Fast action needed to curb foreclosures

Here's a test for Long Islanders who wonder about the effect of the coming mortgage meltdown: Look out your window and count the number of houses you see. The higher the number, the more likely you'll become a victim of this rapidly growing mess.

That's because one in 32 homeowners in New York is projected to enter foreclosure in the next few years, according to a recent report released by the Pew Charitable Trusts. The problem will likely be worse for Long Island, which already has the state's highest number of foreclosures.

Until recently, the foreclosure debate has unfolded in an odd way, either as a morality tale about whether the public should bail out a handful of foolish borrowers and unscrupulous lenders, or as a financial story that's too complicated for the average reader to comprehend.

But here are some facts that should cause all Long Islanders to take notice - even those homeowners who pay their mortgage every month. Foreclosure is going to depress the value of your home, increase crime in your neighborhood and wallop your local school district in the form of sharply reduced property tax revenues.

It's the collateral consequences of foreclosure that promise to create the most damage. Like it or not, we're all involved.

Fortunately, there's still a window of opportunity to limit the damage from foreclosure, but it will require action on several fronts.

One place to start is the court system. New York is a judicial foreclosure state, but historically judges have played a limited role in the process. As long as foreclosures were rare and the properties were snatched up in auction, this was appropriate. But as caseloads swell, the courts have an opportunity to make a big difference.

Under Chief Judge Judith Kaye's leadership, New York has a well-earned reputation as a judicial innovator. In considering a new approach to foreclosure, Judge Kaye can look to Ohio for some clues. Hard hit by 85,000 foreclosures in 2007, the state recruited 1,100 volunteer lawyers to help homeowners, and gave judges the authority to order mediation between borrowers and lenders. The initiative has paid off: In Summit County, which includes the city of Akron, mediators have prevented 26 foreclosures in the first three months of 2008 by rolling up their sleeves and finding ways to get lenders to compromise on loan terms.

Just as promisingly, Ohio plans to create a fast track to speed the lengthy foreclosure process for investor-owned homes, which should reduce the amount of time that these properties are vacant. By contrast, the New York Legislature is considering a one-year moratorium on foreclosures, which would only add unnecessary delay to a process that already takes between 12 and 18 months to complete.

To be sure, the courts can only do so much: In Summit County, only about 15 percent of homeowners responded to the court's offer of help. By the time the foreclosure process begins, many homeowners are already behind in their payments and have concluded, rightly or wrongly, that there's nothing they can do. Some simply walk away from their homes.

At first glance, lenders would appear to have an incentive to rewrite troubled loans before they reach the foreclosure stage. For them, foreclosure is a losing proposition that costs between 20 and 60 cents on the dollar. In the old days, when loans were made by a trusted local bank officer, renegotiation was easier: Today, mortgages are sold to far-flung investors, and the loans themselves are governed by rules that leave third-party loan servicers (who represent lenders in the foreclosure process) in the dark about what they can and can't do. The result is slow-motion insanity: Servicers are stuck with homes they can't sell and pray that an improved housing market will bail them out, yet prices get more and more depressed as the inventory of unsold homes grows.

This creates an obvious role for government in encouraging servicers to take their losses up front and spare the public the costs of foreclosure. Congress is considering legislation that would give servicers explicit permission to renegotiate with at-risk borrowers, as well as create a loan fund to encourage the pre-foreclosure refinancing of 1 million at-risk home loans. In exchange for a government guarantee, mortgages would be rewritten at no more than 90 percent of their current value.

Instead of a government bailout, these proposals should be seen as a means of prodding the servicing industry into action. Left to their own devices, they're likely to drag their feet and leave taxpayers footing the foreclosure bill.

No matter what government does, this is going to be a painful process. Without quick action, however, the view from your window is going to look very grim.

• COSTING CONTROL CLERK

• RETAIL SALES

  MR JAYS APPLIANCE & TV CO

• A-TECH

  PLITT FORD

• ADMINISTRATIVE ASSISTANT

  VILLAGE OF EAST HILLS

• A/C TECHNICIAN

  COUNTY FAIR AIR CONDITIONING

• View all Top Jobs

Search jobs

---

All Long Island jobs

Post resume