The effects of the Great Recession may be receding, but many Massachusetts homeowners remain underwater. The number of foreclosures is rising, and that trend is expected to continue.
The reason, experts say, is a backlog of old foreclosures that were stalled due to a state law that are only now proceeding. But advocates for homeowners say the state is also not doing enough to help struggling homeowners.
Elyse Cherry, CEO of Boston Community Capital, which invests in affordable housing in low-income communities, was part of a 2014 task force that made recommendations to state government to address foreclosure impacts. “The fact that they haven’t been implemented at all speaks to the current interest of state government in terms of dealing with it, and the fact that as a country we have moved on,” Cherry said.
The foreclosure crisis began around 2007, as real estate values nationwide plummeted and many homeowners were trapped in high-interest mortgages they could not afford. The recession and high unemployment exacerbated the problem.
Massachusetts has not suffered as much as other parts of the country, like California and Nevada. It had fewer subprime loans, which offer money at high interest rates to people with poor credit. Homes are built at a relatively slow rate here. But Massachusetts homeowners were still hurt, and foreclosures have continued until today.
Janet Montgomery is one of those homeowners. Montgomery bought a house in Grafton in 1998 with a 30-year fixed mortgage. In 2004, she refinanced into an adjustable rate mortgage. She soon refinanced twice more.
Montgomery believed her broker was moving her out of the adjustable rate mortgage. But in 2009, when her payments skyrocketed, she discovered otherwise.
Montgomery’s home day care business was failing, after parents of the children she was caring for lost their jobs. Her husband was working for Verizon, and the company cut down on overtime. “The monthly mortgage payment was absolutely astronomical, and there was no way that we could possibly pay for that,” Montgomery said.
She requested loan modifications 17 times to no avail. Her home was foreclosed on and auctioned off in January, although Montgomery still lives there while contesting the foreclosure.
The process, Montgomery said, has been “just complete and utter chaos.”
How big is the problem?
According to data from The Warren Group, a real estate information company, there were more than 5,000 foreclosure petitions filed in Massachusetts between April and June 2012. By the second quarter of 2013, that number dropped to 820 petitions.
Since then, foreclosures have been steadily increasing. This past June marked the 28th consecutive month of year-over-year increases in foreclosure starts, with 1,002 foreclosure petitions filed. The numbers of foreclosure auctions and completed foreclosures have also risen the last two years — although the numbers are still lower than at the height of the crisis in 2007 and 2008.
State officials say the steep drop in 2012, and the growth today, are due primarily to state law. Massachusetts passed laws in 2007, 2010 and 2012 aimed at reducing foreclosures. The laws gave more protections to homeowners — for example, extending the time a homeowner has to pay off a loan before foreclosure proceedings begin.
Under the 2012 law, a lender must determine the value of modifying a loan before proceeding with a foreclosure and must offer a loan modification if it is cost-effective. In 2013, the Division of Banks issued regulations for the law.
During that time, most major banks delayed foreclosures. “In some cases, the major players brought everything to a halt for nearly two years,” said Massachusetts Commissioner of Banks David Cotney, who was appointed in 2010.
The foreclosure process takes around two years. So in many cases, the backlog from 2012 started being processed in 2014 and is being completed in 2016.
“We’re paying the price of having to clean out a large inventory of mortgages that have been in default for years,” Cotney said. “At some point over the course of the next year, hopefully we’ll start to clean out some of that backlog and get back to normal foreclosure levels.”
Cotney noted that while no one wants foreclosures, they are sometimes inevitable. “It’s the risk every homeowner and lender takes when they sit down and sign a mortgage,” Cotney said.
But homeowners and advocates say some foreclosures are not inevitable and could be staved off — for example, by requiring mediation.
Dawn Duncan, a grant writer for nonprofits, bought a house in Lynn in 2001. In 2009, she fell behind on her mortgage. The bank offered her a loan modification, which she took. But, according to Duncan, the bank never processed her paperwork. She sent payments in, but received letters saying she was heading toward foreclosure.
Eventually, the bank stopped cashing her checks. She hired a lawyer and declared bankruptcy to avoid having the bank auction her house. She is still negotiating.
“I was actually paying a mortgage, and they weren’t crediting it,” Duncan said. “My argument for this whole pre-foreclosure mediation is if that had been in place in my case, it would have kept all this from happening. It would have forced the bank to sit down with me and dig up my records and see what’s going on.”
What can be done?
Advocates for homeowners say Massachusetts should do more to prevent foreclosures.
“We’re looking at a horrendous ongoing crisis,” said Grace Ross, coordinator of the Massachusetts Alliance Against Predatory Lending, an advocacy group helping homeowners facing foreclosure.
She said the current foreclosure crisis is worse than in the 1930s. “Things have been consistently worse than the Great Depression, and we’re now headed back towards the historical worst years of this crisis,” Ross said.
