AARON GORNSTEIN A good idea
A bill that would allow borrowers to make partial mortgage payments to their lenders could help decrease foreclosures in the Bay State, its sponsor said, but the reaction from those it would affect has been mixed.
State Sen. Anthony Galluccio, D-Cambridge, filed An Act Relative to Preserving Homeownership on June 5. The bill would require lenders of “presumptively unfair” loans on Massachusetts properties to accept partial mortgage payments from borrowers twice in any 12-month period, with the understanding that the borrower will repay the difference within 60 days.
“Presumptively unfair” loans include those that are interest-only, stated-income, or 100 percent loan-to-value loans, as defined by the bill.
“I represent a lot of folks who live month-to-month,” said Galluccio, who also represents parts of Everett, Chelsea and Somerville. “If they show up at the bank with 80 percent [of the mortgage payment] and they won’t take it, they fall further and further behind,” he said.
He said at least a dozen constituents had approached him describing that circumstance.
His bill is not targeted at habitual late-payers, he noted, since partial payments would only be allowed twice in a 12-month period. The bill has yet to be assigned a hearing date.
Accepting only full payments is general practice in the mortgage industry because if a borrower makes smaller payments on a regular basis, the loan could amortize negatively. But Galluccio said that now seems contrary to good public policy – and perhaps even good lending policy.
“The mortgage holders in large part don’t want to own the properties,” he said. But if they refuse to accept partial payments, they may end up owning them anyway, since full-payment-only policies hasten foreclosures in some cases.
One long-time Bay State mortgage banker predicted the legislation won’t offer a permanent solution for most borrowers.
The banker, who requested anonymity, questioned whether a homeowner who cannot make their full mortgage payment one month would actually have the money two months later.
“People are seldom in these [financially distressed] situations for just 60 days,” he said.
Virginia Pratt, a foreclosure prevention counselor at Jamaica Plain-based Ensuring Stability through Action in Our Community, said at least half the borrowers she sees have loans they couldn’t have repaid even at the outset.
“Easily 50 percent of the loans are based on wildly inflated income,” she said. Neither borrowers nor most rescue programs meant to help them can make much of a dent, she said, because the borrowers are in no financial position to repay the loans unless existing terms are permanently modified.
“It’s hard to make right what was done wrong to begin with,” Pratt said.
But Aaron Gornstein, executive director of Citizens Housing and Planning Association, an affordable housing advocacy organization in Boston, said the partial-payment idea could be a good one.
“It sounds like something Â… the Legislature should consider as a means to lessen the foreclosure crisis,” he said, adding that he’s heard of dozens of examples where a homeowner offered a partial payment, but the lender refused it.
However, he said, the most lasting relief would be provided to borrowers if more lenders agree to modify loans permanently.
That, he said, is something “we’re just not seeing happening” right now.
