State legislators and Gov. Mike Easley said Tuesday they've come up with a plan that could keep as many as 25,000 N.C. homeowners out of foreclosure in the next two years.
The plan depends on the idea that many borrowers need only time and advice to stay in their homes. And, in the absence of federal action, it is drawing support from regulators and some in the mortgage industry.
Easley described it as an attempt to bring stability to the shaky housing market.
“In a foreclosure, the one thing you can say is everybody loses,” he said at a news conference.
A limited number of borrowers could get help from the program, depending on the date their loan began and other factors. Only subprime loans – those with relatively high interest rates – would be eligible. Easley's office said close to 50,000 N.C. homeowners entered foreclosure in 2007.
Under the plan, companies that service mortgages would be required to give eligible borrowers at least 45 days' notice before beginning foreclosure proceedings. The N.C. Commissioner of Banks would compile a computer database of those facing foreclosure and could delay proceedings for up to an additional 30 days.
The extra time would allow the commission to help arrange debt counseling, negotiations with the lenders and legal advice.
“There's a belief that up to 50 percent of the borrowers who end up with a subprime loan in foreclosure – and the number might be higher – never have a meaningful conversation with the party that is proceeding with the foreclosure,” said Paul Stock, a lobbyist for the N.C. Bankers Association who helped negotiate the plan.
Stock and others said many borrowers who fall behind on mortgage payments are either too afraid to ask for help or believe that help is not available.
“In both instances, this will provide a better opportunity for people to talk to the servicer of their loan,” said Al Ripley, a lobbyist for the N.C. Justice Center, which works on behalf of the poor.
Some companies that service mortgages or invest in them are expected to oppose the program, but Stock said most objections from bankers were technical and have been addressed. With the support of Easley and legislative leaders, it will likely be put on a fast track.
About 20 staff members with the N.C. Banking Commissioner's office will work on the program, referring borrowers to non-profits and other state agencies when appropriate. The program as proposed would provide up to $1 million in grants and training for debt counselors.
Legislation creating the program got a hearing in a House committee Tuesday. A committee vote could come Thursday, to be followed by action by the full House. Senate leaders have signaled their support.
Banking Commissioner Joseph Smith said the program could be in effect by November.
Supporters argued the program would not be a bailout. It would not provide direct subsidies to homeowners, and only certain borrowers would qualify for help.
“They have to be owner-occupied homes,” said state Rep. Dan Blue, a Raleigh Democrat and the bill's primary sponsor. “This program is not aimed at speculators.”
Foreclosure rates have skyrocketed nationally. In May, filings were up 48 percent from a year earlier and up 7 percent from April. In North Carolina, filings were also up but not as much – 24 percent from a year earlier.
Blue and others attribute the state's relative success to legislative efforts since 1999 to protect borrowers. The negative effects of a foreclosure can ripple through a whole community, he said.
“It adversely affects the tax base,” he said. “It adversely affects the equity in other people's homes in the community, so they can't realize their middle-class dreams.”