Indiana: A National Leader on Foreclosures

Indiana is second only to Ohio in foreclosure rates according to this article in the Fort Wayne Journal Gazette. Apparently a study committee is looking at the issue and the State has launched some counseling efforts, including a telephone hotline and a website. Part of the plan appears to be educating people about what, exactly, it means to have an adjustable rate mortgage.

Going forward, there are ideas being floated such as providing prospective borrowers were summaries of maximum potential rates and maximum potential monthly payments.

But committee member Rep. Randy Borror, R-Fort Wayne, questioned whether this change will make any difference, especially since it will be one more piece of paper in a large stack for the borrower to sign at closing.

“I question that as being a solution to the problem,” he said. “You are signing your name so many times to so many documents. You can push back closing to review the documents if you so choose. You are in control of that process.”

Borror apparently doesn’t have a very realistic idea of how the home closing process usually works. I don’t disagree that pushing back the closing to review the documents might be possible — unless to do so would be a breach of your purchase agreement — but the home closing process isn’t generally very conducive to a thorough review of documents. Usually the paperwork isn’t ready until the last minute. A good number of people are waiting at the table to get the job done. There’s a good chance that time frames for moving out of your old place and getting your stuff to your new place along with the home seller’s time frame for getting their stuff out of what will be your new house and into their new house are tight. The logistics of the situation put the pressure on to get the closing done. For Borror to say that the borrower is really in control of the process doesn’t seem very realistic.

Other suggestions include eliminating prepayment penalties which would allow people to refinance; increasing penalties for fraudulent lending practices; and include a contact sheet in closing documents identifying everyone involved in the process. There is also the possibility of limiting the practice of accepting “stated incomes” for initiating loans and requiring some sort of actual proof. Some want to hold lenders accountable for activities of the loan brokers or appraisers involved in fraudulent loan transactions.

Borror said the state needs to tighten its laws for appraisers and mortgage brokers, but he cautioned against overregulating the industry.

“We must also understand that there is an element of personal responsibility any time anyone enters into a home contract for a home or car, whatever,” Borror said. “I am not someone who is going to propose multiple regulations across industry lines where we kill the golden goose.

“It’s a delicate balance.”

All of this might be good for people buying houses in the future, but to get them out of their current situation, it seems to me that there will have to be some combination of lenders accepting less and borrowers paying more. I’m not sure where that comes into these plans.