LEGAL NOTES

Despite increasing publicity about foreclosures, most borrowers in the United States who are struggling to keep up with mortgage payments are unaware that there is some relief for them. As concerns about the state of the housing market and foreclosure crisis mount, people are asking more and more questions about what our state and federal governments are doing to provide mortgage and foreclosure relief. Here is the latest news on foreclosure relief, designed to help you inform your clients on what they can do to avoid foreclosure.

RealtyTrac, a data collection company, reports that lenders started the foreclosure process on nearly 1.3 million properties last year, a 75 percent increase from 2006. Nevada had the highest foreclosure rate during every month in 2007, with 17.5 percent of home purchases coming from foreclosures—more than quadruple the number in 2006. Given these statistics, it is hard to ignore the fact that the foreclosure situation is ruining the lives of many people. Fortunately, some actions already have been taken that should ease foreclosure distress.

One of the biggest efforts we have seen is the Federal Reserve's decision to lower interest rates. This will allow many homeowners to refinance their mortgages at more affordable rates. However, for homeowners on the brink of foreclosure, this may not be enough.

To further reduce the burden, recent legislation will also make it easier for homeowners in states with high housing prices to refinance. A measure, just signed by President George Bush as part of his economic stimulus package, will allow Americans with more expensive homes to refinance their home loans at cheaper rates. It includes a temporary increase in the size of mortgages that can be backed by the government, increasing the limits on Fannie Mae and Freddie Mac to $729,750 from $417,000 for loans made from July 31, 2007, to December 31, 2008. This will help high-end borrowers who are locked into subprime loans qualify for better rates.

In December 2007, the Bush administration introduced Hope Now, which offers a moratorium on interest rate hikes for subprime borrowers who are still current on their mortgages. Now, it's called Project Lifeline, and its scope includes delinquent mortgage holders of all types.

Six major financial institutions, including Bank of America and Wells Fargo, have committed to participating in Project Lifeline, working with homeowners who are 90 or more days overdue on monthly mortgage payments and offer them a 30-day delay in the foreclosure process. This will help lenders and borrowers alike, as borrowers will get more time to straighten out their affairs and lenders can avoid the high cost of foreclosure by restructuring the loans.

At this point, it is still unclear how many borrowers will be helped by this initiative. And because lender participation is voluntary, critics argue that the mortgage help may not be offered by most banks. Also, the strategies fail to help those who are already in foreclosure or have entered bankruptcy. Nor do they help those in danger of losing their property within 30 days.

In addition, lawmakers at the state and federal level are considering numerous bills designed to prevent the foreclosure crisis from getting worse. Many of these bills will require lenders to better educate consumers about the specifics of their loans, including how much their loans will cost, how much payments will rise if the loans have an adjustable rate, and what will happen if they default on the loans. By helping educate the public about the dangers of subprime loans, officials hope that lenders and investors will be more cautious in the future.

The Mortgage Reform and Anti-Predatory Lending Act of 2007, House Resolution 3915, recently passed, establishing certain minimum standards for creditors to consider before granting a loan, including the borrower's reasonable ability to repay the loan. Creditors could face liability for not following standards set by the bill. The legislation would also protect renters of foreclosed properties, expand consumer protection for high-cost loans, and create an Office of Housing Counseling in the Department of Housing and Urban Development.

Educating the public is critical in keeping the foreclosure crisis from escalating. A recent Freddie Mac report said that 57 percent of delinquent borrowers were unaware of foreclosure-avoidance options available from loan service companies. In some cases, homeowners do not even read their paperwork and don’t realize what an adjustable rate mortgage is. After their low "teaser" period ends, they are stuck with payments they cannot afford.

Nevada is one of many states that has set up a Web site to help residents facing foreclosure. You can get more information at http://foreclosurehelp.nv.gov. By educating your clients on how they can avoid getting into loans they cannot afford and giving them tips to prevent foreclosures before the process begins, you can help reduce the impact to the Real Estate market as a whole.

Disclaimer: The above is not intended to be, nor is it legal advice, and should not be relied upon for any reason. Even though this article maybe disseminated throughout the U.S., the material covers only Nevada law, and no other. E RealEstateExec and Exec MediaGroup, LLC expresses no opinion on any other state's law, nor about the handling of any particular legal situation. You should consult your attorney, accountant or business advisor before undertaking any action. No attorney-client relationship is created between E RealEstateExec, Exec MediaGroup, LLC and the reader.