Critics Find Illinois Foreclosure Legislation Cumbersome

Legislation to grant a grace period of up to 60 days for homeowners facing foreclosure gained additional support as it moved further through the Illinois Senate April 3. But some critics say the ambitious plan won’t work.

The Homeowner Protection Act, an amendment to Senate Bill 1998, requires lenders and loan servicers to notify homeowners when they are 30 days delinquent and gives them 30 days to seek mortgage counseling. If borrowers begins counseling, they would have an additional 30-day moratorium to create a payment plan or a refinancing option.

Once the plan is agreed upon, borrowers and their lender or servicer must sign a written agreement outlining the arrangement.

Sen. Iris Y. Martinez (D-Chicago) joined Sen. Jacqueline Y. Collins (D-Chicago) and Sen. William Delgado (D-Chicago) as a co-sponsor of the bill.

“This measure will provide homeowners the tools and knowledge they will need to save their homes from foreclosure before it’s too late,” said Martinez in a press release.

However, a counselor said the terms were unclear as to how it would reduce the rising foreclosure crisis.

“[The legislation]’s bulls–t. When this moratorium going to start? At the 60th or 90th or 120th day mark?” asked Brenda Reyes, a counselor at Neighborhood Housing Services of the Fox Valley.

On average, Reyes said she counsels one person every day.

Currently, lenders do not legally file for foreclosure until 90 or 120 days from the first missed payment, Reyes said, noting that lenders already send notification to homeowners warning them of their first 30-day delinquency.

“If someone is late on their mortgage, their credit is killed,” said Reyes. “If a person’s credit is killed, then they can’t refinance out of [their] loan, so they are set up for failure.”

There is a need for legislation that “looks at the whole picture” rather than a person’s credit score if they attempt refinancing not an extension that already exists, she said.

Rate freezes, an increase in banks participating in loan modification, a permanent change in a borrower’s loan terms and a wider assessment of a borrower’s financial status would better help homeowners, said Reyes.

“A house is no different than a stock or any other thing else; it’s a risk to buy a house,” said Barry Sturner, CEO of Townstone Financial. “When you sign a mortgage you are creating a risk.”

Townstone Financial is one of three new lenders that have joined Gov. Rod Blagojevich’s Homeowner Assistance Initiative. The initiative is designed to reduce foreclosures in Illinois by connecting lenders with borrowers seeking affordable refinancing loans.

“A 60-day moratorium,” said Sturner. “What is that actually going to do? If these people can’t pay, they can’t pay.”

Sturner said there was no need for Senate Bill 1998 or the government protection for borrowers. He said other forms of foreclosure legislation beginning in July would hamper lenders from helping borrowers.

Sturner, agreed with Reyes, saying a borrower’s circumstances would need to be taken into account. But opposed freezing rates, stating interest rates “would go through the sky.”

The act interferes with the private lending sector, but the real solution is finding a way to prevent future foreclosures and a restructuring of current Federal Housing Administration programs, he said.

FHA programs provide lower interest rates for first-time and low-income buyers. Sturner said if FHA would change regulations concerning late payments on other mortgages, there could be an increase of use FHA loans.

“Do I want anyone to be foreclosed on? Obviously not, it kills my business.”