Philadelphia Will Try to Reduce Foreclosures

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PHILADELPHIA — Philadelphia announced a program on Wednesday to reduce
the number of people who are forced from their homes because they cannot
afford the payments on an adjustable-rate subprime mortgage.

The program, which officials called the first of its kind by a city,
will require any property scheduled for sale by the local sheriff’s
office to be referred to officials who will negotiate with lenders in an
effort to restructure the loan so that the borrower can keep the
property.

About 1,200 foreclosure sales scheduled for April and May have been
delayed until July to give borrowers more time to negotiate. About 800
of those properties are owner-occupied, said Ian Phillips of the
community advocacy group Acorn, which has helped to structure the
program.

Mayor Michael Nutter said the program, in which the city is investing $2
million to pay for legal services and people to counsel homeowners, is
intended to solve payment problems before they reach foreclosure. Mr.
Nutter urged people to contact the city before they receive a
foreclosure letter from their lender.

“The issue of mortgage foreclosure is a crisis not only in Philadelphia
but across the country,” he said at a news conference.

Foreclosure filings here rose 18 percent, to 6,237, in 2007 from the
previous year and are expected to increase to about 8,500 this year,
officials said. In 2006, 37 percent of all mortgage loans made in
Philadelphia were sub-prime — made to people with poor credit histories
— up from 20 percent in 2004.

Nationally, thousands of home owners with subprime loans have been
unable to pay higher mortgage payments after low introductory rates
expired.

In the fourth quarter of 2007, the proportion of mortgage loans in
foreclosure was 2.04 percent, a record, according to data from the
Mortgage Bankers Association, which will release figures for the first
quarter of 2008 on Thursday.

Adjustable-rate subprime loans for fourth-quarter 2007 accounted for 7
percent of all mortgages but 42 percent of those in foreclosure, the
association said.

Yajaira Cruz-Rivera, a mother of four from Northeast Philadelphia, said
that in February 2005 she took out what she thought was a 30-year
mortgage for $106,000 at a fixed rate of 7 percent to buy a
single-family home. She expected her payments to be a manageable $925 a
month.

Two weeks later, she said, she received a letter from the lender,
informing her that the monthly payment had risen to $1,235 and the rate
to 10.3 percent. By adjusting her budget, Ms. Cruz-Rivera said she could
just afford the higher payment, but was unable to meet the lender’s
demand when it was raised again, to $1,671. It was then she discovered
she had an adjustable-rate subprime loan.

After being threatened with foreclosure, Ms. Cruz-Rivera said she had
renegotiated her payment to a fixed rate that carries a payment of
$1,284 a month.