Mortgage Meltdown: Ruling buys troubled homeowners tim

By KRISTY EPPLEY RUPON - krupon@thestate.com, The State
Wednesday, May. 06, 2009

Homeowners facing foreclosure could get a little extra time to work out a new payment under a ruling Tuesday by the S.C. Supreme Court.

But if borrowers can’t afford a reasonable mortgage payment, their homes still will be headed for the auction block, said Rhonda Marcum, executive director for the Mortgage Bankers Association of the Carolinas.

The court agreed to suspend until May 15 foreclosures on homes in South Carolina whose loan servicer has agreed to participate in a federal modification program. President Barack Obama rolled out a $75 billion mortgage relief plan in February designed to keep up to 9 million Americans out of foreclosure.
Quantcast

The decision halts legal proceedings on all homes undergoing foreclosure.

South Carolina has an estimated 6,291 homes in some stage of foreclosure, said Rick Sharga, senior vice president for RealtyTrac, a foreclosure listing service.

It’s unclear how many of the homes would be eligible for the federal restructuring program.

Freddie Mac and Fannie Mae, which requested the injunction, had suspended foreclosure proceedings nationwide through March to give lenders a chance to work with homeowners who might qualify for the program.

The request for a ruling in South Carolina was because of an unusual state law.

South Carolina’s temporary suspension is designed to give servicers more time to evaluate homeowners’ circumstances before approving a modification.

“Doing a modification that’s not going to help the consumer doesn’t stop the bleeding; it just slows it down,” Marcum said.

Studies have shown that as many as 50 percent of loans that are modified end up in foreclosure again, she said.

If a homeowner has lost all income and has no prospects for employment, they likely would not be approved for a restructured loan, she said. But if someone loses a job and has a spouse still working, they potentially could cut expenses enough to afford a reduced mortgage payment.

“A payment has to be factored into what the consumer can realistically pay,” Marcum said.

Fannie Mae asked for the injunction in South Carolina, said spokesman Brian Faith, because the state has a rule that allows judges on a county-by-county basis to set aside foreclosure proceedings if too much time passes between a foreclosure judgment and a foreclosure sale.

Judges can make all parties start the process over from the beginning, which costs more for everyone involved, Faith said. He said South Carolina is the only state he is aware of that has this rule so Fannie Mae will not be seeking similar rulings in other states.

Dave Whitener, a real estate lawyer and adjunct professor at the University of South Carolina School of Law, said he had never heard of judges using that rule and that it doesn’t make logical sense since it would add extra work.

Whitener applauded the Supreme Court for taking the action to suspend foreclosures to give struggling homeowners extra time to work out a modification plan.

“Our Supreme Court is saying, ‘Let’s slow this train down until we make sure whether or not these people can be protected,’” Whitener said. “I think that’s very impressive.”

Reach Rupon at (803) 771-8308.