Bardell Real Estate Logo

WASHINGTON, D.C. – House Financial Services Committee Chairman Barney Frank (D-MA) and Housing and Community Opportunity Subcommittee Chairwoman Maxine Waters (D-CA) called on the mortgage industry to delay or cancel foreclosures until a new law designed to refinance in-trouble borrowers goes into effect on October 1 for troubled borrowers who may qualify for the program. The new legislation, which is expected to be signed by President Bush soon, will allow qualified applicants to refinance into FHA-insured mortgages and avoid foreclosures. Reps. Frank and Waters are urging the mortgage industry to work with borrowers who can take advantage of the new refinancing program. Chairman Frank will hold a hearing in September to monitor the progress of loan modification by mortgage servicers.

Chairman Frank cautioned industry representatives: “I would hope that no one would be foreclosed upon between now and October 1st who would have qualified for this program had the effective date been immediate. And that is within your power to do. You can show some forbearance. October 1st is coming, begin the planning, begin the talking with people, but I think it would be a shame, an embarrassment to all of us if people were to lose their homes and the neighborhood deterioration were to be advanced and the economy would suffer because to satisfy CBO and other rules, we delayed this a couple of months. I earnestly hope that we can have that kind of cooperation.”
Chairwoman Maxine Waters added, “As one who has focused on mortgage servicing from the outset of this crisis, I strongly support the Chairman’s call for forbearance until October 1st. It would be shameful for a single homeowner in California, or anywhere else hit hard by the foreclosure crisis, to lose their home if they could have been helped by this program but for this deadline.”

In order to qualify for FHA refinancing under this program, borrowers would have to have more than 31% of their monthly income dedicated toward their mortgage payment as of March 1, 2008, and live in their only home. Borrowers would have to meet the specific qualifications of the FHA program, and would have to agree to share future home appreciation with the government. Lenders would also have to agree to significant reductions in the amount owed to them. The Congressional Budget Office estimates that at least 400,000 families will avoid foreclosure at no cost to the taxpayer.
Specifically, the Hope for Homeowners Act will:

Expands the FHA program so many borrowers in danger of losing their home can refinance into lower-cost government-insured mortgages they can afford to repay.
Protects taxpayers by requiring lenders and homeowners to take responsibility. This is not a bailout; in order to participate, lenders and mortgage investors must take significant losses by reducing the loan principal. In exchange for an FHA guarantee on the mortgage, borrowers must share any profit from the resale of a refinanced home with the government.
Contains critical protections for taxpayers’ dollars, including higher refinancing fees that establish a new FHA reserve to cover possible losses from defaults on these government-backed mortgages.
Only primary residences are eligible: NO speculators, investment properties, second or third homes will be refinanced.
According to CBO, this three-year program, starting October 1, 2008, will not cost taxpayers a dime, as it is more than paid for by using funds in the first few years from the Affordable Housing Trust Fund.
Provides $180 million for financial counseling and legal assistance to help families stay in their homes.

In addition, Chairman Frank also called for restructuring the mortgage servicing industry if servicers fail to cooperate in aggressively forbearing and preventing foreclosures, or if there are institutional roadblocks that prevent mortgage workouts or other restructuring that is needed in order to help borrowers, and thereby help the housing market and the economy overall .

“One of the things we have been told is ‘look there is this problem because the people who service the loans are not the people who own the loans.’ And there is this split between the people who have we are told the authority to make the decision to reduce and the beneficial owners on whose behalf they are acting, well you can’t expect the beneficial owners to do this, people who own pieces of pools.”