Committee Advances Loan Modification Legislation to Prevent Unnecessary Foreclosures
Legislation Would Require Loan Modifications in Certain Circumstances; AG Says Bill Important Step to Addressing Foreclosure Crisis and Restoring a Healthy Economy
BOSTON – A bill to prevent unnecessary foreclosures by requiring loan modifications when it is in the financial interest of the borrower and the lender was reported out favorably by the Joint Committee on Financial Services today.
Senate Bill 868/House Bill 1219, An Act to Prevent Unlawful and Unnecessary Foreclosures was filed in January 2011 by AG Coakley and co-sponsors Senator Karen Spilka (D-Ashland), and Representative Steven M. Walsh (D-Lynn). The proposed bill would establish standards that require banks to analyze every loan prior to proceeding with a foreclosure and offer a reasonable loan modification where the analysis shows modifying the loan is more beneficial for the bank than foreclosure.
“I applaud the Financial Services Committee for their leadership on this issue and I look forward to continuing to work with the Legislature. Passage of this legislation will put Massachusetts in a strong position to rebound from the housing market decline and recover from the foreclosure crisis,” said AG Coakley. “Addressing the foreclosure crisis is a critical step toward moving our economy forward. This bill would promote reasonable loan modifications that keep people in their homes, keep properties on the tax rolls, and without requiring banks to sacrifice the bottom line.”
The bill proposes a reasonable means to achieve large-scale loan modifications for homeowners, allowing people to stay in their homes and avoiding the negative impact of increased abandoned properties in our communities without asking the banks to sacrifice their bottom lines to do it.
In her previous testimony to the Committee, AG Coakley pointed out that despite promises from the major banks, loan modifications are not occurring in Massachusetts on the scale needed to prevent further harm to communities and families. Loan modifications based on a net-present value test as proposed in this legislation are economically sound for both lenders and borrowers. If implemented, the bill would require creditors to modify loans when an analysis shows that it’s more profitable to modify the loan than to foreclose. The legislation only applies to loans that have been identified as having certain risky features, typically associated with subprime loans, and in which the banks knew or should have known were destined to fail.
The legislation would also codify two recent Supreme Judicial Court Decisions, Ibanezand Bevilacqua, by requiring a creditor commencing foreclosure to show it is the current legal holder of the mortgage.
Since taking office in January 2007, combating the foreclosure crisis has remained a priority of Attorney General Coakley’s administration by seeking accountability through litigation, regulation and other advocacy.
On February 9, 2011, AG Coakley announced a $25 billion nationwide state-federal settlement over unlawful foreclosures, including robo-signing of documents, will bring an estimated $318 million in assistance to Massachusetts borrowers. In April, AG Coakley launched “HomeCorps,” a groundbreaking new initiative to prevent unnecessary foreclosures by increasing the number of loan modification specialists available to help distressed borrowers and providing a wide range of grant opportunities aimed at easing the foreclosure crisis in Massachusetts.