National City Going Back on its Pledge to Help Homeowners Avoid Foreclosures

National City is one of 26 banks of USA that had promised to help borrowers but now it is going back on its pledge and putting borrows at risk from borrowers. It is now introducing rules that would block many of its clients from refinancing or modifying.

National City, a Cleveland based bank, is insisting that those with home equity loans must clear their dues before permitting them to refinance mortgages being held by other lenders reported Bloomberg News. Home equity contract sometimes allow lenders the authority to give the nod to any other new mortgage. National City has introduced this policy from 18th February. It might prevent the borrowers from taking part in programmes that would reduce their payments even if they were not defaulting.
Ben Bernanke the chairperson of Federal Reserve and other regulators are putting pressure on banks to cooperate with the borrowers so as to contain the surge in foreclosures. It broke records in 2007. National City has enlisted its name with Hope Now – a coalition involving the mortgage industry to allow delinquent homeowners to continue to stay in their residences.
George Hanzimanolis of National Association of Mortgage Brokers said, “This practice makes it more difficult for homebuyers to refinance and is very harmful for consumers.”
This change in policy is indicative of the decision taken by National City in 2008 to stop dealings with mortgage brokers and concentrate on lending for purchase of residences solely through the employees of the bank said Kristen Baird Adams of the bank. By asset count National City is the biggest in Ohio. It recorded the sixth highest foreclosure rate in 2008 according to RealtyTrac. The memo issued by the bank states that there is no rule for borrowers to resort to exceptions. But the bank is reviewing many of its cases and this would negate the ability of many to seek refinance.
Adams said that the change is about a practice that is termed “subordination. By it the lender agrees to subordinate its right on the property of a previously running loan. Home equity loans often known as “second mortgages” have less right than the original “first mortgage” on the property. The lenders of home equity have the right to ask for repayment when the borrower takes a new loan to replace the first one. That demand has rarely been staked with the rise in housing prices said Bill Cosgrove of Ohio Mortgage Bankers Association.