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HEAT BILLS TO PUT CHILL ON HOME ECONOMICS
To afford rising heating and electricity costs, low-income families must cut back on daily spending on food, medications and other necessities, according to an issue brief released Tuesday by the Massachusetts Affordable Reliable Electricity Alliance. The group, which consists of 65 business, labor and community organizations, concludes that the average family will spend $1,000 more this winter on heat, compared to last winter. The brief, noting poverty numbers are on the rise in Massachusetts, says more families are facing tough choices on spending necessities. Citing U.S. Energy Administration statistics, the brief states that Massachusetts this year has the fourth highest electricity rates among the states. (Issue brief attached)
WITH LITTLE RELIEF IN SIGHT, FORECLOSURE CRISIS DOMINATES ECONOMIC DISCUSSION
By Kyle Cheney, Catherine Williams, and Jim O'Sullivan
STATE HOUSE NEWS SERVICE
Enhanced resources - Warren Group Data, Fed Reserve Report - available at www.statehousenews.com
BOSTON, DEC. 3, 2007…..As economists around the country begin to whisper the "r-word" - recession - the nation's economic outlook appears increasingly hinged on the bleak housing market, as leaders in all levels of government offer policy prescriptions to stave off the effects of skyrocketing foreclosure rates, sparked by unaffordable, adjustable-rate loans.
In Massachusetts, new data shows foreclosure rates continuing to steepen - the Warren Group found that 2007 foreclosures have tripled from this time a year ago - and financial experts are warning that the worst is yet to come as more subprime borrowers see their low introductory interest rates swell to sometimes unaffordable levels.
According to the Warren Group's data, through October 31 there were 6,324 foreclosure deeds executed this year in Massachusetts, compared to 2,112 by the end of October 2006. In all of 2006, there were a total of 2,634 foreclosures in Massachusetts.
"Lenders have apparently lost patience with borrowers, and it's pretty clear that a lot more Bay State homeowners are going to be getting a visit from the Grinch this year," said Timothy Warren, Jr., CEO of the Warren Group. He predicted petitions to foreclose would "continue their steady upward march" for the rest of 2007.
The findings come as Massachusetts begins to implement a law, signed last week by Gov. Deval Patrick, to provide resources to potential homebuyers, assist those already in untenable circumstances, and prevent future foreclosures.
The law forbids lenders from offering adjustable rate loans unless the borrower actively opts into the agreement and provides certification from a counselor who has signed off on the advisability of the loan. It also requires that all mortgage originators be licensed by the commonwealth and that their criminal histories be made available to the Division of Banks, although Gov. Deval Patrick has asked that juvenile records be exempt from review.
"Allowing access to juvenile records - which are not publicly available and, with rare exception, are not made available for employment decisions - is unjustified in this context, and runs contrary to the well established rehabilitative goals of the juvenile justice system," Patrick wrote in an amendment letter to the Legislature.
The bill provides $5 million to the Division of Banks to keep a registry of lenders and to offer education for first-time homebuyers, allows tenants living in foreclosed properties to remain for at least one full rental period, and offers a 90-day "right to cure" any default of a mortgage payment.
The practice of opting into adjustable rate loans received an endorsement Monday from one of the commonwealth's leading financial experts, Federal Reserve Bank of Boston's CEO Eric Rosengren.
Predicting that the country would see two more quarters of a downturn in the housing market, Rosengren urged subprime lenders to prolong "teaser" interest rates - set low to entice homebuyers, usually for two to three years, before spiking - so those at risk of defaulting would have a window to fully repay their loans or refinance. He added to reporters later that he couldn't say how long the extension of low rates should be but that those negotiations were ongoing.
At a policy breakfast sponsored by MassINC, Rosengren told an audience of housing industry experts that federally backed lenders were going underused because of "slow and cumbersome" processes but that they actually offer some of the best protections to low- and middle-income borrowers.
Rosengren stressed the idea that subprime lending is a valuable tool for potential homebuyers and should continue to exist as long as proper safeguards and oversight are implemented. He also praised Massachusetts as "quite active" in alerting homebuyers to their options.
One real estate expert, David Wluka, agreed with Rosengren's assessment of federal lenders, calling them "clunky" and "hard to use," and said with the proper modifications it could be "the most powerful vehicle out there."
Wluka, a former president of the Massachusetts Association of Realtors, told the News Service that "consumers really need to have a more transparent understanding of what finance is all about, and they don't."
He recounted how one of his clients, a woman looking to buy a condo, said she was offered 100 percent financing from a lender in Kentucky. Incredulous, Wluka said he told her "I have no idea what you bought online from this Kentucky group. I don't know who they are. I don't know what they're doing to you." He said he urged her to have the terms of her deal reviewed by an independent mortgage company to ensure the loan's advisability.
Rosengren's remarks came on the heels of a report commissioned by the Fed that found "homeownerships financed by subprime mortgages are five to six times more likely to default" than traditional borrowers - 18 percent of subprime borrowers are likely to default on subprime loans as opposed to 3 percent on prime loans.
The crisis is exacerbated by a rapid depreciation on home values nationwide, the study found, concluding that further research will be needed to determine the impact of specific components of subprime lending that are contributing to the high level of foreclosures.
On the federal level, Treasury Secretary Henry Paulson called the crisis "the biggest challenge to our economy."
Paulson urged renewed emphasis on mortgage counseling to educate homebuyers about their options and to warn them in advance of impending changes to their interest rates. He also said the Treasury would allow state and local governments to "temporarily broaden their tax-exempt bond programs to include mortgage refinancings," a move he said would foster wider access for all homeowners. Thirdly, Paulson, who said an increase in the number of struggling borrowers is inevitable, proposed the categorization of borrowers based on their ability to afford different types of loans, which Paulson said would help identify their refinancing options.
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