BUSH FREEZE PLAN NOT ENOUGH TO SAVE ILLINOIS HOMEOWNERS AND NEIGHBORHOODS IN CRISIS
Attorney General Madigan Responds – What the Federal Freeze Plan Means for Illinois Homeowners
Chicago – “President Bush has unveiled a plan that, in reality, does very little to assist struggling homeowners in Illinois,” Attorney General Lisa Madigan said today in response to the President’s announcement of a federal plan to freeze interest rates for up to five years for a small percentage of the nation’s two million homeowners trapped in subprime mortgages with adjustable rates that are scheduled to reset soon.
Madigan has been working to address the state’s burgeoning home foreclosure crisis on several fronts, including drafting the recently enacted Homeownership Preservation Act, which places tighter restrictions on the state’s subprime mortgage industry; filing lawsuits against unscrupulous mortgage brokers; and aggressively working to make sure that loan servicers provide relief for individual homeowners trapped in unaffordable loans.
“I have reviewed the agreement between the administration and mortgage lenders, and I do not see much help here for the majority of those homeowners currently in or facing foreclosure,” said Madigan.
The President’s plan would exclude homeowners who have fallen behind in their monthly payments – estimated to be about 22 percent of all subprime borrowers – and homeowners whose loans’ low introductory teaser rates are scheduled to reset to higher rates before Jan.1, 2008.
“The President’s plan seems to be premised on the faulty belief that America’s homeowners are primarily to blame for this epic crisis,” said Madigan. “In reality, our investigations have revealed that subprime lenders widely engaged in reckless lending practices that pushed borrowers into unaffordable loans. By excluding homeowners who have fallen behind on their payments, the President’s plan gives the subprime mortgage industry a free pass for engaging in irresponsible conduct, leading to this crisis.”
Madigan noted that investigations conducted by her office reveal that in recent years the subprime mortgage industry has combined increasingly lax underwriting standards with abusive sales practices to trap homeowners in loans they could not afford or understand, in many cases placing borrowers into loans with higher interest rates than the rates for which they qualified. By some estimates, more than a third of the nation’s subprime borrowers could have qualified for a prime product, avoiding the tremendous hardship borrowers are now facing.
Calling the President’s plan nothing more than a first step, Madigan outlined the following ways in which the plan does not go far enough to help Illinois families save their homes:
Madigan called for additional solutions to help Illinois:
The Attorney General offered additional ways to ensure that the president’s plan has an impact for borrowers:
In addition, Madigan, along with 10 other attorneys general who have formed a Foreclosure Prevention Working Group, has met with the top 20 subprime servicers/lenders, representing 93 percent of the market, in an effort to push these entities to work with borrowers and prevent foreclosures. Madigan noted that her office and this group will be closely monitoring the effectiveness of the President’s plan.
“We have requested detailed data from servicers and lenders that will tell us whether these entities are actually helping homeowners to avoid foreclosure in any significant way,” said Madigan. “If the President's plan is truly to make a difference, the numbers we receive and the conduct we monitor will tell the story.“