10/01/2008 - For most Americans, their homes are their greatest financial asset. Yet one in 33 U.S. homeowners might be headed toward foreclosure in the coming years because of subprime loans, according to Defaulting on a Dream, a report released in the spring by the Pew Center on the States and Pew’s Health and Human Services Policy program.
In some states, the problem is even more acute. In Nevada, one in 11 homeowners is projected to be in foreclosure in the next two years, and one in 18 in Arizona.
In addition to actual foreclosures, a much larger number of homeowners—including neighbors of affected households—could see property values drop. And municipalities will lose out with less revenue from property taxes, estimated to be as much as $356 billion in the next two years.
A number of states, the report finds, are taking action to help troubled homeowners and, looking ahead, to prevent further problematic loans. To help those facing foreclosure keep their homes, lawmakers in nine states have voted for publicly supported mortgage-refinancing funds; Ohio, Michigan and Pennsylvania alone have committed at least $450 million to help beleaguered borrowers. In 14 states, task forces are bringing together government leaders, lenders, advocates and experts to work on yet other solutions.
Some states lag behind, however, including California, where one in 20 homeowners is projected to experience foreclosure, as well as Florida and Utah, two of the six states with the highest number of projected foreclosures.
The report points out that, while relief for the current crisis is important, policy makers must also prevent another cycle of troubling loans by establishing basic consumer-protection safeguards. Some 31 states now regulate high-cost loan products; 24 require or recommend consumer education and counseling. Others have strengthened underwriting standards so that borrowers receive loans that they can repay.
Since the report’s release, both the Federal Reserve Board and Congress have responded to the crisis. Through changes to Regulation Z (truth in lending), the Fed has strengthened underwriting and disclosure standards on mortgages.
Additionally, Congress passed, and the president signed, a comprehensive housing bill that expands help to many homeowners facing foreclosure by refinancing their loans into lowercost, government-insured mortgages. Among its many other provisions, the bill provides emergency funds to local governments to purchase and rehabilitate foreclosed homes.
“Given the breadth and depth of this crisis,” says Tobi Walker, senior officer in Health and Human Services Policy, “it will be crucial that federal and state policy makers work together to address this ongoing crisis.”
For the full report, go to the Web at www.pewcenteronthestates.org, and scroll down to Subprime Mortgage Lending.
Pew is no longer active in this line of work, but for more information visit the Subprime Mortgages Project on PewHealth.org.