The strategy is similar to the one initiated in the neighboring city of Providence in which lenders are required to try and work out terms of troubled loans before they foreclosed on distressed properties.

Two foreclosure ordinances are being considered by the city council of Cranston. One rule requires a third-party negotiation before a lender repossess an owner-occupied home. The second rule would require lenders to send a written notice before they evict renters of foreclosure properties.

The measures were proposed by Councilman Mario Aceto who explained that his goal is to help distressed homeowners remain in their properties. He added that he wants to make sure that all homeowners who are being foreclosed on in the city have gone through the proper foreclosure process.

As of August 31, the city of Cranston posted 164 foreclosures in 2009. So far, the city is ranked fourth in terms of high foreclosure rates in the state, with Providence, Pawtucket and Warwick leading the list. In 2008, the city of Cranston had 361 REO homes.

Industry experts said that, just like the rest of the country, the first spate of foreclosures in Cranston was due to the collapse of subprime lending. And this time, the foreclosure problem is being kept alive by the rising unemployment rate. The unemployment problem is complicating matters because many creditworthy homeowners are losing their homes not because they are irresponsible borrowers but because of mitigating circumstances.

Cranston officials cited market predictions about the increase in default rates in the coming months. They explained that the ordinance covers owner-occupied houses and would require lenders and troubled homeowners to participate in a loan conciliation meeting to be mediated by counseling agencies approved by the U.S. Department of Housing and Urban Development.

The goal of the mediation is to work out loan terms to make them affordable, thereby giving homeowners a chance to remain in their properties. If no agreement could be reached, lenders are allowed to repossess the troubled properties and placed them on their inventory as REO homes.

According to market data, the 1.53 million homes were in some kind of foreclosure proceedings, either notices of defaults , auctions or bank repossessions, in the first six months of the year. The total number of bank repossession during the period was 386,000.

The data also showed that 1.91 million REO properties for sale filings were made during the period. This means that one out of 84 homeowners in the country received at least one foreclosure filing in the first six months of the year.

Industry experts said that recent figures only mean that the foreclosure crisis is far from over despite intensive efforts of the federal government and lending institutions to contain the problem.

Experts noted that in June alone, there was no indication that housing recovery is in progress. Last month’s number of REO properties for sale was the fourth consecutive month of increase. It was reported that over 336,000 foreclosure filings were posted, representing a 33 percent increase from the same month last year and 5 percent from May.

According to industry experts, unemployment has been identified as the cause of most foreclosures. They warned that the increasing number of homeowners whose properties are worth less than what they owe is posing a future risk to the housing market.

Recession is still being blamed as the major factor influencing foreclosure rates. As unemployment continues to increase, more and more jobless borrowers find themselves unable to make mortgage payments, leading to foreclosure. And the abundance of REO properties for the sale on the market put pressure on home prices, causing them to drop drastically.

And with the drop in home prices, homeowners find themselves underwater, which means owing more than the value of their properties. And this discourages some homeowners from repaying their loans, causing more foreclosures.

A market report said that about 25 percent of all delinquent loans were from homeowners who turned their backs on their properties because they have lost significant value.
Meanwhile, Nevada is still the hot bed of REO properties for sale with one out of 16 homes. The state is joined in the top 10 by California, Arizona, Utah, Florida, Idaho, Georgia, Colorado and Michigan and Ohio.

According to data, lenders and banks have canceled almost 50 percent of REO properties for sale in some areas of the state, adding to the increasing stockpile of abandoned and vacant homes.

Industry experts are concerned that the current strategy of lenders and banks to delay REO properties for sale would jeopardize whatever the progress was made for the housing recovery and add more problems on homeowners and condominium associations that rely on fees to maintain common areas and facilities.

Real estate consultant Jack McCabe said that the current strategy would only depress further the housing prices. He added that many abandoned homes that are not yet turned into REO properties for sale are left neglected, and thus pulling down values of all nearby homes.

It used to be that lenders and banks look at foreclosure as a way to recover their losses. However, with the drop in housing prices banks chose to postpone foreclosure sales because once they take possession of the foreclosed property, they will be held liable for them and will be required to pay for fees, taxes and maintenance, according to industry watchers and analysts.

Cleveland State University clinical professor of law Kermit Lind said that lenders and banks know that foreclosed properties could remain unsold on the market for 18 to 24 months. And while they remain unsold, the costs incurred by banks for taxes, fees and maintenance increase every month.

