INDIANAPOLIS - With the recession and its impact on the state budget at the forefront, Indiana lawmakers also are taking a hard look at Indiana's high mortgage foreclosure rate.
For several hours on the Legislature's opening day Wednesday, an Indiana House committee heard from home-owners, credit counseling groups and officials about the scope of the foreclosure problem.
When the housing bubble burst and credit markets collapsed, mortgage lenders largely stopped offering subprime loans to high-risk borrowers, witnesses said.
Still, the damage was done, as many first-time home buyers suddenly faced ballooning house payments they no longer could afford because the interest rates on their adjustable-rate mortgages reset and went up. The result: Lenders foreclosed, forcing people out of their homes - and leaving neighborhoods pockmarked with vacant houses that depress property values and invite crime.
Despite mortgage-reform laws the Legislature passed in 2007 and 2008 to weed unscrupulous players out of the industry, the House Financial Institutions Committee heard from witnesses who described continuing problems. First-time home buyers being pressured into signing documents with financial consequences they don't fully understand was a familiar complaint.
Shawn and Tara Connolly of Kokomo, Ind., testified that they showed up at the closing on their first home, only to discover the interest rate was more than 2 percent higher than expected. They struggled for two months to make the payments, but when Shawn Connolly was laid off from his Chrysler job, they fell delinquent.
"We feel like we were taken advantage of because of our ignorance," Shawn Connolly said.
Rob Bedinghaus, housing consultant with Affordable Housing Corp. of Marion has been trying to assist the couple with their financial woes. He said the Legislature ought to require education of first-time home buyers into mortgage responsibilities and pitfalls.
Other witnesses testified that once foreclosure proceedings start, it's difficult to get some lenders to come to the table and negotiate a resolution.
Wednesday's House committee hearing was the first for two newly elected Southwestern Indiana legislators, state Rep. Gail Riecken, D-Evansville, and state Rep. Mark Messmer, R-Jasper. "Inevitably in foreclosures, there's some situations that no matter how concerned we are, we can't fix everybody's problems. But we've got to do all we can to make sure people aren't getting shafted by companies that don't behave well," Messmer said.
Riecken is introducing mortgage-reform legislation. The bill would include a mandate that closing documents be available at least two days before the closing date, prohibit prepayment fees and penalties that discourage homeowners from refinancing and extend foreclosure proceedings by 30 days to allow for more negotiations. "If there is a repeated occurrence of things like this (questionable lending practice) happening, we want to make sure the attorney general is involved," Riecken said.
Also on the committee is state Rep. Suzanne Crouch, R-Evansville. "What I came away with more than anything is we have home buyers out there who really are not educated on (mortgages) and are dependent upon the financial institution telling them what it is going to do; and sometimes they do not understand what is going to happen," Crouch said.
"We have a segment of our population that is extremely vulnerable to purchasing homes and not understanding what they are getting into, and they therefore become victims."
Nothing was decided Wednesday, but Crouch said the Legislature recognizes it must do something to address the issue.
In November, Indiana's foreclosure rate ranked 14th among the states, with 4,483 properties in foreclosure, according to RealtyTrac, a firm that publishes a foreclosure database. Illinois was 17th and Kentucky 43rd. Nevada consistently ranks at the top with the nation's worst foreclosure rate, while West Virginia and Vermont consistently rank at or near the bottom with the fewest foreclosures, RealtyTrac found.