Ken Paxton

Tuesday, November 6, 2007

Attorney General Abbott Urges Top Lenders, Loan Servicers to Address Growing Housing Crisis

AUSTIN Texas Attorney General Greg Abbott proposed a series of foreclosure prevention measures to four home mortgage lending and residential loan servicing companies. At a meeting convened Monday by the Office of the Attorney General, mortgage industry leaders were asked to implement several important measures that are designed to prevent Texans from losing their homes to foreclosure.

By the end of next year, approximately $600 billion worth of subprime adjustable-rate mortgages are expected to increase homeowners’ monthly payments nationwide. During yesterday’s meeting, Citigroup, HSBC, Wells Fargo and Chase were urged to implement several measures designed to preserve homeownership in Texas, improve consumer communication, and resolve complaints.

Mortgage lenders, loan servicers, and public officials must work cooperatively on behalf of Texas homeowners who are affected by the looming housing crisis, said Attorney General Abbott. Because of the housing industry’s tremendous economic impact, resolving this issue is important to the Texas economy’s continued growth and expansion. We believe that the proposals laid out in our meeting offer real solutions that will help keep Texans in their homes.

Attorney General Abbott outlined five measures that lenders and loan servicers should implement to restore borrowers’ financial stability and reduce foreclosures in Texas:

Provide long-term solutions for borrowers with adjustable-rate mortgage loans (ARMs). Mortgage companies should consider easing homeowners’ mortgage-related burdens by converting adjustable-rate loans into fixed-rate products. Many ARM loans have already adjusted and pushed countless consumers into the foreclosure process. Because of high foreclosure costs, this proposal benefits lenders, loan servicers and homeowners.
Mitigate first, collect second. Under the protocols currently used by most lenders, homeowners who have difficulty making payments receive expedited referral to the collection process, which is often antagonistic and intimidating. Attorney General Abbott encouraged companies to engage homeowners before sending a case to collections by reviewing each case in a non-confrontational setting and exploring solutions, the chances of a debtor repaying their obligations increases.

Create an in-house resolution committee to address consumer complaints. Attorney General Abbott urged Monday’s participants to dedicate in-house staff to immediately address consumer complaints received by the Texas Office of the Attorney General (OAG) and report promptly to the OAG on the status of those complaints.
Improve communication with consumers. While many companies have adjusted their protocols and are engaging consumers who face imminent foreclosure, Attorney General Abbott recommended that companies improve their communication efforts. The attorney general also encouraged the companies to contact consumers well before ARMs reset to higher interest rates so that fixed-rate options can be explored.
Waive applicable penalties and fees. Attorney General Abbott urged lenders and loan servicers to waive penalties and late fees associated with loans at risk of foreclosure while the companies work with troubled consumers to preserve their loans.

Attorney General Abbott also requested that Monday’s participants follow up with the OAG within 30 days on their implementation of these five measures. Specifically, he wants to know the percentage of ARMs that were converted to fixed-rate loans and the number of service fees that were waived.

In October, Attorney General Abbott made the same proposals during a meeting with Countrywide Mortgage, Houston-based Litton Loan Servicing and Dallas-based EMC Mortgage.

Protecting Texas consumers is one of Attorney General Abbott’s top priorities. Under the Deceptive Trade Practices Act, the OAG has prosecuted a variety of deceptive loan practices, including title-related scams, fraudulent refinancing ploys, and other mortgage-related fraud.

Earlier this year, the OAG obtained $21 million in restitution for Texans harmed by lending giant Ameriquest Mortgage Co.’s deceptive lending practices. The settlement resolved allegations that Ameriquest and its affiliates did not adequately disclose certain terms to homeowners, including whether loans carried fixed or adjustable rates. According to court documents filed by the OAG, Ameriquest also charged excessive origination fees and prepayment penalties, refinanced borrowers into improper loans and inflated appraisals that qualified borrowers for loans.

In 2006, Attorney General Abbott negotiated a landmark agreement with Green Tree Servicing L.L.C., a Minnesota-based firm that services manufactured housing debts in Texas. Under the settlement, Green Tree agreed to assist more than 1,200 Texas homeowners who may have been issued invalid titles to homes they purchased from more than 115 unlicensed retailers in 2003. In a related move, the Attorney General secured an injunction and asset freeze against the unlicensed sellers. The Office of the Attorney General has also halted scams purporting to save homeowners’ properties from condemnation. It has also cracked down on various title-related and refinancing scams.

To better assist Texans who are considering a mortgage loan, Attorney General Abbott recently added new online resources to the agency’s Web site ( The new Web page, Avoiding Home-Buying Pitfalls and Scams, provides consumers with guidelines about the home-buying process as well as other helpful information. The Web page also provides tips on recognizing foreclosure rescue scams, equity-stripping schemes and other refinancing pitfalls. Consumers who believe they have been targeted by a mortgage-related scam should contact the Office of the Attorney General at (800) 252-8011.