On May 19th, the House passed the final Helping Families Save Their Homes Act, S. 896, which was signed into law by the President on May 20th. This legislation provides key tools and incentives for lenders, servicers, and homeowners to modify loans and to avoid foreclosures. The initial bill passed in the House on March 5th, and passed last week in the Senate. Yet due to Senate opposition, the bill does not include bankruptcy provisions that encourage lenders to modify loans for families in danger of losing their homes.  House Democrats will continue to fight for these provisions to allow judges in the court of last resort to modify the terms of mortgage loans for families, just as they currently do for investors in vacation homes, real estate speculators, and corporations.

This legislation provides tooks to modify loans and avoid foreclosures by:

• Protecting lenders from frivolous lawsuits when they make loan modifications consistent with the Obama Administration’s program or done through the Hope for Homeowners program;
• Reducing the current fees for homeowners and lenders that have discouraged them from participating in the Hope for Homeowners program;
• Offering new incentives for lenders to negotiate loan modifications with borrowers at risk of foreclosure under the Hope for Homeowners program; and
• Expanding the President’s loan modification program to FHA and mortgages in rural areas (RHS).

To strengthen consumer rights to housing information and the community banks which are crucial to small businesses and families across this nation, the legislation makes other key changes, including:

• Establishing the right of a homeowner to know who owns their mortgage.
• Providing renters who live in foreclosed properties with at least a 90-day notice for eviction;
• Strengthening federal homeless programs;
• Protecting the bank deposits and savings of consumers with a four-year extension of the increase in deposit insurance to $250,000. 
• Increasing the borrowing authority of the FDIC to reduce the financial burden on small community banks.

Stabilizing the housing market is central to restoring the American economy.  We all stand to lose if we do not stop the steep decline in home prices.  Home prices dropped nearly 14 percent in the first quarter of 2009. 

Nearly one in five homeowners owes more than their home is worth and many cannot refinance. Each foreclosed home reduces nearby property values by as much as 9 percent.

Homeownership is a key part of the American Dream, but that dream is being shattered for the millions of American facing foreclosure in the worst financial crisis since the Great Depression. Foreclosures cost an American family its home every 13 seconds.
 
PRESIDENT’S PLAN:  The Obama Administration has put in place a bold housing plan to help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure—as well as their neighbors whose own house values will drop as a result of a nearby foreclosure.  The Obama plan takes advantage of historically low mortgage interest rates to:

• Help millions of families refinance into lower interest rate loans if they have mortgages issued or guaranteed by Fannie Mae and Freddie Mac and owe more on their houses than their current value; and
• Spur lenders into working with families stuck in unaffordable sub-prime mortgages to change the terms of those loans.

Lenders representing 75 percent of the U.S. mortgage market have agreed to work with troubled homeowners under this program.

HOUSE BILL:  Building on the President’s comprehensive Homeowner Affordability and Stability Plan, Congress is finalizing S. 896, the Helping Families Save Their Homes Act.  This bipartisan legislation provides key tools and incentives for lenders, servicers, and homeowners to modify loans and to avoid foreclosures.

In-depth provisions of the bill:

Reducing Foreclosures/Incentives for Negotiating Affordable Home Loans

• Fixes to the FHA's Hope for Homeowners program enacted as part of the comprehensive housing reform legislation from last summer.  These changes, specifically outlined as part of the President’s housing package:
  • Lower fees paid by borrowers and lenders.
  • Authorize incentive payments to servicers of existing loans and underwriters of new FHA refinanced loans.
• Provides mortgage servicers with clarity and certainty for their actions, with protection from lawsuits for loan modifications, consistent with the Obama Administration’s program or done through the Hope for Homeowners program.  Mortgage servicers are concerned about the threat of investor lawsuits if they help families in danger of losing their homes with loan modifications.  This provision is critical to the success of the President’s initiative by providing and incentive for servicers to take part in loan modification programs. 
• Gives FHA and USDA’s Rural Housing Service (RHS) flexibility to undertake loan modifications to make the loans affordable, consistent with the Obama Administration loan modification program.
• Establishes the right of a homeowner to know who owns their mortgage. 
• Protects renters who live in foreclosed properties – preventing sudden evictions by requiring a minimum 90-day notice period.  A bank that forecloses on a home must honor the existing lease, unless the property is sold to an owner-occupant.
• Strengthens tools to ensure that predatory lenders cannot act as lenders or servicers in the FHA programs.
• Expands federal foreclosure prevention activities by authorizing an extra $130 million for counseling, fair housing field employees, and advertising to increase public awareness about foreclosure scams.
• Strengthens help for the homeless by authorizing $2.2 billion for homeless programs, streamlining these critical programs to make them more effective, and focusing them more on the fastest growing segment of the homeless population -- families with children – as well as the chronically homeless.

Protecting Consumers’ Savings & Strengthening Community Banks and Credit Unions

• To protect the bank deposits and savings of bank and credit union account holders, the legislation extends for four years the increase in deposit insurance per account from $100,000 to $250,000.  This will be particularly helpful for small banks and credit unions that derive the vast majority of their funding from deposits and will allow them to provide more credit to consumers and small businesses. 
• Strengthens the financial situation of community banks and credit unions by:
  • Increasing borrowing authority both for the FDIC and the Federal credit union regulator permanently (by $100 billion and $6 billion respectively), and establishing temporary additional borrowing authority ($500 billion and $30 billion respectively).  This will reduce the financial burden on the many community banks that contribute their fair share to the stability of the banking system by replenishing the deposit insurance fund, even though they generally did not offer the risky and exotic mortgages at the root of the subprime meltdown.  The temporary loan authority will allow the FDIC to reduce the special assessments on banks, going into effect at the end of May, by as much as 50%, leaving more capital in American communities that need the flow of credit the most.
  • Permitting the FDIC to charge systemic risk special assessments on bank holding companies, for the first time, if they stand to benefit from the government’s actions to stabilize the banking system, which has the effect of reducing costs to community banks.   
• Expands accountability of financial rescue funds, by putting in place rules for the proposed private-public investment fund to stabilize the banks, including conflict of interest rules, requiring reports on large investors in the fund, and giving the Special Inspector General access to the books of a fund.