Gov. Rick Snyder and the Michigan Legislature deserve credit for signing a bill that extends Michigan’s 90-Day Pre-Foreclosure Negotiation Law until January 5th, 2012. But the “temporary” extension is not nearly long enough to get us through this crisis. The law which was due to expire July 5 requires that lenders notify homeowners before initiating the foreclosure process. It also requires that lenders meet with homeowners to try and work something out to avoid the foreclosures that hurt us all.
The Joint Economic Committee of Congress recently put the average cost of a single foreclosure at $78,000 while estimating the cost of preventing a foreclosure to be $3,300. They went on to estimate that of the $78,000 cost of a single foreclosure, $7,200 of it is shared by the foreclosed homeowner in lost equity, moving expenses, legal fees, etc. $1,508 is shared by every neighbor of a foreclosure home in the form of decreased home value, making it harder for them to sell, refinance or move. $19,227 is born by the local unit of government in the form of a shrinking tax base which results in cut backs in basic services for everyone. So the homeowner who loses their home is not alone in suffering the negative impacts of foreclosure. With every single foreclosure, we all lose.
Getting borrowers and lenders together is an obvious first step in avoiding foreclosures and that’s exactly what Michigan’s 90-Day Pre-Foreclosure Negotiation law does. Nationally, it’s estimated that 50% of all at-risk homeowners never have contact with their lender. Prior to the 90-Day Pre-Foreclosure Negotiation law, Michigan’s at-risk homeowners were rarely able to get through to their lenders over 90% of whom are very large national banks. With the passage of the law in July 2009, however, Michigan joined 24 states across the country that have created new options for homeowners to participate in various types of mediation, pre-foreclosure negotiation or conference programs which allow homeowners and lenders to explore mutually beneficial alternatives to foreclosure.
Michigan’s 90-Day Pre-Foreclosure Negotiation also steers at-risk homeowners to the statewide network of free, highly trained and certified foreclosure counselors. According to research from the Federal Reserve, this counseling increases the likelihood a homeowner will be granted a loan modification by 200%.
Another recent nationwide study of foreclosure mitigation counseling programs found that borrowers who had missed a payment on their mortgage were 45% to 50% more likely to catch up on payments if they received this counseling.
Surveys in June 2010 and April 2011 of Michigan’s certified foreclosure counselors and legal service attorneys working with at-risk homeowners across the state on a daily basis indicated that the vast majority consider Michigan’s 90-Day Pre-Foreclosure law a success.
While the law extension is only temporary, it does, however, buy the legislature time to give this law careful consideration.
In September, joint house and senate work groups are expected to be formed to bring the various stakeholders together to try and agree on an improved law worthy of extending for another couple years. I strongly believe that the only criteria that should be used to evaluate any changes to the law are the answers to the following questions: Will the changes:
• Increase or decrease the number of foreclosures
• Increase or Decrease the number of vacant properties
• Increase or decrease property values
• Increase or Decrease local tax revenue we rely on for basic services.
Michigan’s 90-Day Pre-Foreclosure Negotiation law is a critical piece of legislation that impacts not only at risk homeowners, but all of us and we need to get it right for ALL of us. I’m committed to doing my part to see that this happens.
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