But some bank officials denied that they are delaying REO properties for sale. They said that the state government initiated some of the delays by imposing moratoriums on repossession. Furthermore, they said that federal rescue programs are requiring them to negotiate with distressed homeowners first before taking possession of properties.

Defense attorneys and judges agree with bank officials that federal rescue programs and moratoriums have played crucial role in slowing foreclosures. They pointed out that adding to the problem are stalled foreclosure cases in courts.

Judges set up REO properties for sale but lenders have the option to cancel them for various reasons. And once it is cancelled, the case would not be opened in court again unless requested by banks.

The change is expected to help more troubled homeowners qualify for the loan modification program. However, the program is not guaranteed to help troubled homeowners who bought their properties at the height of the housing market boom.

Donovan visited Merced County upon the request of Representative Dennis Cardoza who wants to focus national attention on the growing number of REO property in the valley.

Merced, San Joaquin and Stanislaus are among the top counties in terms of high foreclosure rate nationwide.

According to industry experts, many valley residents were enticed to take out subprime, adjustable-rate mortgages and other loans that initially have extremely low interest rate. Prices on these markets surged beyond the reach of many residents.

The collapse of the housing market started in 2005 which left many homeowners with mortgage payments that reset to higher rates, with no refinancing options because the value of properties dropped so low that they are worth far less than their original price.

The housing market collapse resulted in REO property crisis. In counties of Merced, Stanislaus and San Joaquin, the number of foreclosed homes reached 40,000 since January 2007. So far, the crisis has resulted to almost $16 billion unpaid mortgages.

Meanwhile, Cardoza described the damage brought by foreclosures in the area as similar to the devastation created by Hurricane Katrina. He and Donovan walked along neighborhoods hardest hit by foreclosures. They saw a foreclosed house originally priced at $340,000 in 2006 but is now listed for sale at $83,500.

On the other hand, Donovan lauded the economic stimulus program of the Obama Administration, which included foreclosure aid funds for local governments amounting to $2 billion.

On a positive note, the housing market in the area showed some signs of improvement with home values and sales inching up in May.

However, housing experts are expecting a second wave of REO property crisis as foreclosure moratoriums start to expire. Still, Merced County Councilwoman Michele Gabriault-Acosta believes that an expanded loan modification program may mean a big help to the market languishing over the effects of foreclosure.

In its lawsuit, the city claimed that Wells Fargo had preyed on black communities in the area with subprime loans, driving many homeowners to go into default and eventually, foreclosures.

According to Legg, he would decide whether to conduct a trial on the initial lawsuit to be filed in court by a city. The allegation contends that a mortgage lending company violated the Fair Housing Act federal law with predatory loans that push higher the number of bank REO properties.

In New York, the U.S. Supreme Court has ruled that the city’s office of the attorney general has the authority to conduct an investigation on whether major banks practiced discriminatory lending against minorities who were seeking mortgages.

Meanwhile, in Baltimore, the lawsuit it filed against Wells Fargo alleged that the bank discriminated against African American borrowers by enticing them with high-cost subprime loans even when some of them would have been eligible for prime-rate mortgages.

The city claimed that the policies of Wells Fargo had led to an increase in the number of bank REO properties in targeted neighborhoods, leading to the devastation of the city’s economy due to low tax revenue and exacerbating housing, police and fire costs.

Tony Paschal, former loan officer in Wells Fargo, stated in his affidavit that loan officers from the banks were made to categorize African Americans as those who do not pay their bills and were often referred to as mud people or niggers.

Wells Fargo attorney Andrew Sandler argued that there is lack of evidence showing that the bank intentionally targeted African American borrowers or that they were encourage to go the route of subprime loans with high interest rate.

According to Sandler, out of the 143 foreclosure cases, 100 were due to excessive obligations, 43 were due to illness and job loss accounted for 41.

From 2005 to 2008, over 60 percent of Well Fargo’s bank REO properties were located in city sections where inhabitants are 60 percent blacks.

More and more tenants find themselves out in the street because their landlords failed or neglected to inform them that they are living on REO properties. Housing Rights Inc. housing advocacy director Arlene Bradley said that the number of renters evicted out of their houses rose by almost 50 percent nationwide.

