A Boston-based national community advocacy group on Wednesday announced a $1 billion campaign to rescue predatory loan victims by refinancing their mortgages, as a new U.S. Senate report said such foreclosure prevention efforts are beneficial to communities.
Using its capacity as a nonprofit mortgage broker, Neighborhood Assistance Corp. of America will act as an agent for Citigroup and Bank of America Corp., the two biggest U.S. banks. The group will approve new loans for "subprime" borrowers -- those with spotty credit -- who are in danger of losing homes to foreclosure.
NACA will counsel the struggling borrowers, process loan applications and underwrite the loans, which the banks will fund before likely selling them to Wall Street investors in the form of securities and bonds. The 30-year loans will carry a fixed interest rate one point below the prime rate, putting it currently at 5.5 percent. There are no fees, and the banks pay all the closing costs.
"We have created a new program that is going to be out there to really save the thousands of people who are at risk of losing their home, just in the Buffalo area not to mention nationwide," said NACA CEO Bruce Marks in an interview.
NACA has a Buffalo office at 1094 Hertel Ave. However, Marks said the refinance program is online at first, so applicants should go to the Web site, www.naca.com.
Separately, the Joint Economic Committee of Congress, chaired by Sen. Charles E. Schumer, D-NY, released a report Wednesday that detailed the anticipated impact of foreclosures on communities across the country, and urged support for efforts to prevent the seizure of homes. The report is similar to a study Schumer released last month on upstate.
The Congressional study cited areas that will be hit harder than others because of local economic conditions and housing markets, including metropolitan areas in New York, New Jersey and Pennsylvania, as well as states in the South and West.
Using data from First American LoanPerformance, the report also looked at the percentage of subprime loans that were at least 60 days late in payments. Buffalo's rate of 13 percent was the highest among New York's large cities, though well below Cleveland at 24.1 percent. The national average is 12.4 percent.
Finally, the report said foreclosure prevention efforts pay off, since every new foreclosure can cost up to $80,000 including the impact on homeowners, lenders, neighbors and local governments. By contrast, foreclosure prevention programs cost only about $3,300 per household, the report said, so it called on the federal government to support established community nonprofit groups engaged in such efforts.
The committee also recommended strengthening and reforming the Federal Housing Administration so it can insure subprime mortgages.
And it proposed strengthened federal regulation of mortgage brokers and loan officers, a federal anti-predatory lending law that bans unfair and deceptive practices, enhanced mortgage disclosures, and a new requirement that lenders assess a borrower's ability to repay.
"We need to redouble efforts to protect American families and communities who are at the losing end of this mess," Schumer said in a press release. "The subprime mortgage meltdown has economic consequences that will ripple through our communities unless we act."
The dual announcements come as politicians, regulators, lenders, community groups and investors grapple with the collapse of the subprime mortgage market. The once-booming business Wall Street gobbled up because of its higher interest rates and fees has ground to a halt because of soaring losses and foreclosures that threaten not only homeowners but lenders and shareholders.
At particular risk are borrowers who took out adjustable-rate mortgages, with extremely low "teaser" rates for the first two or three years, or with nontraditional payment options that allowed them to choose how much or how little they wanted to pay each month. Such loans, originally intended for prime borrowers, were pushed in the subprime market by mortgage lenders and brokers who wanted to grow their business after prime refinancing waned.
Critics say borrowers were approved for these loans based on the lower initial rate, not the full payment. While rates were low and home values continued rising, borrowers kept up. But they quickly fell behind when their low rates reset sharply upward and they could no longer refinance or sell their homes.
As a result, losses and foreclosures have spiked to record levels, especially in the subprime market, and an estimated 1.8 million homeowners could lose their home within the next two years as their adjustable-rate loans reset, experts say. More than two dozen lenders have also gone out of business, declared bankruptcy, or sold out after Wall Street banks and brokerages pulled their support.
NACA also announced a national "Call for Action" on April 21. The group urged that anyone with an unaffordable mortgage or who is at risk of foreclosure should come to one of NACA's 33 regional offices -- including the one in Buffalo -- at 2 p.m.
Marks said it's not a rally, but an effort to develop a strategy to stop foreclosures and hold lenders accountable, while linking troubled homeowners.
"We expect the investors, the investment bankers, the lenders, to modify people's loans at terms they can afford," he said. "We've got to change the debate and put the responsibility on who profited from the crisis."
NACA isn't setting specific standards or criteria to qualify for its rescue program, such as a minimum credit score, but will look at the applicant's individual circumstances, how they handle their money, and whether they can afford their old loan. The group has four underwriters now, but is hiring "a lot more," Marks said.
"It's character-based lending," Marks explained. "I've got underwriters that look at the overall picture of everybody."
The new program builds on the group's existing subprime home purchase program, which has helped more than 50,000 borrowers to date. NACA already has a $10 billion commitment from the two banks for that program, and has set aside one-tenth for the rescue fund.
"It's always the best deal out there," Marks said. "Everybody would love to have a NACA loan, but we are prioritizing. The people who have a predatory loan, those are the people that we are going to assist."