For cities, all foreclosure politics are local

updated 8:41 p.m. ET June 16, 2008

PHILADELPHIA - Just two months ago, Aaron Brokenbough had no clout and little say when lenders moved to foreclose on his home. His Philadelphia row house was scheduled for a sheriff’s sale, the end of the road for most homeowners who are behind in mortgage payments.

That was before a Philadelphia court decided to step in with this unusual order: Sheriff’s sales cannot go forward without a last-ditch effort by the lender and homeowner to work out a deal.

The court also gave Brokenbough some muscle, matching him with a volunteer attorney and housing counselor to take his side against his lender and their lawyers. Brokenbough feels a ray of hope.

“I’m overwhelmed,” said the 36-year-old former mail processor, who fell behind on payments after he lost his job and his wife incurred medical bills from a surgery. “I’m hoping to save my home.”

Philadelphia is just the latest in a growing number of cities — including Los Angeles, Baltimore, and Trenton, N.J. — that are taking matters into their own hands to help stop the nation’s housing crisis within their borders.

With more than a half-million foreclosed homes on the market, and over 3 million borrowers behind on their mortgages, more cities are aggressively reaching out to residents and filing lawsuits against lenders.

While politicians debate in Washington, many cities are on the front lines of the foreclosure crisis: fielding calls from desperate homeowners, and fighting vagrancy and crime around vacated properties.

“We can’t wait on the federal government,” said Douglas Palmer, mayor of Trenton, N.J., and the president of the U.S. Conference of Mayors. “We’re taking action.”

Cities are under the gun to act: A report released by the U.S. Conference of Mayors last November projected economic losses of $166 billion this year for 361 metropolitan areas. These stem from lost tax revenue and jobs as well as slower consumer spending that come with home equity declines, and don’t even include the financial toll of increased crime, fires and building code violations.

To try to recoup part of that money, some cities are suing lenders. But it’s not easy to go after federally regulated companies.

In January, Cleveland took the public nuisance route and sued 21 major investment banks and lenders, charging that their subprime lending practices devastated neighborhoods and hurt property values and city tax collections. Baltimore sued Wells Fargo & Co., alleging a pattern of predatory lending practices in its poorest neighborhoods. Minneapolis and Buffalo, N.Y. are engaged in similar litigation.

“Why would these mortgage lenders continue to enter deals with these people who they knew could not afford their loans?” said Robert Triozzi, Cleveland’s director of law. “To suggest (these financial institutions) didn’t know the consequences just defies logic.”

He blamed Wall Street greed and said the players relied on a scheme that could only work if home prices continued to rise.

“We’re going to hold them accountable for actions they have done here,” said Triozzi, who is seeking hundreds of millions of dollars in damages.

Wells Fargo said the lawsuit has no merit.

“The city seeks to use a single financial services company as a scapegoat for broad social problems that have plagued Baltimore for decades, including some caused by the city’s own actions,” Wells Fargo said in a statement. “The mortgage industry, however, says it is taking action to try to stop the rising tide of foreclosures.”

Last fall, many lenders and servicers banded together to form a group called the Hope Now Alliance. The lenders try to work out repayment plans, and can modify the terms of the loan by lowering the interest rates or forgive part of the debt.

Some cities are also trying to help homeowners catch up on their late payments.

MORE FROM MORTGAGE MESS

Mortgage Mess Section Front

No shame in walking away from mortgage Tips on getting feds to cut your house payment Newsweek: Why the FHA may need a bailout Mortgage delinquencies at a record high Low expectations for mortgage help program Treasury: Millions more foreclosures coming Mortgage applications surge as rates tumble Industry urges Fannie, Freddie overhaul Owners given last chance to save home Frustration rising over mortgage relief Mortgage Mess Section Front   Add Mortgage Mess headlines to your news reader: