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Even with a record number of homeowners defaulting on
their mortgage loans, TSP-HOPE’s housing programs and services have
remained unaffected, says the agency’s executive director, Ron
Fafoglia.
Fafoglia says TSP-HOPE, which helps low-income people
get homes, requires prospective clients to have a minimum credit score of
620. Also, he says, the organization doesn’t deal in risky subprime
mortgages. As a result of TSP-HOPE’s rigid entrance
requirements, Fafoglia says that no client of the program has ever
defaulted. However, he also says that three of the
organization’s homes were on the market for at least five months in
2007. “It’s the general malaise that is making
people leery of buying a house at this time,” he says. By the end of 2007, the delinquency rate on mortgages
across the country had reached its highest point in more than 20 years, and
the foreclosure rate had set new records, according to the Mortgage Bankers
Association, a national group that represents the real-estate-finance
industry. Conventional thinking has held that the housing
market began to implode once interest rates reset on a critical mass of
adjustable-rate subprime mortgage loans, which are often sold to
individuals who don’t earn a lot of money and whose credit is too
poor to qualify them for traditional mortgages. Companies issuing these
loans, which often come with high costs hidden in the fine print, have been
widely criticized for targeting people who are most unlikely to meet the
loan obligation. But a study released last week by the State
Foreclosure Prevention Working Group, a multistate task force, concludes
that some homeowners who took out subprime mortgage loans to finance a
slice of the American dream were due for a rude awakening long before their
interest rates increased. In other words, the loans were unaffordable from the
beginning, says Illinois Attorney General Lisa Madigan. The report, Analysis of
Subprime Mortgage Servicing Performance,
states: “The rating agency Fitch . . . concluded that ‘poor
underwriting quality and fraud’ may account for as much as 25
[percent] of the defaults. Fitch further commented that, ‘[t]here was
the appearance of fraud or misrepresentation in almost every
file.’”
Attorneys general from 11 states, including Illinois,
commissioned the report to examine data from the nation’s top
subprime-mortgage-loan servicers — firms that collect and manage
mortgage payments and escrow accounts on behalf of lenders — to
assess the scope of the U.S. foreclosure crisis and how loan servicers are
responding to the meltdown. Robyn Ziegler, Madigan’s spokeswoman, says
Illinois was invited to participate because the state is among the
nation’s top 10 in foreclosures and because the state has a large
number of subprime borrowers. Illinois also serves as the North American
headquarters of one of the nation’s largest subprime lenders, HSBC. Blame shouldn’t be heaped on the mortgage
industry, says Paul Lueken, president of the Illinois Association of
Mortgage Professionals. He says that although some people might have been
sold mortgages that they couldn’t afford, he doesn’t believe
that origination fraud was rampant. “When you do the a lot of the
finger-pointing and you say, ‘Where did this all happen?’ you
could look from Wall Street all the way down to the mortgage company down
to, and primarily, the consumer,” he says. “First and foremost what our society lacks is
people taking accountability for their own actions. Unfortunately, if you
lose your job, that’s not the mortgage professional’s fault. If
you got a divorce, that’s not the mortgage professional’s
fault.”
Lueken attributes the current state of the housing
market to falling home prices, saying that had home values remained high,
consumers would have had an exit strategy from loans that they could no
longer afford. “Some people bought their home with the
idea that they would sell it quickly and make a large profit. Then the
market turned on them and they couldn’t afford it, but they thought
that they weren’t going to have to afford it.”
Fafoglia says that TSP-HOPE plans to build 15 homes
in Springfield this year but admits that selling them could be a challenge
because many people are wary of the housing market right now. “When you’re a first-time homebuyer and
you hear about all these problems with people going broke and losing their
homes, and you’re not educated on how the system works, people can be
intimidated,” he says.
Contact R.L. Nave at rnave@illinoistimes.com
This article appears in Feb 7-13, 2008.