A 2014 task force of legislative and governmental appointees issued a 48-page report with recommendations for addressing impacts of foreclosure in Massachusetts. These included encouraging lenders to pursue alternatives to foreclosure and letting foreclosed homeowners pay rent to banks to stay in their homes until they are sold. The report recommends letting someone who negotiates a discharge of mortgage debt exclude that from state taxable income.
It also recommends that municipalities track foreclosed and distressed properties.
While the recommendations would need a mix of municipal, state and legislative action, Cherry said they mostly have been ignored.
“They’re tossing the ball back and forth,” Cherry said.
Cherry, who was appointed to the task force by former Gov. Deval Patrick, said current Gov. Charlie Baker’s administration could at least convene interested groups. “This is a place where the executive branch could exercise some leadership,” she said.
Cherry said foreclosures have a widespread impact. “The challenge of residential foreclosure is it impacts not just the family, but the surrounding neighborhood, in home values and vacancies and crime and general upkeep,” Cherry said.
Undersecretary of Housing and Community Development Chrystal Kornegay said she has been talking to Housing and Economic Development Secretary Jay Ash about the foreclosure problem.
“It’s particularly acute in certain parts of the state and not others, and so we’re trying to figure out if there’s a regional approach we should take,” Kornegay said. “Right now, we’re just seeing what’s out there and trying to figure out what the right approach is.”
There are some state government efforts to address foreclosures. Since 2008, the Division of Banks has collected a licensing fee from mortgage loan originators and used that money for grants to nonprofits that help homeowners facing foreclosure, and for first-time homebuyer counseling. The amount spent has varied from $2 million in 2008 to $700,000 in 2011. The division distributed $1.3 million in 2016.
Additionally, the Massachusetts attorney general’s office received $44.5 million in 2012 from a multistate settlement with the country’s five largest mortgage servicers related to foreclosure practices. With that, the attorney general created HomeCorps, which involved various efforts to help homeowners facing foreclosure.
A homeowner could call a hotline and find a trained mediator, who would negotiate with a lender to modify a loan. That program continues today. But several HomeCorps grant programs ended or will end soon as the settlement money dries up.
Grants for legal aid attorneys to help homeowners in foreclosure will end this year. Grants for services to keep foreclosed homeowners out of homelessness ended in 2013.
Ross said federal funding has also been drying up for programs like regional offices that offered free loan modification counselors.
Some municipalities developed their own programs to fight blight, such as requiring banks to post cash bonds to maintain foreclosed properties. But the Supreme Judicial Court ruled in a Springfield case that this is illegal, since local foreclosure laws are pre-empted by state law. The Massachusetts Senate passed a bill this summer to let municipalities revive these ordinances, but the bill did not pass the House.
State Sen. Jamie Eldridge, D-Acton, chairman of the Joint Committee on Financial Services, introduced a bill to let foreclosed homeowners pay rent to a bank to remain in their home. Another bill considered by the committee would establish mandatory mediation, where banks must negotiate with homeowners before foreclosing. Neither bill passed.
“The Legislature absolutely needs to take strong action, and we did not see that this session,” Eldridge said.
Eldridge said he would also like to see more state funding — for example, to continue HomeCorps grants after the settlement money runs out.
“Sadly, many of my colleagues view the fiscal crisis as something that happened in 2008. A lot of foreclosures happened, but everything is fine now, therefore we’re going to move on to other things,” Eldridge said. “Many are not looking at the fact that, especially in the poorest corners of Massachusetts, foreclosures continue to happen, and people continue to be displaced or living in uninhabitable homes.”
The Legislature in 2015 did pass a law limiting the amount of time people have to challenge foreclosures and get their homes back.
The banking industry says new rules have been implemented by federal and state regulators. There are new regulations about communication with homeowners, loan servicing and the length of time a homeowner has to repay a loan in default.
Lenders oppose some of the proposed changes. For example, Jon Skarin, senior vice president at the Massachusetts Bankers Association, said forced mediation would lengthen the foreclosure process, leading homeowners to fall further behind in payments and creating problems for communities if homeowners abandon properties.
“We’ve always been of the mindset that we should provide protection to homeowners, but we shouldn’t introduce delays into the process just for the sake of delaying the process,” Skarin said.
Skarin added, “At this point, there has been a considerable amount of work done both by industry and policymakers on figuring out what protections they should put into place. Most of the protections in Massachusetts are still in place and will continue to be in place going forward.”
Meanwhile, homeowners continue to face difficulties.
Bonnie Inserra, a first-time homebuyer, bought her house in West Springfield in 2007. No one explained when she took out her loan that, after one year, the monthly payment would increase by around $1,000.
Inserra does patient registration at a medical facility, and her husband is an electrician. They took on multiple jobs, and found a lawyer to work pro bono to contest the loan terms.
In the meantime, her loan was sold multiple times to different banks, and Inserra was unable to get a modification despite multiple attempts and assurances from the banks.
Inserra has been told that her house was auctioned off, although she still lives there as she continues litigation.
“I’m fighting all the way to the end,” Inserra said.