The overseer of Fannie Mae and Freddie Mac, Ed DeMarco, recently proposed raising fees on mortgage loans made in Illinois and four other states because of their long foreclosure processes. In a disappointing editorial, the Chicago Tribune argued that changing Illinois’ rules that protect homeowners struggling to save their homes would expedite the foreclosure process and encourage a housing recovery. This argument oversimplifies a complex problem and would set back our state’s housing market, not help it.
In Illinois, lenders seeking to foreclose on a home must get approval through a court process that is designed to ensure that homeowner rights to their shelter and most valuable asset are protected. In some states, foreclosure is a non-judicial process. One of the key reasons why judicial foreclosures often take a long time is that the entities handling the foreclosure process—called loan servicers—do not work with homeowners in an effective, efficient, and ethical manner to find mutually agreeable solutions.
The egregious disregard for foreclosure procedures on the part of the five largest servicers in the country led to a massive settlement with 49 state Attorneys General. Lawyers and counselors working with struggling homeowners report that servicers continue to provide incorrect or misleading information to homeowners. Counsel for some servicers repeatedly lose critical documents provided by homeowners. Servicers also continue to file improperly prepared foreclosure documents. These poor loan servicing practices drag out the foreclosure process well beyond the timelines in Illinois law and contribute to the foreclosure logjam.
An overly speedy foreclosure process, like the Chicago Tribune advocated, reduces opportunities for homeowners in foreclosure to save their homes, which not only escalates displacement but sticks society with the costs of foreclosure. The Federal Reserve has stated that foreclosure is an inefficient way of resolving delinquent loans since it results in “deadweight losses”— costs that do not benefit anyone—such as extended periods of vacancy and property deterioration, particularly in the low-wealth communities and communities of color that were targeted by predatory lenders and hit hardest by the foreclosure crisis. Woodstock Institute’s research has shown that abandoned, foreclosed homes cost the City of Chicago $36 million per year in maintenance costs.
Foreclosures cost servicers, too—it costs money to maintain vacant properties for long periods of time and often properties sell at a loss. When DeMarco proposed raising costs for states with longer timelines, he failed to consider evidence that state consumer protections for homeowners in foreclosure reduce default rates and increase the number of delinquent homeowners who become current. The case for raising fees for Illinois homebuyers is built on unsound analysis that does not take into account the full impact of state laws on foreclosure costs.
An expedited foreclosure process makes sense in limited situations. In cases where it is clear that the homeowner has walked away from the home, a faster foreclosure process can help communities by getting the home into the hands of someone—usually a servicer—who can take responsibility for its maintenance. A bill that passed the Illinois General Assembly last week would create a fast-track foreclosure process for abandoned homes. That strikes the right balance between protecting homeowners trying to save their homes and reducing the impact of vacant homes on communities. We urge Governor Quinn to sign the bill quickly.
The path to recovery from the foreclosure crisis is not going to be found by hurrying people out of their homes. What we need to expedite are ways to keep homeowners in their homes whenever feasible. Keeping homes occupied slows the onslaught of vacancy and blight that drives down home values and destabilizes neighborhoods—forces that hurt everyone, including those who are not in foreclosure.