A potential six month foreclosure moratorium in Philadelphia was the subject of a heated meeting Tuesday between members of the Philadelphia City Council, the city’s Law Department, and representatives from Fannie Mae, HUD’s Region III Director and Option One Mortgage, as well as community representatives from ACORN and the Philadelphia Unemployment Project.
Housing Wire originally reported on the proposed moratorium
late last week, with the City Council approving a one month pause in foreclosures while it sought a six-month moratorium on foreclosure activity in the city. The Sheriff was actively involved in pursuing the initiative, as well.
HW learned yesterday that legal officials for the city advised the Sheriff and the Council that neither has the authority to impose the longer-term moratorium they seek. Sources also suggested that key government officials, including Mayor Michael Nutter, do not currently support a court order authorizing such a freeze.
A memo obtained by Housing Wire summarizing the Tuesday meeting suggested that community groups, including ACORN, are likely to file a motion before the next foreclosure sale date in May seeking to implement a six month moratorium. The groups want to see loan forgiveness and modifications based on affordability, rather than value, the memo said.
As the housing crisis has worn on, community groups have argued for modifications and principal forgiveness to whatever a borrower "can afford," irrespective of the value of the house; the end logic here is that the point of the loan is homeownership for homeownership's sake, which means lenders must live with whatever that ends up looking like.
"If you want to see lenders stop lending altogether, force them to write-down to an arbitrary affordabilty number," said one source, who asked not to be named.
Beyond the affordability agenda, consumer groups also said they want control of the loss mitigation process in Philadelphia, according to a separate document obtained by Housing Wire that summarizes the demands of various community groups including the Philadelphia Foreclosure Crisis Committee, the Philadelphia Unemployment Project, ACORN, Community Legal Services, and Philadelphia Legal Assistance.
Under the terms of their proposal, community leaders want servicers to agree to let credit counselors determine "what a workable modification or other work out would be to resolve a delinquent mortgage without loss of the home." The groups want servicers to agree to "offer affordable workouts as computed by the counseling agencies," according to the document, while all foreclosures would cease so the counseling agencies can figure out what would be affordable for troubled borrowers.
Industry executives interviewed by HW were stunned to see that community groups are now actively seeking authority to modify loans, given that doing so would seem to violate every Pooling & Servicing Agreement in existence.
"Even if it were legal, which it clearly isn't, are we going to start asking S&P and Moody's to start rating thousands of counseling agencies as special servicers now?" said one source. "There isn't an investor on the planet that would go for this."
Even if the effort at a moratorium fails, legal experts said the Philadelphia Sheriff's office has plenty of options to stall the foreclosure process. One such action would involve changing the sale date calendar or accepting only a certain number of sales each month, HW was told.
"Not all sheriffs’ offices in Pennsylvania have monthly sales and the Sheriff has hinted that he may change the sale schedule to every other month, every quarter or twice a year," said one source, who also said that if that were to take place, lenders would likely immediately take the matter to the Supreme Court of Pennsylvania.
Of course, the debate now taking place in Philly is just one of many -- but it's clear that the city has quickly become the epicenter of the national debate over the U.S. housing crisis.