(2)COX 9/20/2008 3:02 PM
2008] AN APPROACH TO FORECLOSURE REFORM 689
foreclosures has been rising over the last ten years and especially
recently. The number of mortgages entering foreclosure rose from
0.35% in the second quarter of 1997
27
to 0.99% in the first quarter
of 2008, which was the highest foreclosure rate in more than
twenty-five years.
28
Subprime lending has driven this rise in foreclosures.
29
Subprime loans are designed for borrowers who have
characteristics that suggest a poorer credit risk.
30
Subprime
borrowers pay higher interest rates, higher loan fees, or both, in
order to compensate lenders for the greater risk of default.
31
Only
14% of mortgages are subprime loans, yet subprime loans
constitute over 64% of the loans in foreclosure.
32
Subprime lending has long been associated with deceptive
and unfair sales practices.
33
State attorneys general cooperated in
a series of cases against some of the largest subprime mortgage
lenders, alleging violations of consumer protection laws. These
cases resulted in settlements costing these lenders approximately
$850 million in restitution to homeowners.
34
Subprime lending
the three most common means of measuring the number of foreclosures and the rate of
change in foreclosure activity). There is some indication that the most commonly cited
sources may grossly undercount foreclosures. See, e.g., Steve Alexander & Jim Buchta,
Foreclosures Taking a Bigger Toll Across Minnesota, S
TAR TRIB. (Minneapolis), Aug. 2,
2007, at D1 (reporting that the 11,207 actual count of foreclosure sales in Minnesota in
2006 were almost twice the number reported by RealtyTrac based on mortgage industry
reporting).
27. See U.S. Dep’t of Housing & Urban Dev., U.S. Housing Market Conditions
National Data: Housing Finance, Fall 1997, available at http://www.huduser.org/
periodicals/USHMC/fall97/nd_hf.html (reporting the MBA delinquency survey for the 2Q
of 1997).
28. Press Release, Mortgage Bankers Assoc., Delinquencies Decrease in Latest
MBA National Delinquency Survey (June 14, 2007), available at
http://www.mortgagebankers.org/NewsandMedia/PressCenter/55132.htm (announcing the
results of the MBA national delinquency survey).
29. See C
TR. FOR RESPONSIBLE LENDING, A SNAPSHOT OF THE SUBPRIME MARKET 1
(2007), http://www.responsiblelending.org/pdfs/snapshot-of-the-subprime-market.pdf.
30. Patricia A. McCoy, Rethinking Disclosure in a World of Risk-based Pricing, 44
H
ARV. J. ON LEGIS. 123, 126 (2007).
31. See id. at 126–27 (observing that the amount of higher loan rates and charges
are theoretically correlated to the risk presented by the borrower’s characteristics, but
loan pricing does not always follow this model in practice).
32. C
TR. FOR RESPONSIBLE LENDING, supra note 29, at 3.
33. Up to 25% of Subprime Losses Blamed on Fraud, I
NSIDE B & C LENDING, Nov. 5,
2007, at 5 (finding indications of fraud in almost every subprime loan file examined); see
Heather M. Tashman, The Subprime Lending Industry: An Industry in Crisis, 124
B
ANKING L.J. 407, 407–08, 413–14 (2007) (describing skepticism toward subprime lending
and the congressional response).
34. See, e.g., Michelle Singletary, Taming the Predators, W
ASH. POST, Jan. 29, 2006,
at F1 (noting the $325 million dollar settlement with Ameriquest and the agreement to
avoid predatory practices); Mark Skertic, Household Settles Class-action Suits for $100
Million, C
HI. TRIB., Nov. 26, 2003, § 3, at 1 (stating that the lender had reached a $484