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Rep. Waters Introduces Legislation to Help Homeowners With a Systematic Approach to Foreclosure Prevention

July 27, 2009

Rep. Maxine Waters (D-CA) today introduced H.R. 37, the "Systematic Foreclosure Prevention and Mortgage Modification Act of 2009." The legislation is designed to dramatically reduce the number of foreclosures by establishing a systematic approach to modifying troubled mortgages.  Rep. Waters, Chairwoman of the Subcommittee on Housing and Community Opportunity, and most senior Member of the Financial Services Committee from California, reintroduced this legislation on the very first day of the 111th Congress because of the urgency of the nation's foreclosure crisis.  She had introduced it during the 110th Congress, but Congress ran out of time before it could consider the bill.

"The foreclosure crisis continues to spiral out of control," Rep. Waters said. "To date, the government's response has been woefully inadequate. The Hope for Homeowners program is undersubscribed by servicers and the Troubled Asset Relief Program (TARP) has not been used for mortgage modifications. Although the HOPE Now Alliance brags that it has prevented 2.2 million foreclosures, the fact remains that HOPE Now members are still refusing to substantially modify loans. HOPE Now members continue to offer more repayment plans than loan modifications, resulting in ‘modified' loans that are sometimes every bit as unaffordable as the original loan. As a result, HOPE Now is totally inadequate and will not make a dent in the number of foreclosures expected to overwhelm this country in the next few years."

According to Realty Trac, foreclosures increased more than 71 percent in the third quarter of 2008 compared to a year ago. Credit Suisse estimates that 8 million homes, representing 16 percent of all mortgages, will be in foreclosure in the next 4 years.

"The only effective foreclosure prevention program being used now was developed by Federal Deposit Insurance Commissioner (FDIC) Chairman Sheila Bair to assist borrowers at IndyMac Federal Bank," Rep. Waters stated. "Chairman Bair has shown that servicers will participate if given appropriate incentives, and a comprehensive loan modification program can prevent foreclosures can on a large scale. The key to Chairman Bair's program is its systematic approach to foreclosure mitigation. She has proved that addressing foreclosures systematically is more effective than the current one-on-one programs. This is why last year I introduced H.R. 7326, the Systematic Foreclosure Prevention and Mortgage Modification Act, which takes Chairman Bair's plan and gives it the power of law." 

The FDIC plan pays mortgage servicers $1,000 for each modification, and the government shares up to 50 percent of any loss if a modified loan re-defaults. The cornerstone of the plan is the requirement that participating servicers must systematically review all loans in their portfolios. Each loan will be subjected to a net present value test to determine whether it is more beneficial to modify or to foreclose. Loans passing the test must be modified.

"Congress failed to act on my legislation last year. I strongly urge Congress to pass my legislation in order to reduce the number of foreclosures that are devastating our communities and neighborhoods,"Rep. Waters stated.

 The FDIC plan has been successfully implemented at IndyMac Federal Bank, enabling over 5,000 IndyMac borrowers to avoid foreclosure and stay in their homes with more affordable mortgages. If applied nationally, 2.2 million mortgages could be modified.

 "I agree with the need for economic stimulus; however, unless we deal with the foreclosure crisis head on, any economic stimulus plan will come to naught," Rep. Waters said. "We simply can't stimulate the economy while allowing millions of families to be foreclosed upon. Stemming the tide of foreclosures will put the nation back on the road to economic recovery."

Rep. Waters' bill has the support of 12 original co-sponsors. Senator Diane Feinstein of California introduced S. 73, the Senate companion bill, today.
 

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