Fact Checker: Fiegen and foreclosures

Introduction

'If Chapter 13 (bankruptcy for individuals with regular income) had been amended to allow homeowners to restructure their mortgages, I guarantee there would be millions of people who would've kept their homes coming out of the 2008 recession, who are now renting or living with relatives because they were foreclosed and they had no way to cure their mortgage overages.'

Source of claim: U.S. Senate candidate Tom Fiegen, D-Clarence, in a November interview with the New York Observer.

Analysis

Fiegen, a bankruptcy reorganization lawyer, pointed to RealtyTrac, which pulls data from more than 130 million U.S. residential and commercial properties for use by government officials, academic institutions and the media, as his source.

The amendment Fiegen refers to was a 2009 bill that passed the U.S. House but failed in the Senate.

The bill — called the Helping Families Save Their Homes in Bankruptcy Act — would have allowed bankruptcy judges to modify borrowers' loans if they found themselves underwater on their mortgages. A mortgage is considered underwater when a homeowner finds him or herself owing more on the home than it's worth.

RealtyTrac Vice President Daren Blomquist said a key component in the bill would have allowed bankruptcy judges to 'cramdown' a mortgage, or reduce an individual's mortgage to the new free-market value.

'That certainly would not have helped everybody, but at least it would have given people the motivation to hang on to that home if they were underwater,' he said.

But would the bill have helped millions hold onto their homes, as Fiegen claims?

According to RealtyTrac data, there were about 717,500 home foreclosure case filings nationwide in 2006. That number began to swell with the economic downturn, peaking at more than 2.8 million in 2010. From 2009 to 2015, about 13 million foreclosure cases were filed nationwide.

But as Blomquist notes, not every filing results in foreclosure. Fiegen's claim refers to actual foreclosures.

For that, we need to look at REOs, or real estate owned by a lender as a result of a foreclosure and eviction.

REO data provided by Blomquist shows actual foreclosures peaked at 1.05 million in 2010. There were about 4.7 million REOs from 2009 to 2015.

How many of those foreclosures could have been prevented by the Senate bill? Blomquist said it comes back to those underwater loans.

RealtyTrac started keeping track of those in 2013, when 56 percent of homes in foreclosure were underwater — a percentage Blomquist said is relatively consistent.

'I suspect that number was probably higher back in 2009,' Blomquist said.

Taking 56 percent of the 4.7 million full foreclosures since 2009 gets us roughly 2.6 million foreclosures from underwater mortgages.

But John Gallo, a lecturer with the University of Iowa's Department of Finance, said that may be oversimplifying the bill and overstating its potential impact. Gallo said many new homeowners in the last decade obtained loans they simply could not afford and not even a cramdown would have helped.

'Many of the distressed homeowners did not want to keep their homes and, therefore, would not have benefited from the bill,' Gallo said in an email.

While the 2009 bill never passed, Gallo pointed to a different homeowner relief initiative that did pass that same year — the Home Affordable Refinance Program.

According to a 2014 report on the HARP website, the program — which applies to homeowners only with loans guaranteed by Fannie Mae and Freddie Mac — has helped 3 million homeowners refinance their mortgages. The report states nearly a third, or roughly 1 million, of those were considered underwater.

Conclusion

It's impossible to say with certainty how many foreclosures could have been prevented with the passage of the Senate bill.

By looking at the impact of the HARP program and national data on foreclosures when a mortgage is considered underwater, we can say that number would have likely fallen somewhere between 1 and 2.6 million eligible homeowners. And there is no way of knowing just how many eligible homeowners would have utilized the program.

While Fiegen is right that many could have avoided foreclosure with the bill, the term 'millions' is slightly exaggerated. We give Fiegen a B for his claim.

Criteria

The Fact Checker team checks statements made by an Iowa political candidate/office holder or a national candidate/office holder about Iowa, or in advertisements that appear in our market. Claims must be independently verifiable. We give statements grades from A to F based on accuracy and context.

If you spot a claim you think needs checking, email us at factchecker@thegazette.com.

This Fact Checker was researched and written by Mitchell Schmidt.