Before the recently passed legislation which went into effect last May, renters were left at the mercy of lenders after the properties they are living went into foreclosure. American Tenants Association executive director William Deegan explained that in Arizona, renters were forced out from their homes after given only less than a week’s notice to vacate the property.

The new legislation, which is an addendum to a housing bill that aims to prevent the foreclosure crisis, requires lenders who took over a property or new owners of REO properties purchased at auctions to allow tenants to stay at the property not less than three months or until their leases expired.

The rule only varies on those who purchased the foreclosed property with the intention of living in it. If this is the case, new owners have the right to terminate a tenant’s lease with three months’ notice.

South Brooklyn Legal Services director of litigation Ed Josephson said the rule gives a 90-day guarantee to renters unlike the previous one that do not give them any option.

However, some criticized the law as being incomplete. They pointed out that often, tenants are at the mercy of a financial system and courts that are both inefficient in dealing with their problems. They added that it is more likely than not that renters will lose their security deposits if landlords go into foreclosure.

Another problem facing renters of REO properties is maintenance. Most often distressed landlords would just let safety standards lapse and would not bother about maintenance and repair.

Data showed that most evictions happened on renters of small-scale lodgings, duplexes and triplexes.

The program comes at a time when Nevada was ranked as the state with the highest foreclosure rate in May. In Washoe County, the number of bank REO properties surged by 18 percent last month compared with figures in April.

Chief Justice James Hardesty believes that the mediation program and the law that gave birth to the foreclosure prevention effort are going to help thousands of homeowners save their homes and provide relief to some lenders. He pointed out that many residents in the state are seeing their homes turned into bank REO properties.

One of the major sponsors of the Assembly Bill 149, Assemblywoman Sheila Leslie said that the legislation will make sure that access will be provided to homeowners to negotiate with their lenders to try to work out efficient and effective solutions to the foreclosure problem.

She added that everybody wins if bank REO properties can be avoided, particularly the homeowners, lenders and communities. Under the Assembly Bill, distressed homeowners, who received notices of foreclosures not later than July 1 may request for mediation meetings and discussions with their lenders.

The meetings will be supervised by a hearing master, senior judge or other designee. The mediation program covers only houses that are owner-occupied.

Under the bill, mortgage lenders or servicers are required to join and provide a notice of default and contact information of the individual who is authorized to negotiate the modification of a loan.

Meanwhile, the bill specifically noted that no further action shall be made to sell the property until such time when the mediation has been completed. Furthermore, if a representative or trustee failed to join the mediation or did not provide the required documents, he might be sanctioned, including a loan modification approved and ordered by the court.

Hardesty expected that the statewide mediation program would handle up to 1,500 cases monthly. Meanwhile, the Supreme Court is seeking public comment on the draft guidelines of its mediation process rules.
Nevadans have until June 22 for sending comments regarding the foreclosure mediation program.

The draft rules are scheduled for two public hearings, while voting will be held by justices about the new rules on how to avoid bank REO properties on June 29.

The U.S. Department of Housing and Urban Development (HUD) hosted a party in Seattle during the Recovery Act in Action Week. Some of the party highlights included HUD Secretary Shaun Donovan’s broadcast message, networking, webinars and technical assistance for recovery programs.

Currently, the HUD is providing a total of $3.47 billion in competitive grants for Native American and public housing, green retrofitting for federally-assisted houses and neighborhood stabilization projects.

Last February, the HUD allocated about $10.1 billion Recovery Act funds, with $168.6 million received by Washington.

HUD’s Office of Field Policy and Management deputy director Dave Ziaya said that Seattle could apply for the competitive grants which are set up not just for neighborhood stabilization and bank REO properties prevention programs.

HUD deputy regional director Martha Dits said that there are many agencies in Seattle that could seek funding, adding that there is a lot of interest and enthusiasm on the recovery funds.

Brookings Institute’s Metropolitan Policy Program Vice President Bruce Katz noted that the recovery grants are motivating counties and cities to work together and with private partners. He added that parties involved have recognized the links between energy, housing and transit.

Meanwhile, the government-controlled mortgage company Federal Home Loan Mortgage Corp. or Freddie Mac has announced that it would ease loan refinancing rules to help more homeowners avoid bank REO properties.

Freddie Mac will allow borrowers of loans guaranteed by the agency or who are current on their mortgages to refinance their troubled loans through any affiliated lenders. Currently, troubled loans are only refinanced through lenders who gave out the mortgages.

