I cosponsored a resolution with CM Don Samuels calling for the largest lenders and loan servicers to voluntarily freeze foreclosure activity in Minneapolis for three months, by allowing borrowers to refinance to lower interest rates, freeze adjustable rate mortgages, and other constructive actions. I've pasted the text below, or you can read it in context here (scroll down to page 47).
This resolution passed 9-4, with CMs Goodman, Ostrow, Johnson and Colvin Roy voting against it. Their rather tortuous reasoning was that a) we're already working on this in more substantive ways, b) the resolution is just a gesture, devoid of any real meaning and c) our "partners" in the lending community would see the resolution as a "stick" with which the City is beating them over the head. (How an "empty gesture" could be an effective "stick" is beyond me.)
Though I appreciate the great work of our staff and policymakers on foreclosure prevention, we're clearly not doing enough. And though the resolution was non-binding, calling for voluntary action, I believe it's important that the Council has gone on record attempting to lead lenders in a direction that will be better for our neighborhoods: away from foreclosure and towards sustainable lending practices.
I hope that the industry will listen, but I'm not willing to simply ask politely. There is considerable evidence that people of color continue to face discrimination, in the form of worse loans (higher interest rates, more Adjustable Rate Mortages, etc) at the exact same income levels than whites. At my urging and the request of Minnesota ACORN, the City’s Civil Rights Department is working with the Institute on Race and Poverty, looking into data on possible discriminatory loan and foreclosure practices by major lenders and loan servicers in Minneapolis. I will continue to press for a Civil Rights investigation into this.
By Samuels, Gordon, Hofstede, Lilligren, Remington, Schiff
Calling For a Voluntary Moratorium on Foreclosures by Subprime Mortgage Lenders.
Whereas, subprime lending has grown rapidly in the city of Minneapolis, especially North Minneapolis, during the last few years (“Can HMDA Data Herald Neighborhood Changes?”, Federal Reserve Bank of Minneapolis – Community
Dividend 2006); and
Whereas, the Center for Responsible Lending estimated in a December 2006 report that one in five subprime loans will end up in foreclosure (“Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners” Center
for Responsible Lending (December 19, 2006); and
Whereas, many homeowners with subprime ARMs have not been able to refinance due to thestagnation or decrease in home values (“The Subprime Meltdown- A Primer” , National Economic Research Association, June 21, 2007); and
Whereas, more than two-thirds of subprime loans have prepayment penalties, compared to just 2% of prime loans (“Blame the Borrowers? Not So Fast”, Gretchen Morgenson, The New York Times, November 25, 2007); and
Whereas, prepayment penalties trap borrowers into subprime loans with high or adjustable rates (“The Subprime Meltdown- A Primer” , National Economic
Research Association, June 21, 2007); and
Whereas, some mortgage brokers and lenders made loans to families who could not afford the loan (“The Subprime Meltdown- A Primer”, National Economic Research Association, June 21, 2007); and
Whereas, 46% of subprime loans made in 2006 required little or no income documentation(“Subprime ‘Liar Loans’ Fuel Bust With $1 Billion Fraud”, Bloomberg News, April 25, 2007); and
Whereas, subprime loans have led to an increase in foreclosure rates which hurts Minneapolis neighborhoods as well as the families who are losing their homes (“The Subprime Meltdown- A Primer”, National Economic Research Association, June 21, 2007); and
Whereas, these vacant homes attract crime and cost the City of Minneapolis and other cities money in crime prevention and the deterioration of neighborhoods (“The Municipal Cost of Foreclosure: A Chicago Case Study”, Homeownership Preservation Foundation, February 27, 2005) ; and
Whereas, the City of Minneapolis has seen a tripling of foreclosures in 2007 as well as a tripling in vacant and boarded properties at a cost to the city of $1.9 million;
Now, Therefore, Be It Resolved by The City Council of The City of Minneapolis:
That the City of Minneapolis calls on the 25 largest subprime mortgage lenders and servicers in the country to voluntarily agree to a 3 month suspension on foreclosures of owner-occupied properties in the city of Minneapolis.
Be It Further Resolved that the City of Minneapolis calls on these lenders and servicers to make every effort during the suspension period to help their customers avoid foreclosure and remain in their homes, including modifying loans by reducing the interest rate and/or the principal to achieve an affordable monthly payment.
Be It Further Resolved that the City of Minneapolis encourages lenders holding rental propertiesto keep these properties occupied with tenants for as long as possible.
Be It Further Resolved that the City of Minneapolis encourages these companies to continue to work with the City of Minneapolis and community-based organizations during the suspension period to reach those homeowners who are not communicating with the servicer.
Adopted 1/18/2008. Yeas, 9; Nays, 4 as follows:
Yeas - Hofstede, Schiff, Lilligren, Glidden, Remington, Benson, Hodges, Samuels, Gordon.
Nays - Ostrow, Colvin Roy, Goodman, Johnson.