From 1998 to 2006, subprime mortgage foreclosure rates increased by 13.3% in Albuquerque, 55.6% in Farmington, 61.8% in Las Cruces, and 77.4% in Santa Fe. Hispanics, Native Americans, and African Americans have been disproportionately harmed by these trends, because they disproportionately receive subprime loans. Race, not risk, too often determines whether a borrower is steered to a subprime loan. A 2002 study of racial disparities in the subprime refinance market by the Center for Community Change found that the highest disparity between actual risk and cost of refinance loans in the entire country was in primarily Hispanic census tracts in Albuquerque.

Thirty percent of families now holding subprime mortgages are upside down, i.e., they owe more than the house is worth. Market experts predict home prices will decline by an additional 20%. Fitch has concluded that 43% of loans made in the fourth quarter of 2007 will go into foreclosure.

Root Causes

Fundamental changes in the financial services industry lie at the root of the mortgage

crisis. Traditionally, banks financed home loans through customer deposits. In recent years, mortgages have been bundled for sale on the bond market, leading to abuses as banks no longer have incentives to check viability of mortgages they issue.

The complex securitization process turned pools of home loans into "mortgage backed securities," putting distance between borrowers and loan holders. The securitization process protects investors from liability for bad loans. Meanwhile, the broker who initially sold the loan to the borrower resold the mortgage to Wall St., and then often disappeared, with the homeowner left holding the bag.

According to the New Mexico Financial Institutions Division, the problem is exacerbated by approximately 3,800 unregistered loan originators illegally doing business in New Mexico, outstripping the regulator's capacity to bring the industry under control In 2007, the Financial Institutions Division of the New Mexico

Department of Licensing and Regulation conducted an examination of mortgage companies and loan brokers. Projections based on their study found 450 incidents of mortgage fraud and 735 incidents of illegal kick-back fees and fee splitting.

In the past, USBC provided counseling to homeowners facing problems with mortgage payments, most often by negotiating loan modifications with lenders. In this new environment, unprecedented obstacles to helping struggling homeowners hi the traditional way have created an immediate demand for more legal resources.

Loans have been sold and resold again and again. We come across loans sold up to ten times to different entities. It is impossible in many cases to figure out who owns the loan and with whom the counselor should negotiate on behalf of the borrower.

Loans bundled and sold to Wall St. have been lost in the system. In some cases, one entity holds the mortgage and another holds the note, and the entity bringing a foreclosure action has not been assigned the mortgage note. In these cases, USBC's CLS attorney has successfully defeated motions for summary judgment due to the absence of standing.

Homeowners and housing counselors struggle with servicers who have no interest in helping families stay in their homes. Rather, in the interest of maximizing profits servicers engage in a laundry list of bad behaviors exacerbating foreclosure rates. Exasperated clients and counselors attempting to navigate vast voice mail systems are bounced from one department to another, receiving contradictory information from different servicer representatives. Finding a live person who can provide reliable information and who has the authority or willingness to make loan modifications often becomes an impenetrable maze.

Victimized borrowers are more often left without alternatives outside the courtroom. Nationwide during the third quarter of 2007, lenders started 213,000 foreclosures on subprime loans, but were willing to negotiate loan modifications on only 28,000. Federal initiatives to streamline loan modifications are purely voluntary, reaching only 3% of at-risk homes. The Mortgage Bankers Association's own data show that foreclosures are outstripping modifications 7 to 1.

Why should this be a priority now?

The ATJC State Plan for Providing Civil Legal Aid to Low Income New Mexicans adopted by the New Mexico Supreme Court identifies five substantive areas where needs are most critical and should be given priority in funding and resource allocation.

This project proposal directly addresses the following priority areas identified in the State Plan:

• Housing - foreclosures; home ownership;

• Consumer - predatory lending; unfair trade practices; credit access: State Plan for Providing Civil Legal Aid to Low Income New Mexicans, page 7.

The Civil Legal Services Commission established three priorities for this RFP at its March 28 2008 meeting. This project proposal directly addresses a priority stated in the Commission minutes: "Coordinated action on foreclosures and home-related issues."

The minutes also state, "It was understood that any applicants for these funds would coordinate with the United South Broadway program, which currently has one attorney assisting families in foreclosure."

The need to increase legal resources for families facing foreclosure is immediate. Acting now not only will keep more families hi their homes during this crisis, but will also have a systemic impact on the problem.

Currently, CLS funds one attorney at the United South Broadway Corporation who provides direct legal services to clients facing foreclosure. He is the single civil legal services attorney hi the state developing expertise to handle the intricacies of the mortgage debacle. On average, this attorney handles a case load of twenty-eight clients, which is approximately one-third of those requesting legal assistance from USBC in response to pending foreclosures.

Moreover, because the number of New Mexicans facing foreclosure is large and growing, USBC's foreclosure defense attorney must dedicate all his time to helping as many families as possible stay in then: homes for as long as possible. Consequently, he is unable to implement more time-consuming litigation strategies that would make it less profitable to foreclose on homeowners hi New Mexico.

Housing and consumer advocates elsewhere in the nation report climate shifts in states like North Carolina where resources exist to fully litigate comprehensive foreclosure cases alleging violations of TIL A (Truth-in-Lending Act), RESPA (Real Estate Settlement and Procedures Act), HOEPA (Homeowners Equity Protection Act), Unfair Trade Practices Act, and state anti-predatory lending laws. In response, the industry has become less quick to foreclose and more willing to negotiate loan modifications to avoid lengthy trials and damages hi that state.

A timely increase in legal resources concentrated on foreclosure defense and predatory lending lawsuits not only will enable USBC to serve more clients, but also will provide support necessary to inhibit abusive practices by representing foreclosure victims to the full extent of federal and state lending and consumer protection laws.