The program is part of the Home Affordable Refinance plan, under the Making Home Affordable program of the Obama Administration.

The refinancing program allows renewed financing at low interest rates for as many as 5 million borrowers who have good mortgage payment histories on loans guaranteed by Freddie Mac or its sister company, the Federal National Mortgage Association.

Last April, filings of foreclosures were made on 52.8 percent homeowners daily, an increase from the 24.5 percent for the same period last year. In Snohomish and King counties, 0.7 percent of properties were in danger of becoming bank REO properties and 2.3 percent mortgages were delinquent for at least 90 days.

Community Development Director Shannon Meadows said that the funding is a big help in addressing the needs of neighborhoods severely affected by the unabated increase in the number of bank REO properties.

One housing recovery program in the city involves a budget of $850,000 to purchase, rehabilitate and re-sell abandon and vacant foreclosed properties in Southgate and Highlands areas. These bank REO properties were repurchased by banks at sheriff’s auctions. Under the program, foreclosed properties will be purchased only from banks.

The program requires that eligible buyers should have good credit standing, must bring with them $1,500, secure a loan from the bank and have earnings of $72,250 for a household of four and $50,550 for individual.

Typically, buying bank REO properties requires at least 2.5 percent down payment. However, potential homebuyers should prepare to shell out more. Springfield can help potential homebuyers procure as much as $20,000 for closing costs and down payment.

Bank REO properties will be sold based on their purchase and rehabilitation costs. Proceeds from the sale will be used to buy and rehabilitate other bank REO properties.

Another program aimed at reducing the number of foreclosed houses in the city offers eligible homebuyers an opportunity to borrow money directly from the city of Springfield. Additionally, foreclosed houses will be rehabilitated to make them energy-efficient. In line with this, workshops will be conducted to educate homeowners on energy efficiency.

Springfield housing program coordinator Jackie Sudhodd said that landscapes will be improved to make repossessed homes attractive to potential homebuyers. She said that the goal is not just to make distressed properties pass code but to make them marketable.

Meanwhile, Meadows pointed out that making foreclosed homes livable will greatly improve conditions in neighborhoods severely affected by the foreclosure crisis. She added that the longer these repo homes remain unsold on the market, the more expensive it is to rehabilitate them.

One out of 160 houses in Ohio is at risk of becoming bank REO properties in the first quarter of 2009, making the state the 11th highest nationwide in terms of foreclosure rate.

Tom Carter, a home inspector, noted that homes on REO property listings then bore only writings on walls or harmless holes on the drywall. But now, he is alarmed by the extent of damages some foreclosed homes sustained. He said that some people removed the toilets, sinks, plumbing fixtures, electrical lights, switches and outlets, counter tops and kitchen cabinets.

Carter, of the company Quality Home Inspectors, has experienced the worst from homeowners who were forced out of their properties because of their failure to make mortgage payments. One example is a house at Joliet wherein former homeowners left behind three dogs and six cats, with no water and food, for a month.

Carter said that the foreclosed home was in the worst condition, with urine and odors seeping into the carpets and the floor stained. He claimed that to make the foreclosed house livable, the drywall and moldings should be removed and the carpet washed.

Meanwhile, Lamont Veenendaal of The Brickkicker, recalled a foreclosed house severely damage by motor oil that had spread around the property.

Illinois foreclosure filings jumped by 68 percent in the first quarter of this year, to 38,966 properties, compared with a year ago level for the same quarter. This increase happened despite government efforts to rescue the banking institutions and help distressed homeowners avoid REO property listings.

The number of foreclosure filings in the first quarter was 32 percent higher from the December 2008 figures, with one out of 135 homeowners in the state receiving foreclosure filings. This makes Illinois the fifth highest among states with foreclosure rate.

In March, Illinois reported 15,398 foreclosure filings, an increase of 8 percent from February and 79 percent higher from the March 2008 level. In Kane County, foreclosure rates reached 4,146 and 48,765 in the county of Cook in 2008.

Meanwhile, abandoned and vacant REO properties for sale are being tracked by police through regular patrols. Aside from damages perpetrated on the houses, another big problem compounding vandalism is the squatters.

Squatters have been known to occupy homes on REO property listings that have no heat or running water. Some would even go to the extent of changing the locks on utilities and tampering with water meter so that nobody could read it.