Academic journal article Stanford Law & Policy Review

Stemming the Subprime Crisis: The North Carolina Foreclosure Prevention Project

Academic journal article Stanford Law & Policy Review

Stemming the Subprime Crisis: The North Carolina Foreclosure Prevention Project

Article excerpt


In August 2008, Governor Mike Easley of North Carolina signed House Bill 2623 and established the North Carolina Foreclosure Prevention Project, a program he described as "the first of its kind in the nation." (1) In announcing the new program, the Governor stated that it would keep as many as 25,000 families in their homes over the next two years. (2) The new law became effective on November 1 and has slowly started to gain notice among politicians and policymakers. Governor Easley has briefed the National Attorneys General Association, fellow governors, and even President Obama on the program. (3) Additionally, the National Governors Association Center for Best Practices has issued a "backgrounder" describing HB 2623, in an attempt to raise awareness of the legislation within the policymaking community. (4)

This Note will analyze the content of HB 2623 to show that it significantly improves upon the legislative interventions that other states have implemented in response to the subprime mortgage crisis. HB 2623 is unique in that it establishes a mandate for the state to proactively assist every potential foreclosure victim, regardless of whether a homeowner asks for state assistance. In doing so, the new law does more than any other to enable homeowners and lenders to voluntarily modify loans. At a time when many are calling for bankruptcy courts to unilaterally modify mortgages, or for legislatures to institute long-term moratoria on foreclosures, HB 2623 may offer a simpler and less controversial means of stemming the subprime crisis.


Before passing HB 2623, North Carolina ranked twenty-fifth among states by number of foreclosures, a relatively good position given that it is the tenth most populous state. (5) The state may have avoided the worst of the foreclosure crisis because of earlier legislative measures to reduce predatory loans. In 1999, North Carolina became the first state to enact anti-predatory home lending legislation, in an attempt to stem the growing number of abusive mortgage loans made within the state. (6) In the twenty-one months following the law's enactment, overall subprime lending fell by 3.1 percent in North Carolina, even as it rose by 16.6 percent nationwide, 17.5 percent in the South, and 31.4 percent in neighboring Virginia. (7) And though no study has conclusively linked their departure to the new law, several subprime lenders decided to completely exit the North Carolina market after the 1999 legislation went into effect.

Unfortunately, North Carolina's relative success in regulating subprime loans did not allow it to completely avoid the foreclosure crisis. By April 2008, the Pew Center on the States estimated that one in forty-four North Carolina homeowners would experience foreclosure by the end of 2010. (8) Such a forecast, while favorable compared to Pew's national estimates, (9) represented a serious problem for the state. Pew projected that fourteen percent of state homeowners would feel the "ripple effects" of foreclosures and that affected owners would see their property values decline by an average of $2,592, a loss that would remove $861 million from state and local tax revenues. (10) Governor Easley responded to the crisis by lending his public support to HB 2623, a bill sponsored by Rep. Dan Blue (D-Wake). (11) As statewide foreclosures continued to mount, the bill quickly moved through the General Assembly. By July 2008, the House had voted for the measure 113-0, (12) and the Senate supported it by a margin of 45-1. (13) On August 17, 2008, Governor Easley signed HB 2623 into law. (14)

How HB 2623 WORKS

The North Carolina Foreclosure Prevention Project created by HB 2623 applies only to subprime home mortgage loans. (15) The bill defines "subprime" loans as those that have a rate spread "equal to or greater than three percentage points for a loan secured on a first lien mortgage or five percentage points on a loan secured by a subordinate lien. …

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