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Soaring foreclosure rates are sending states scrambling.
Their goal: to protect homeowners from a new crop of scam artists who claim they will "rescue" borrowers. At the same time, some states are forming funds that could provide affordable fixed-rate mortgages to those on the precipice of losing their homes.
The stakes are high: As many as 130,000 American homeowners, the most in 30 years, are going into foreclosure each month. Experts worry that entire neighborhoods will decline, similar to what happened in the 1960s and '70s, as abandoned foreclosed homes caused property values to drop. Some elected officials are calling for federal legislation to prevent predatory lending and asking lenders to voluntarily hold off on raising mortgage rates for those most in trouble.
Here are some of the ways states are trying to help:
- Ohio, which has one of the highest foreclosure rates in the country, started taking applications last week to give fixed-rate loans to homeowners with subprime adjustable-rate mortgages who've seen their monthly payments skyrocket beyond their means.
- Colorado is considering a law that would make it a criminal offense for appraisers to falsely inflate the value of homes in mortgage proceedings.
- Legislation is under consideration in Indiana that would create free consumer counseling for homeowners facing mortgage problems.
- At least four states have set up task forces to study foreclosures and recommend solutions.
- At least a dozen states have enacted laws designed to crack down on fraud by so-called "foreclosure consultants" who claim to help homeowners in trouble.
"States are rapidly reacting to foreclosures," says Heather Martin, an analyst at the National Conference of State Legislatures in Denver. "Some states are passing new laws. Some are creating studies. Some are trying to find out what their options are."
Ohio's problems, potential fixesIn some ways, Ohio has become a poster child for the problems and an example of a state now searching for solutions. In 2005, one in every 71 households filed for bankruptcy or had their mortgages foreclosed, Gov. Ted Strickland says.
"That problem has worsened in the last few months to the point it is a crisis in Ohio. . . . I have been told for every vacant home in a neighborhood, property values decline by 1%."
Strickland says part of the problem is the "relatively flat" manufacturing economy. But, he adds, the state has also suffered from "predatory lenders that have taken advantage of folks in unscrupulous ways."
Last month, Strickland formed a foreclosure task force made up of public officials, lenders and nonprofits. "We want to look at the total picture and devise solutions for the state to minimize the pain that's being felt out there," he says.
One of the state's solutions is for the Ohio Housing Finance Agency to issue $100 million in taxable bonds. The proceeds will finance fixed-rate mortgages for people who may be on the edge of foreclosure.
On April 2, the agency began taking applications, receiving close to 300 calls on that date alone.
"There was a lot of distress in the voices," says Rita Parise, the program director. "Some we may be able to help, but numerous people were well into the foreclosure process, and we will not be able to help them."