Rep. Waters Introduces Legislation to Prevent Foreclosures, Help Homeowners
Rep. Maxine Waters, Chairwoman of the Subcommittee on Housing and Community Opportunity, and most senior Member of the Financial Services Committee from the State of California, today introduced the "Systematic Foreclosure Prevention and Mortgage Modification Act of 2008" (H.R. 7326). The legislation is designed to dramatically reduce the number of foreclosures by establishing a systematic approach to modifying troubled mortgages.
"The foreclosure crisis continues to spiral out of control," Rep. Waters said, "and our current programs for dealing with this crisis are simply not getting the job done."
Rep. Waters proposes paying mortgage servicers $1,000 for each modification and having the government share 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.
According to Realty Trac, foreclosures increased more than 71 percent in the third quarter of 2008 compared to a year ago. Moody's Economy.com estimates that in the next 2 years, more than 7 million American homeowners are expected to default on their mortgages, with 4.3 million ultimately losing their homes. Meanwhile, the Hope Now Alliance continues to offer more repayment plans instead of loan modifications, the Hope for Homeowners program is undersubscribed by servicers, and the Troubled Asset Relief Program (TARP) has not been used for mortgage modifications.
"These foreclosures are devastating our communities. Unless immediate action is taken to assist the homeowners struggling with these unaffordable and unsustainable mortgages, it will take years for our communities to recover from this crisis" Rep. Waters said. "This is why I support Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair's plan to systematically reduce foreclosures. Unfortunately, the Bush Administration has failed to implement her plan on a wide scale. My legislation takes Chairman Bair's plan and gives it the force of law."
"Servicers have been telling us-- and we have been telling them-- that it is cheaper to modify than it is to foreclose. Even so, foreclosure rates have continued to climb," Rep. Waters explained. "This legislation will finally get the servicers to realize that loan modification benefits the investors as well as the homeowner."
The FDIC plan has been successfully implemented at IndyMac Federal Bank. Because of the plan, over 5,000 IndyMac borrowers have avoided foreclosure and stayed in their homes with more affordable mortgages. If applied nationally, 2.2 million mortgages could be modified.
"This systematic approach is precisely what we need to keep more families in their homes. Unfortunately, while Secretary Paulson recently required Citigroup to implement the FDIC loan modification program as a condition for receiving TARP funds, he refuses to implement the plan nationwide. America's homeowners are every bit as deserving of a bailout as the fat cats on Wall Street who created this crisis. If my legislation is enacted, America's homeowners will finally receive the help they have been asking for."
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