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Foreclosure plan would make lenders pay

Residents who lose homes could get cash for moving and rent

The Patrick administration is considering a plan that would make mortgage lenders pay moving expenses as well as the first and last months' rent of homeowners who lose their homes to foreclosure.

The proposal is part of foreclosure prevention initiative administration officials will present today at a meeting with some of the state's biggest mortgage lenders. The plan would make lenders that foreclose on homeowners pay $5,000 for the relocation and administrative costs that nonprofit agencies would incur in finding them a new home, according to a draft obtained by the Globe.

It's unclear exactly how this would work; the draft plan contains few details. Kofi Jones, spokeswoman for the Executive Office of Housing and Economic Development, declined to comment on the specifics of the proposal but did confirm today's meeting.

"The Patrick administration is in the process of trying to put together a comprehensive plan to try and solve this foreclosure crisis," Jones said. "We are committed to protecting homeowners and communities throughout the Commonwealth."

In addition, the initiative calls on lenders to delay foreclosure proceedings in some cases; reduce loan amounts and waive prepayment penalties in others; and work with the state to transfer vacant, foreclosed properties to first-time home buyers or nonprofit agencies, the draft said.

The goals are to "prevent as many foreclosures as possible and to minimize neighborhood destabilization by reclaiming vacant foreclosed properties for owner-occupied homeownership," the document said.

Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said he hasn't seen the proposal and declined comment.

The meeting today will be the second time Patrick administration officials has met with mortgage lenders to map out a plan to soften the impact of skyrocketing foreclosures.

Lenders have initiated more than 10,000 foreclosures in the first five months of the year, compared to about 6,000 in the same period in 2006, according to The Warren Group, which analyzes and publishes real estate data.

The foreclosures have been concentrated among subprime loans, which are made to people with less than stellar credit and carry higher interest rates. Many subprime mortgages have adjustable rates, and recent interest rate increases, known as resets, have further squeezed struggling homeowners.

The Patrick administration earlier this month unveiled a $250 million fund that would help some subprime borrowers refinance into more affordable mortgages. As part that plan, state officials said they would use hardball negotiating tactics to force lenders to absorb any financial losses on the troubled mortgages the state will seek to refinance.

Also, yesterday the Massachusetts Senate unanimously passed a bill aimed at preventing foreclosures and cracking down on mortgage fraud.

The bill, which still needs House approval, would make mortgage fraud a felony, punishable by up to five years in prison; license mortgage brokers and establish procedures to avoid deceptive mortgage loan advertising. Senate President Therese Murray said the bill "takes aim at predatory lenders and gives homeowners and borrowers a fighting chance."

Cuff, of the mortgage bankers group, said the bill was a "step in the right direction," but that it needed further revision in the House. For example, Cuff said, it's unclear how mechanisms to monitor and rate mortgage lenders, another of the bill's provisions, would work.

"There's still some nip and tuck to tighten up this bill," Cuff said.

The initiative administration officials will present to lenders today takes a multipronged approach to preventing foreclosures. The plan calls for an outreach effort to identify struggling homeowners and refer them to counseling agencies for help.

In some cases, the agencies will ask lenders to delay foreclosure proceedings by 30 to 60 days to allow homeowners to find alternatives, which could include selling the house or signing the deed over to the lender in lieu of foreclosure, according to the draft.

Homeowners eligible for refinancing under the recently unveiled state program may also need their loans reduced and prepayment penalties waived to avoid foreclosure, the draft said.

Putting these provisions into place, however, could be difficult. Mortgages today are sold and resold to investors, making it unclear who has the authority to make decisions on foreclosures. Often firms that hold and service the mortgages are restricted in what they can do by agreements with investor groups.

For example, some agreements prohibit or limit reductions in loan amounts, according to financial industry specialists.

Robert Gavin can be reached at rgavin@globe.com.

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