State wades into mortgage crisis

State leaders proposed millions Monday in new spending to help house Washingtonians and keep them from losing their homes.

"Every single Washington family should be given an opportunity to have a place they call home," Gov. Chris Gregoire said at a news conference at a White Center public housing development with legislative leaders, including Senate Majority Leader Lisa Brown and House Speaker Frank Chopp.

The plan includes new funds for housing agencies, mortgage education and counseling, and housing for the homeless, low-income families and victims of recent flooding.

The governor also announced a plan to boost the state Housing Finance Commission's borrowing limit from $4.5 billion to $6.5 billion, and to send the Legislature a set of recommendations to protect borrowers from bad loans and toughen fraud penalties.

The $6 million to house the homeless through the Washington Families Fund is $2 million less than Building Changes, the Seattle nonprofit that manages the fund, asked for in 2008. But the proposal is no disappointment, given that previous state contributions were $2 million and $4 million, said Lynn Fitch, the agency's communication and development director.

"We see this as just a real precedent and a very historic move by the governor," she said.

"We already have funders who are lining up to match that dollar for dollar."

Housing advocates also were ebullient about the extra $50 million that would go to the Housing Trust Fund for 2008.

"In King County, the problem has been that folks are making $13, $14 an hour and still can't afford a basic apartment in the city or even in the outskirts now," said Tamara Brown, co-chairwoman of the Seattle/King County Coalition on Homelessness and manager of Seattle nonprofit Solid Ground's Journey Home program.

The plan aims to help people like Philip and Sarah Ehrmantraut, who attended the news conference with their two children.

After Philip lost his job in Idaho, they came to Washington thinking they would stay with Sarah's parents. But that didn't work out because her stepfather got brain cancer.

"We had to live in the car for three months," their son, Christian, 7, said. "I had to sleep in my car seat."

After that, the family got into transitional housing in Buckley.

Reginald and Rosa Beck fell behind on their house payments after losing their jobs, then lost the house to a foreclosure rescue scam.

They ended up sleeping on floors -- their two teenagers in one house, Rosa in another and Reginald in a third.

Reginald "was living in another city," Rosa Beck said. "I was living down the block from my children, but I didn't see them every day."

They were homeless for 16 months before getting a rental house in Federal Way.

Mortgage delinquencies and foreclosures have been rising nationwide, particularly among subprime loans, which generally serve people with poor credit. The problems also are increasing in Washington, although the state ranked 47th among states in delinquencies and 49th in foreclosures in the third quarter, according to the Mortgage Bankers Association.

"If one family is affected in Washington state, that is a problem that we all need to address," Gregoire said.

Carol Nelson, chairwoman of the governor's mortgage task force and chief executive of Cascade Bank, said the recommendations would apply federal rules to parties, such as mortgage brokers, who are not now subject to those regulations.

"From that standpoint, I think that it creates a very even playing field for everyone," she said.

After hearing from the Becks, Gregoire promised to put them in touch with counselors who could help repair their credit and pledged to lock up scammers.

"It's our job to put them where they belong," she said. "We'll give them housing."

THE NEW FUNDING PLAN INCLUDES:

$1.5 million for the Department of Financial Institutions to provide education and counseling to owners affected by the mortgage crisis.

$50 million to expand the state Housing Trust Fund, with up to $10 million of that going to fund housing for victims of recent flooding and $3 million to help housing agencies buy sites quickly when they come on the market.

$6 million for the Washington Families Fund, which helps homeless families and expects to get a matching amount of private funds.

An increase in the state Housing Finance Commission's borrowing limit, from $4.5 billion to $6.5 billion. This money does not come from the state.

The Legislature is taking up recommendations from Gov. Chris Gregoire's Task Force on Homeowner Security to, among other things:

Allow mortgage prepayment penalties only until the first reset of an adjustable-rate loan.

Ban mortgages where the balance actually increase every month and the steering of borrowers into higher-cost loans than they are eligible for.

Require a one-page disclosure of loan fees and terms, and documentation that refinances benefit borrowers.

Crack down on foreclosure-rescue scams.