Philadelphia Foreclosure Program an Example for Cities
The Residential Mortgage Foreclosure Diversion Pilot Program in Philadelphia intended to curb residential mortgage foreclosures has averted the sale of almost 80% of the properties referred to it in its first three months.
The effort is the first city-sponsored plan in the country to broker negotiations between mortgage lenders and homeowners who have fallen behind in their payments. The plan could serve as a blueprint for other cities hit by increasing foreclosures.
Started in June by the city government and the Philadelphia Court of Common Pleas, the plan requires all owner-occupied properties scheduled to be foreclosed and sold by the Sheriff’s Office to have their mortgages reviewed by borrowers, lenders and the court before they can be sold. The three parties seek agreements that allow loans to be modified so borrowers can resume regular payments and remain in their homes.
Of the 552 homes referred to the program that had been scheduled for sheriff’s sale from April to July, 230 were permanently removed from sale, and 200 had their planned sales postponed for one to five months.
Foreclosure filings in the city rose 18% from 2006 to 2007, to 6,237, and are expected to increase to about 8,000 this year as more home owners are unable to afford the higher payments when adjustable-rate subprime loans reset.
Nationally, the proportion of mortgage loans in foreclosure rose to a 29-year high of 2.47% by the end of the first quarter of 2008, from 2.04% in the fourth quarter of 2007, according to the Mortgage Bankers Association.
Many banks agree to restructure a loan or forgive some arrears because it is cheaper than going through foreclosure proceedings.
Philadelphia Mayor Michael A. Nutter said the city, which provided $2 million for the program this year, would offer more support next year to deal with an anticipated increase in foreclosures.
The program’s success has prompted Senator Bob Casey (D-Pa.) to urge Treasury Secretary Henry Paulson to adopt the plan nationwide.
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