S. 1731, titled the Preserving Homes and Communities Act of 2009, is proposed legislation introduced by Rhode Island Senator Jack Reed (D) and cosponsored by Senators Dick Durbin (D-IL), Sheldon Whitehouse (D-RI) and Jeff Merkley (D-OR) that was referred to Senate Committee on Banking, Housing, and Urban Affairs on September 30, 2009.
This bill will require certain mortgagees to make loan modifications, to establish a grant program for State and local government mediation programs, to create databases on foreclosures, and for other purposes.
A total of more than 10-million foreclosures are expected through just 2012 as forecast by Housing Predictor as the unemployment rate climbs and many homeowners are unable to make their mortgages.
Real estate experts say that until the housing market is stabilized by reducing the number of foreclosures a lasting economic recovery is difficult if not impossible to achieve.
Under the new bill, all lenders and servicers operating in the U.S. would be prohibited from foreclosing on home owners unless they had discussed reasonable modification options with the borrowers.
If successful, lenders and servicers must offer modifications to homeowners if the net present value of modification is greater than that of foreclosure. Limits on foreclosure fees will also be limited and a national database tracking foreclosures will be created.
Firms that do not comply may face strict penalties that are not yet disclosed, but according to a statement on the subject, will be “meaningful.”
In addition, all lenders would be required to perform a Net Present Value test for every seriously delinquent borrower, which will weigh the financial benefits for the investors of modifying a loan vs foreclosing on the property.
If the net present value of a modification exceeded that of a foreclosure, lenders would be required by federal law do so.
For borrowers unable to handle the payments offered under a modification plan, the bill would create a multi-billion national fund for states to make loans or grants to prevent foreclosures.
The mortgage payment assistance program created by the bill would provide money to state housing agencies to set up revolving funds to assist people who’ve lost income in the recession and now face the imminent loss of their house.
“As foreclosure rates continue to climb, a lasting economic recovery becomes harder to reach,” said Durbin. “Until we stabilize the housing market, we simply won’t get a handle on the broader economic crisis. Voluntary efforts to keep families in their homes have failed.”
Other points of the proposed legislation will authorize state-sponsored mediation programs as well as a system for distributing grant money to borrowers who are struggling to make payments, regardless of the mortgage product they are participating in.
“More and more households are finding that even with a fixed-rate mortgage that they could afford before the recession, they are just one pink slip away from losing their biggest investment,” he adds.
Frustrated by the slow pace of loan modifications this year, the senators said that they plan to push the legislation hard.
“In the last year, the federal government has taken decisive action and devoted substantial financial resources to shoring up financial markets, averting a potential national and global financial meltdown,” said Reed. ”Despite federal efforts, the number of foreclosures continues to rise at an alarming rate on pace to surpass last year’s foreclosures by a third.”
“Voluntary efforts to keep families in their homes have failed,” said Durbin. “This bill will force lenders to modify qualified mortgages” rather than letting them move quickly to foreclosure, which destroys households and neighborhoods.
Federal and state funds could provide gap financing to get people past their problems — or outright grants — to help them avoid foreclosure.
The bill would also fund state and local programs that create “mandatory mediation” requirements. Lenders would have to allow mediation efforts between themselves and their borrowers before filing foreclosures against home owners.
Though certain to be opposed by banking and mortgage lending groups, the new proposal could get serious traction in the Senate, and is virtually certain to get strongly support in the heavily Democratic House.
Bullets:
- Expand and Improve Loan Modification Programs and Rein in Costly Fees
- Requires lenders and servicers to evaluate homeowners for affordable modifications prior to initiating foreclosure, and offering approved modifications to homeowners if the net present value of modification is greater than that of foreclosure.
- Establishes meaningful penalties by making noncompliance a defense to foreclosure.
- Places limits on when foreclosure fees can be charged and prohibits costly mark-ups.
- Provide Targeted Mortgage Payment Assistance
- Assists homeowners experiencing a sharp reduction in income through no fault of their own.
- Authorizes $6.375 billion in formula funding to states to create revolving loan funds to offer homeowners grants or subsidized loans.
- Requires states to carefully steward federal dollars by requiring programs to abide by commonsense guidelines such as evaluating applicants’ employment prospects and capping maximum loan amounts.
- Encourage Strong Mediation Programs
- Authorizes $80 million in competitive federal matching funds for states and localities to establish mandatory mediation programs.
- Establish a National Database on Foreclosures
- Authorizes $5 million for the Department of Housing and Urban Development, in conjunction with other agencies, to develop a single database that will enable better monitoring of mortgage markets.
- Capitalize the National Housing Trust Fund
- Provides $1 billion for the building, preservation, and rehabilitation of affordable housing from the proceeds of the warrants provisions in the Emergency Economic Stabilization Act.
Related Articles:
- S.1731 Official Bill
- Realtytimes.com
- OpenCongress.org
- Press Release – Jack Reed
- The Library of Congress
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