It was hailed by Mass. Gov. Deval L. Patrick and other community leaders as a way to keep homeowners in their homes longer and protect renters who live in properties under foreclosure. A new law signed by Patrick encourages banks to negotiate a loan modification by making them wait five months – instead of three months – before foreclosing if a modification cannot be reached. Not everyone likes the new law, including the Massachusetts Bankers Association.
Jon Skarin, the association’s director of federal regulatory and legislative policy, answered five questions about it.
PBN: What is the association’s stance on the law enacted last month intended to keep Massachusetts homeowners in their homes longer and to protect renters who live in properties under foreclosure?
SKARIN: The association opposed the new law (Chapter 258 of the Acts of 2010) because we believed that it created a number of new compliance problems without providing meaningful assistance to borrowers facing foreclosure. For instance, the law extends the 90-day right-to-cure to 150 days in an attempt to encourage lenders to work with delinquent borrowers to find alternatives to foreclosure. However, the law does not require borrowers to provide banks with financial or employment information that lenders need to assess a borrower’s situation.
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PBN: In a news report last month, you said the law offers few specifics on how banks can comply with the law. What are some of the unanswered questions?
SKARIN: The biggest questions surround administering the process by which a lender could shorten the 150-day cure period through a “good faith effort” to do a loan modification or find another alternative to foreclosure. The statute lays out a process that is extremely burdensome for banks and requires lenders to file an affidavit with the courts to attest that they have complied with the law.
PBN: The law has been in place for a month. Has it come into play in any foreclosure proceedings yet? Or is it too early?
SKARIN: The law took effect on Aug. 7, so it’s clearly too early for the new requirements to play a role in an actual foreclosure. Banks are complying with the new 150-day notice requirements, so borrowers who fall behind on their mortgage will receive the new notice and the new protections Chapter 258 provides. The tenant protection provisions have also taken effect, and lenders are working to comply with the new “just cause” eviction requirements. Some of the other aspects of the law, including the new reverse mortgage counseling requirements, have not yet taken effect.
PBN: What effect does extending the existing 90-day right-to-cure period another 60 days have on banks?
SKARIN: Currently, a foreclosure in Massachusetts already takes anywhere from eight to 12 months, so the new law will delay the process by an additional two months. It could also lead to further deterioration of residential properties in foreclosure, particularly when the owners have abandoned the home but the bank is unable to foreclose because the right-to-cure period hasn’t expired. Finally, it will delay banks from putting foreclosed properties back in to the market and selling these homes to new buyers. It will also make it more difficult for banks to take possession of a property in cases where the owner is underwater or has lost their income and wants to get out of the situation.
PBN: What type of legislation would the association like to see related to foreclosures, if any?
SKARIN: Right now, I think the industry and the market need time to adjust to the requirements under the new law before we start looking at additional changes. We’re still in the very early stages of implementation, and it remains to be seen how these changes will affect lending in Massachusetts. We might like to see some consideration of a fast-track process for cases where the lender and the borrower agree that getting out of the property is the best course of action.
