The Corbett administration should agree to a proposal made by Senate Democrats to use a substantial portion of Pennsylvania’s share of the national mortgage-fraud settlement to revive a state program that helps families avoid foreclosure.
Federal officials announced last week that an agreement had been made with 49 state attorneys general in which five of the nation’s largest mortgage lenders would pay $26 billion to settle allegations of fraud in foreclosures based on faulty paperwork. The agreement is not ideal. Only about one million households will have their home loans reduced and an additional 750,000 who lost their homes to foreclosure will receive about $2,000 each.
Ironically, now that a settlement has been reached, the pace of foreclosures is expected to pick up. RealtyTrac reported foreclosures in Pennsylvania increased 24 percent, from 3,692 in January 2011 to 4,566 last month. There were 210,941 foreclosures nationally in January. The likelihood that many more families will lose their homes has prompted State Senate Democrats to propose using some of Pennsylvania’s settlement money to bring back the state’s Homeowners Emergency Mortgage Assistance Program, which was shut down in July.
The state should receive $266 million from the settlement for loan modifications, cash payments to borrowers, and to refinance underwater loans. But the Democrats wrote a letter to Attorney General Linda Kelly asking that a separate $69 million direct payment to her office be used to fund HEMAP.
The idea makes sense. From 2008 through 2010, HEMAP received $38 million from the state and helped 6,162 homeowners avoid foreclosure. Since its inception in 1983, the program had provided mortgage assistance to 46,000 families, and 85 percent were able to save their homes.
HEMAP wasn’t a handout program. Participants were loaned up to $50,000 over a three-year period and paid back the cash with interest. In this economy, it is tragic that it fell victim to the governor’s budget ax. But here’s his opportunity to restore it.
The legislators are right to try to get the attention of Kelly and Corbett before they use the settlement money elsewhere. At least two states, Missouri and Wisconsin, plan to use their funds to bail out their budgets. Missouri is looking at restoring higher-education cuts, and Wisconsin may plug a hole in its general fund.
It makes sense for Pennsylvania to use some settlement money to help more families pay their mortgages and stay in their homes.