreclosure, particularly in the nation's troubled industrial and farm belts, have generated a wave of state-level foreclosure-relief legislation unmatched since the Depression.
Housing and financial industry officials estimate that some 50 bills are being considered by state legislatures across the nation, as many as four to six measures in some states.
In Maryland, Sen. Julian L. Lapides, a Baltimore Democrat, has introduced a bill in the state's General Assembly that would allow financially strapped victims of the recession to delay mortgage payments for a year.
In Pennsylvania, Gov. Richard L. Thornburgh wants to use proceeds of the state's enormously profitable lottery to cover the overdue mortgage payments of unemployed citizens.
Elsewhere, the relief proposed ranges from outright moratoria on monthly payments--proposals that cause jitters in the lending industry--to subsidies, with many bills targeted specifically to unemployed and laid-off homeowners.
The Connecticut legislature is considering a bill that would impose a six-month delay between the filing of a foreclosure against an unemployed homeowner and any court action to carry it out. A bill introduced in Rhode Island would impose a four-month moratorium on foreclosure actions against homes owned by the unemployed or persons facing personal bankruptcy. In Ohio, proposed legislation would impose a two-year moratorium on mortgage principal payments while requiring homeowners to continue paying interest, taxes and insurance costs.
In Congress, a foreclosure relief bill has been passed by the House Banking Committee, and its sponsors are trying to get it to the floor as soon as possible. Lending industry representatives have opposed the measure in testimony before the committee's housing subcommittee. In most cases, lenders also are against the bills being proposed in the states, with moratorium proposals drawing the most fire.
"If legislation were passed that were to change the covenants and conditions in existing contracts, it would have a very damaging impact on the mortgage market. It would dry up availability of funds for the housing market," said William Dwier of the National Bank of Detroit.
Industry leaders argue that lenders don't want to foreclose because they are not in the housing business. These institutions are "willing to forbear and work with their borrowers" to prevent loss of homes, said Dwier.
"If mortgage relief were determined to be absolutely necessary, I would suggest that it be narrowly targeted to help the poor, and that it be of as short duration as necessary to get us through the current economic problems," Dwier added.
In Dwier's home state of Michigan, the legislature is considering establishing a "homestead protection fund" through the sale of revenue bonds, an official said. The money would be used to help the unemployed, disabled and elderly pay property taxes and special assessments.
Some opponents of foreclosure relief legislation argue that economic recovery already is under way and soon will solve the problem.
In Pennsylvania, as in many other areas, however, delinquent mortgages still are "considered to be a serious problem," said Wayne Gerhold, executive director of the state's housing finance agency. Gov. Richard Thornburgh proposes to use state lottery proceeds to cover mortgage payments for the unemployed. Some subsidies could be continued "for a year or two or even more, until people are on their feet again," Gerhold said.
Several other foreclosure-relief bills have been introduced in the Pennsylvania Senate and House of Representatives. Pennsylvania led the way in such legislation after Allegheny County Common Pleas Judge Nicholas Papadakos declared a temporary moratorium on county sheriff sales of homes lost by the unemployed.
Three bills are being considered by committees of the Minnesota legislature. All would empower the state courts to halt foreclosure proceedings for up to a year in cases the court determined foreclosure would not "be just and equitable." One bill would cover farms, another would apply to all homesteads where the borrower was unemployed, and the third would cover all homeowners.
Trade associations for bankers, savings and loans, homebuilders and real estate brokers are opposing the measures, arguing that moratoria "won't solve the problem, but would just give people some breathing room to dig deeper holes for themselves," said Michael George, executive vice president for the Mortgage Bankers Association of Minnesota. Opponents also contend that borrowers most likely to be in need of aid would be those holding loans guaranteed by the FHA, VA and Farmers Home Administration, and that these agencies would seek and probably obtain from courts exemptions from a moratorium law.
"It's a classic constitutional question," whether a state legislature can impose a foreclosure moratorium on federal agency, George said.
Minnesota has a precedent, however. A state-imposed moratorium on farm foreclosures, enacted in 1933 and renewed for a few more years, was upheld by the Supreme Court.