Foreclosure Relief Still Uncertain
The Senate has passed a bipartisan foreclosure prevention bill by an 84-12 vote that provides $10 billion for refinancing subprime mortgages, $4 billion for purchasing foreclosed properties and $180 million for foreclosure counseling but servicers should not expect these provisions to be enacted into law anytime soon.
The House of Representatives is taking a different track in addressing the foreclosure crisis and it is unclear how or when the two chambers of Congress will be able to reconcile their differences and send a bill to the White House that the president would sign.
Many senators and consumer groups are disappointed that the Senate bill turned out to be such a modest proposal that did not provide bankruptcy relief for struggling homeowners and directed most of the tax benefits to homebuilders and mortgage companies.
But most Republicans and the financial services industry solidly opposed any bankruptcy code changes.
Allowing bankruptcy judges to restructure mortgages provides a "safety valve so homeowners have an alternative to turn to," according to Allen Fishbein, director of credit and housing policy at the Consumer Federation of America.
"We still have to address the at-risk homeowner and this proposal doesn't do it," Mr. Fishbein said.
"A staggering" 8,000 families are filing for foreclosure every day," Senate Banking Committee chairman Chris Dodd, D-Conn., said immediately after the Senate vote on April 10. "We got more work to do in preventing foreclosures."
The committee chairman plans to follow up with a bill that expands the Federal Housing Administration program to refinance 1 million to 2 million borrowers that are at-risk of foreclosure. Several Republican senators, including Sen. Richard Shelby of Alabama, are expected to make it very hard for Sen. Dodd to get his bill out of committee (see related story).
The corner stone of the Senate foreclosure package is a Federal Housing Administration modernization bill that would permanently increase FHA loan limits and allow the FHA to insure 40-year mortgages.
"It extends the term on an FHA loan to 40 years so we can lower monthly payments," said Phillip Bracken, executive vice president at Wells Fargo Home Mortgage. "It is essential to help us get out of this mess," he told the National League of Cities recently.
The foreclosure prevention bill also authorizes state housing finance agencies to issue $10 billion in tax-exempt revenue bonds to support local refinancing programs for subprime borrowers.
It also provides $4 billion in Community Development Block Grants for the purchase and rehab of foreclosed properties, plus a $7,000 tax credit for homebuyers who purchase foreclosed properties.
These provisions are designed to give cities and states additional resources to help struggling subprime borrowers and prevent blight in communities with pocketed foreclosed and vacant properties.
The foreclosure prevention bill the House is working on provides $10 billion in revenue bonds and $10 billion in CDBG funds for the same proposes. But House tax writers provided a $7,000 tax credit for first-time homebuyers with no incentive to buy foreclosed properties.
House Ways and Means Committee chairman Charles Rangel, D-N.Y., took issue with a Senate tax provision that provides a net operating loss carry-back provision for homebuilders and others to deduct losses in 2008 and 2009 from their profits in prior years and receive a tax rebate.
"We need to provide relief to the buyers and families themselves, not just the banks and builders," Rep. Rangel said.
Sen. Gregg Judd, R-N.H., also railed against the Senate provision, claiming it rewards builders who were "greedy" and built too many homes. "They sold them to people who couldn't afford them. They sold them with inappropriately structured subprime mortgages. Now they want their taxes back," the senator said.
House leaders plan to roll their tax provisions into a bill House Financial Services Committee chairman Barney Frank, D-Mass., has drafted to expand FHA so it can refinance 1 million to 2 million at-risk borrowers. It is similar to Sen. Dodd's approach, which requires a significant writedown in the principal amount of the mortgage. But Rep. Frank expects to move his FHA expansion bill quickly so the House can vote on it possibly by the end of April.
Meanwhile, the White House has raised numerous objections to the Senate foreclosure bill even though it has supported the FHA modernization bill and additional revenue bond authority in the past.
White House press secretary Dana Perino said the president doesn't like providing funds for cities to purchase foreclosed properties and tax credits for homebuyers to purchase foreclosed properties because it would "do more harm than good by bailing out lenders and speculators."
Two advisors to President Bush sent a letter to House and Senate leaders explaining those provisions "create an incentive for lenders to foreclose and provide no direct assistance to homeowners."
Meanwhile, the FHA reform bill is in jeopardy. The House and Senate were close to an agreement in March to pass the bill. But now it has been rolled into the foreclosure prevention bill, which further delays its passage.
In addition, the White House is demanding that Congress send a standalone FHA modernization bill to the president that authorizes the mortgage insurance agency to charge risk-based premiums - something that was deliberately omitted from the House-passed and Senate-passed versions.
The Senate FHA bill contains a 12-month moratorium on risk-based pricing. The House FHA bill places restrictions on RBP.
"Any bill must give the FHA the tools needed to price for additional risk," FHA commissioner Brian Montgomery told a House panel recently.
So servicers should not look to Congress for help anytime soon in dealing with loan modifications and foreclosures. The House and Senate are at odds and the Bush administration is putting up obstacles to any meaningful legislation.
Commissioner Montgomery has announced important changes to the FHA Secure program, which should open the door for some borrowers who have missed two or three payments in the previous 12 months to qualify for FHA financing.
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