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Crisis on the home front

Even many with prime mortgages are facing foreclosure and need state help

October 2, 2008

While Washington's big dogs are trying to rescue the country's banking system from the top, things are getting steadily worse here on the ground. Lenders repossessed 134 homes on Long Island last month. That's despite millions of state dollars being funneled into agencies that provide foreclosure prevention counseling and legal services.

What's more, homeowners with prime loans - people who had better credit histories and more resources - have begun falling delinquent at a faster rate than those with the dreaded subprime deals. State Banking Superintendent Richard Neiman blames it on the economy in general: job loss and falling property values.

The big dogs need to remember that the current problems began with unsustainable mortgages. Fixing foreclosures is receiving too little attention in the debate over the banking industry bailout.

One problem is that lenders' decisions to modify loans are still voluntary. Sen. Hillary Clinton (D-N.Y.) would place a moratorium on foreclosures and a temporary freeze on the increases built into adjustable rate loans. This would buy some immediate relief.

Also, a new federal program of the Federal Housing Administration, refinancing loans for borrowers whose homes are worth less than their mortgages, could be effective. But the rollout is being stymied by the bailout discussions.

Neiman is interested in a similar program for New York, where lenders offer relief to an entire category of borrower. That's worth exploring.

At the moment, this crisis is racing ahead of the get-tough measures New York approved last spring. Lenders, regulators and lawmakers need better ideas to slow foreclosures