Kildee, Bernero trade barbs on foreclosure solution

When Lansing Mayor Virgil Bernero kicked off his campaign for the Democratic nomination for governor earlier this month, he announced that his number one goal was an immediate two-year moratorium on home foreclosures. It was a call that echoed statements he has been making on the foreclosure crisis since April and a signal that he intends to make the foreclosure crisis a focal point of his campaign.

But this week Bernero’s foreclosure thunder may have been stolen when former Genesee County Treasurer Dan Kildee announced he was officially seeking the Democratic nomination as well. Kildee, 51, is a nationally recognized expert in foreclosure issues and his Genesee County Land Bank has drawn national praise and serves as a model for the way communities can handle large numbers of foreclosed and abandoned properties.

Only one day after declaring his intent to run, Kildee took dead aim at Bernero’s proposal in an exclusive interview with the Michigan Messenger, saying that while Bernero’s heart was in the right place, his head was not.

“I agree with his sentiment. What I want to find is a practical solution that is constitutional,” Kildee said. “I think we may want to make sure whatever we do isn’t just taking the right position, but actually has the effect of solving the problem.”

And a blanket moratorium, Kildee said, is not necessarily going to solve the crisis. He said the real answer lies in making sure that property owners facing foreclosure have mandatory counseling from housing counselors, not just freezing the foreclosure process.

“With something like mandatory foreclosure counseling it clearly provides support to people who are facing that problem more than just sending them a certified letter,” he said. “But actually having a requirement before foreclosure proceeds that these property owners sit down with a foreclosure counselor who can walk them through the entire process, make them fully aware of their rights and give them some help in navigating through all the red tape and how difficult it is to modify a mortgage. I think that is an approach that is more likely to minimize or reduce the number of home foreclosures.”

“I think our goal is the same,” said Kildee. “How we get there is really a question of whether we have a practical solution that works or if we have a political position that may not save anybody’s home, but postures us on the side of the angels. I would rather make sure we stop foreclosures.”

Bernero spokesman Jamaine Dickens bristled at the criticism, noting that Bernero has not made a complete policy proposal. He said any policy initiative Bernero announces would include counseling and training components, and noted that the two-year moratorium was a key cornerstone on which to build a proposal, because it would take two years for a person who is unemployed to finish up education training and find a new job.

Is a moratorium legal?

Kildee also questioned whether a moratorium would even stand up to constitutional scrutiny. He said such a move would have a significant impact on the underlying mortgage contract, and that is something that gets into constitutional protections.

And while Dickens says the moratorium is constitutional and that the courts can “hash that out,” if the courts react by overturning such a law then the core of Bernero’s proposal to fix the foreclosure program is gone.

“Some one would have to prove to us that a two-year moratorium in today’s economic circumstances is unconstitutional,” Dickens said. “That’s a fight we’re willing to wage.”

Both Democrats agree that the state has not done enough to fix the problem and neither are fans of the state’s Home Foreclosure Prevention Act, passed last spring. That law created a new delay in foreclosures by requiring lenders, or their representatives, to send certified letters to property owners before commencing foreclosure proceedings. Property owners would then have a short time period to contact a housing counselor who would then contact the lender to begin a process to delay foreclosures for up to 90-days.

Bernero told Michigan Messenger that the state had done “next to nothing” about the foreclosure crisis and said any decrease in foreclosures that may have taken place since then is the result of federal policies rather than state action.

“The truth of the matter is that the 90 day reprieve doesn’t go far enough,” Bernero said. “Yes, families need guidance and financial training to get them through this, which is something that I support, but they need a more realistic timeframe to learn how to get their finances in order without staring foreclosure in the face as they count down the 90 days.”

“In many cases, we are not just talking about budgeting, we are talking about finding another job to deal with a mortgage that has doubled as quickly as Michigan’s unemployment rate,” Bernero said.

Kildee agreed that the HFPA did not go far enough.

“I think we want to make sure that before foreclosure is finalized, that there’s evidence that actual counseling took place,” said Kildee. “Here’s the thing, certified letters are intended to protect the people sending them, not the people receiving them.”

“Over the years that I was doing foreclosure prevention, the people that I sat down with face to face, we almost always were able to fix the problem. Almost always,” Kildee said. “I don’t think that we can be so concerned about the legality and the protection of the lenders that we are satisfied that a certified letter is all it takes.”

State foreclosure trends are unclear

Mary Townley, director of the home ownership program for the Michigan State Housing Development Authority, says the state saw a decline in filings once the HFPA went into effect in July. In fact, statistics from the Ingham County Treasurer’s office show a significant drop off, then a slow increase following the act’s implementation right in Bernero’s backyard.

In July, as the new law took effect, 175 home owners in the city were served with foreclosure notices. But in August and September that number was one third the August rate (51 and 59 notices respectively). In October, when the first 90-day time frame concluded, the number jumped to 103, but it dropped again in November and December (78 and 72 notices respectively).

“That doesn’t mean it’s fixed,” Townley said. “Do we have all the right answers? Probably not. But we are headed in the right direction.”

Townley said she had reservations about a moratorium, and she was not alone.

Gail Madziar, Vice President of Membership and Communication with the Michigan Bankers Association, said the moratorium was a bad idea for everyone involved.

Madziar says the foreclosure crisis is bad, but is getting better with the banks working to find “very creative” solutions to foreclosures. But a moratorium, she says, is going to stop that movement cold.

“It’s not gonna help,” she says. “It hurts the banks and the entire economy. You want to see credit dry up? That’s what’s gonna happen.”

Specifically Madziar says a moratorium will not address the underlying issues involved in the crisis, including the continued unemployment rate, and loans which are “under water” (meaning the amount owed on the mortgage is higher than the value of the home).

“I don’t know what planet they live on, but credit in Michigan dried up a long time ago,” Bernero said. “This is the same argument the bankers made to Congress when they begged for the bailouts that didn’t help anyone but corporate executives looking for their bonuses. Taxpayers bailed out the banks just so the banks could strip families of their homes and their dignity? I don’t think that was the intent.”

Kildee was a little more circumspect on the MBA’s perspective on the issue.

“I don’t know if we can take their word to the bank,” Kildee said. “But they raise a set of questions we need to take a very close look at.”