The Federal Reserve Bank of Boston and the Massachusetts Bankers Association (MBA) announced today that the Mortgage Relief initiative introduced in December is growing – from an initial five banks to more than 50 banks of every size, with branches throughout Massachusetts and much of New England. The expansion comes as community banks affiliated with the MBA join the effort (see attached list of banks).
The Mortgage Relief initiative is also evolving. The original plan was to reach out to borrowers with high-rate “subprime” loans who might be eligible for a more secure, predictable, affordable mortgage from a bank. However, falling home prices in many parts of New England have eroded home equity. As a result, some borrowers’ homes are now worth less than their loans, and refinancing into a new mortgage can be difficult.
“There is no single, easy answer,” says Daniel Forte, president and CEO of the MBA. “Banks did not cause this problem but the Mortgage Relief banks, regardless of their size, want to be part of the solution. They have a stake in the success of the local and regional economy.”
Whenever possible, the banks participating in the initiative will help eligible homeowners refinance into conventional loans that will better meet their needs. “Unlike many subprime lenders,” Forte adds, “banks are a safe and sound place to discuss your credit needs and financial situation, with expertise and respect.”
The Banks’ Commitments
Much like the original five institutions – Citizens Bank, Sovereign Bank, TD Banknorth, Webster Bank, and Bank of America – the banks joining the Mortgage Relief initiative have made a number of commitments:
1) Outreach – to reach out to borrowers in difficult mortgages, in part by contributing to a pool for mortgage relief advertising (in amounts based on the bank’s size);
2) Innovation – to expand their utilization of programs that may help borrowers with limited home equity (programs like Federal Housing Authority loan guarantees, and those of state agencies);
3) Personnel – to designate one or more “go to” staff members who can help borrowers explore their mortgage relief options;
4) Lending – to adopt a goal for responsible lending under the program (ranging from $500,000 for small banks with under $250 million in assets to $2.5 million for community banks with over $1 billion in assets);
5) Collaboration and Referral – to share with fellow participants the products and approaches that prove effective in helping challenged borrowers, and to refer individuals they cannot help to other participating banks or housing-counseling agencies.
The Federal Reserve Bank of Boston applauds the banks’ continued efforts. “These are very challenging times for some borrowers,” says Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston, “and I am genuinely pleased to see banks of all sizes and types stepping up and trying to make a difference. It is not only the right thing to do for borrowers in distress, but also is in the long-term interest of the local and regional economy.”
Challenges Encountered as the Landscape Changed
The five original banks, and the Boston Fed have been working intently on this program since December, notes Lynn Browne, executive vice president at the Federal Reserve Bank of Boston and a member of the program’s steering group. “The biggest challenge we have encountered, however, is that declining home prices have left many of the target borrowers ‘under water’ in terms of home equity, and those loans are just incredibly difficult for lenders to arrange.”
When they can’t assist with a loan, the Mortgage Relief banks urge borrowers in difficult situations to contact the servicer of their mortgage as soon as possible (in particular, the servicer’s loss mitigation department), or a mortgage-counseling service such as the Homeownership Preservation Foundation or regional foreclosure-prevention centers identified by states (see attached list, for Massachusetts).
The Need for Policy and Product Development
The banks will continue to reach out to borrowers who are paying high rates, and those who may be qualified to get a more affordable loan than they have currently. The Mortgage Relief participants also acknowledge the work that the Congress, individual states, and HUD/FHA are doing to provide more tools to meet the challenge of serving borrowers with negative home equity and unaffordable loan payments, and they encourage policymakers to continue in these efforts.
Legislation currently working through Congress, and continued innovation by state agencies and others, may provide many more tools for lenders and borrowers. The Mortgage Relief banks will be well positioned to make progress quickly and effectively should legislation be passed.
Expansion Means More Avenues to Speak with a Bank about Credit Concerns
Why expand the program now? “Banks have always quietly worked with borrowers in distress. However, despite the present challenges, more banks want to stand up and be counted as part of the solution,” says Kevin Kiley, the MBA’s executive vice president and chief operating officer. “No question, these are challenging times in the region, and for many New Englanders the situation is difficult. But talking to a safe and secure bank about your credit concerns and your home loan – most peoples’ largest financial obligation – is always a good idea. Many of the banks, even those not formally in the Mortgage Relief initiative, already participate in a variety of programs at the federal, state, and local level that may work for you.”
To learn more, borrowers can speak with any of the banks participating in the Mortgage Relief initiative. The five founding institutions are listed at the web site www.MortgageReliefFund.com along with a link to the list of community banks that participate as part of the Massachusetts Bankers Association. Applicants can get an initial sense of their eligibility for the program by reviewing the criteria on the site. Interested borrowers should contact the bank of their choice.