Iowa leaders predict more foreclosure woes

Foreclosures in the state and across the nation have ebbed as Iowa Attorney General Tom Miller leads an effort to pressure the nation's banks to reform their mortgage-servicing practices.

Foreclosures are expected to pick up in the months ahead, though, and thousands of Iowa homeowners who are in financial trouble are at increased risk of losing their homes.

“I think you've got a dam that's ready to break. Delinquencies are piling up,” said John Gianola, managing attorney at the Iowa Legal Aid Foreclosure Defense Project.

Miller is leading a group of 50 state attorneys general who are investigating banks with loan servicers who used fraudulent or questionable documents in foreclosure proceedings.

The Iowa attorney general is trying to reach a settlement with five large banks - JPMorgan, Wells Fargo, Ally Financial, Citigroup and Bank of America - over those mortgage-servicing practices.

That settlement may force these banks to pay as much as $25 billion in penalties and commit to new rules. In exchange, the banks would get immunity from civil lawsuits by the states, as well as similar guarantees by the Justice Department.

Geoff Greenwood, spokesman for the Iowa Attorney General's Office, said it's possible a settlement could be reached this fall.

Many lenders are waiting for that settlement before they pick up the pace on foreclosures again. As many as 1 million actions may have been temporarily halted, analysts say.

To Gianola, there's evidence foreclosures are already on the rise.

“Our August numbers have really picked up,” he said.

Gianola's organization, which has offices in Cedar Rapids, Iowa City and Waterloo, provides free legal aid to Iowans fighting foreclosures. He said Polk and Linn counties account for the most clients, and the number of cases from those counties are growing. In 2008, the legal aid group had 54 foreclosure cases from Linn County. By 2010, the number of cases grew to 240, with 131 cases so far this year.

Even so, Iowa has not been hit as hard as many other states by the nation's housing meltdown. According to the Mortgage Bankers Association's latest report, about 5 percent of Iowa's 360,000 mortgages were seriously delinquent on March 31.

Illinois had more than twice as many mortgages in trouble, Nevada had nearly 16 percent that were seriously delinquent and Florida had 19 percent.

One reason Iowa has a lower rate of foreclosures is that the state set up a hot line in 2007 that eventually became “Iowa Mortgage Help.” People calling that hot line are referred to one of two dozen housing counseling agencies in Iowa approved by the U.S. Department of Housing and Urban Development to help homeowners in trouble.

Roger Goldsberry, the director of the HUD-approved Family Management Credit Counselors in Waterloo, helps delinquent homeowners restructure their loans.

Like Giaonola, he's concerned the nation's foreclosure crisis is not on the wane.

“It's going to come back with a vengeance,” Goldsberry said.

Congress this year has cut all funding for HUD-approved organizations like Goldsberry's. He said his $60,000 federal grant will run out in October, forcing him to lay off two counselors.

“As a non-profit, we operate pretty close,” Goldsberry said.

He also said he will be forced to charge fees for services his agency now provides for free, including help obtaining the best reverse mortgages, home buying education and rental assistance.

“We have to have a cash flow,” he said.

The cutoff of federal aid that would help battle a new wave of foreclosures worries consumer advocates.

Gianola said homeowners in trouble often are unable to connect with the right person at a bank that can help them modify or restructure their mortgage.

“Without HUD counselors, they are going to be lost,” he said.