Banks Jumping To Foreclosure Rescue

February 7th, 2008 | Tags: Foreclosure

Community banks are soon teaming up with five jumbo banks of New England to lend a helping handing to distressed foreclosure victims. The Federal Reserve Bank of Boston’s Mortgage Relief Fund have received innumerable enquiries since the programme was kicked off last December. The initial fund of $125 is slated to grow.

The Boston Fed is trying to rope in other cities like Brockton and Lawrence that were also under foreclosure clouds. Last year the foreclosure rate rose by 150%. The bright side is that the banks that normally compete with each other are now complementing each other and working cooperatively to ward off a further rise in foreclosure numbers.

The programme launched by Boston Fed was an extension of one started by MassHousing a semi public housing finance agency targeting those who were in the risk zone and about to foreclose. According to the scheme the borrowers will be able to refinance by taking a loan with a lower interest rate. The loans are backed by the FHA (Federal Housing Administration). This enables banks to be flexible in their credit policies. The incentive behind the operation is the CEO of Boston, Eric Rosengren who took over the reins last summer. As a result last December positive announcements came from Bank of America, Citizens Bank, Webster Bank, Sovereign Bank and TD Banknorth. Each promised to contribute $25 million for foreclosure prevention. Hitherto the banks always had access to FHA guarantees for certain loans but recent changes have made it easier for the banks to issue loans backed by FHA.

On January 18^th this year the action started with the receiving of 40 loan applications – several of which are being closed in. All the affected cannot he helped because of low credit scores and income levels. Thus many will remain left out in the cold. The maximum number of enquiries – 400 – has been received by Citizen’s Bank that is the second largest bank in New England. The smallest of the five banks, Webster Bank has received 90 queries. A dozen loans might be granted out of these.

However despite the mood of bonhomie there is much left yet to be done to generate more interest. Boston Fed is aware of the gap and trying to initiate steps to reach those who are not fully conversant with English and have been the prime targets of sub-prime lending.