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Foreclosure/Housing Crisis

Information on the Foreclosure/Housing Crisis

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Congress Passes Foreclosure and Housing Bill with Protections for 502 Guaranteed Borrowers and Reauthorization of McKinney-Vento Homeless Programs – May 20, 2009. As reported in the HAC News of May 13, 2009, different foreclosure bills passed the House and Senate in early May. The final version of S. 896, passed by both houses on May 19, includes a variety of mortgage lending reforms, protections for tenants and for Section 502 guaranteed borrowers, and reauthorization with changes of the McKinney-Vento homeless assistance programs.

The bill, expected to be signed into law by President Obama on May 20, also requires lenders with USDA Section 502 guarantees to take steps to avoid foreclosures. It authorizes USDA to allow modifications, make loans to de-faulting borrowers, and take over modified mortgages.

The changes to the Section 502 guarantee program are set out in Section 101 of the new law, which adds three new paragraphs to the authorization for the guarantee program:

(13) LOSS MITIGATION- Upon default or imminent default of any mortgage guaranteed under this subsection, mortgagees shall engage in loss mitigation actions for the purpose of providing an alternative to foreclosure (including actions such as special forbearance, loan modification, pre-foreclosure sale, deed in lieu of foreclosure, as required, support for borrower housing counseling, subordinate lien resolution, and borrower relocation), as provided for by the Secretary.

(14) PAYMENT OF PARTIAL CLAIMS AND MORTGAGE MODIFICATIONS- The Secretary may authorize the modification of mortgages, and establish a program for payment of a partial claim to a mortgagee that agrees to apply the claim amount to payment of a mortgage on a 1- to 4-family residence, for mortgages that are in default or face imminent default, as defined by the Secretary. Any payment under such program directed to the mortgagee shall be made at the sole discretion of the Secretary and on terms and conditions acceptable to the Secretary, except that–

(A) the amount of the partial claim payment shall be in an amount determined by the Secretary, and shall not exceed an amount equivalent to 30 percent of the unpaid principal balance of the mortgage and any costs that are approved by the Secretary;

(B) the amount of the partial claim payment shall be applied first to any outstanding indebtedness on the mortgage, including any arrearage, but may also include principal reduction;

(C) the mortgagor shall agree to repay the amount of the partial claim to the Secretary upon terms and conditions acceptable to the Secretary;

(D) expenses related to a partial claim or modification are not to be charged to the borrower;

(E) the Secretary may authorize compensation to the mortgagee for lost income on monthly mortgage payments due to interest rate reduction;

(F) the Secretary may reimburse the mortgagee from the appropriate guaranty fund in connection with any activities that the mortgagee is required to undertake concerning repayment by the mortgagor of the amount owed to the Secretary;

(G) the Secretary may authorize payments to the mortgagee on behalf of the borrower, under such terms and conditions as are defined by the Secretary, based on successful performance under the terms of the mortgage modification, which shall be used to reduce the principal obligation under the modified mortgage; and

(H) the Secretary may authorize the modification of mortgages with terms extended up to 40 years from the date of modification.


(A) PROGRAM AUTHORITY- The Secretary may establish a program for assignment to the Secretary, upon request of the mortgagee, of a mortgage on a 1- to 4-family residence guaranteed under this chapter.


(i) IN GENERAL- The Secretary may encourage loan modifications for eligible delinquent mortgages or mortgages facing imminent default, as defined by the Secretary, through the payment of the guaranty and assignment of the mortgage to the Secretary and the subsequent modification of the terms of the mortgage according to a loan modification approved under this section.

(ii) ACCEPTANCE OF ASSIGNMENT- The Secretary may accept assignment of a mortgage under a program under this subsection only if–

(I) the mortgage is in default or facing imminent default;

(II) the mortgagee has modified the mortgage or qualified the mortgage for modification sufficient to cure the default and provide for mortgage payments the mortgagor is reasonably able to pay, at interest rates not exceeding current market interest rates; and

(III) the Secretary arranges for servicing of the assigned mortgage by a mortgagee (which may include the assigning mortgagee) through procedures that the Secretary has determined to be in the best interests of the appropriate guaranty fund.

(C) PAYMENT OF GUARANTY- Under the program under this paragraph, the Secretary may pay the guaranty for a mortgage, in the amount determined in accordance with paragraph (2), without reduction for any amounts modified, but only upon the assignment, transfer, and delivery to the Secretary of all rights, interest, claims, evidence, and records with respect to the mortgage, as defined by the Secretary.

(D) DISPOSITION- After modification of a mortgage pursuant to this paragraph, and assignment of the mortgage, the Secretary may provide guarantees under this subsection for the mortgage. The Secretary may subsequently–

(i) re-assign the mortgage to the mortgagee under terms and conditions as are agreed to by the mortgagee and the Secretary;

(ii) act as a Government National Mortgage Association issuer, or contract with an entity for such purpose, in order to pool the mortgage into a Government National Mortgage Association security; or

(iii) re-sell the mortgage in accordance with any program that has been established for purchase by the Federal Government of mortgages insured under this title, and the Secretary may coordinate standards for interest rate reductions available for loan modification with interest rates established for such purchase.

(E) LOAN SERVICING- In carrying out the program under this subsection, the Secretary may require the existing servicer of a mortgage assigned to the Secretary under the program to continue servicing the mortgage as an agent of the Secretary during the period that the Secretary acquires and holds the mortgage for the purpose of modifying the terms of the mortgage. If the mortgage is resold pursuant to subparagraph (D)(iii), the Secretary may provide for the existing servicer to continue to service the mortgage or may engage another entity to service the mortgage.

Update July 30, 2008. This morning President Bush signed H.R. 3221, the Housing and Economic Recovery Act of 2008.

Update July 29, 2008. H.R. 3221, the Housing and Economic Recovery Act of 2008, has passed both the House and the Senate. President Bush, dropping his earlier opposition, said on July 23 that he will sign it.

With passage led by Reps. Barney Frank (D-Massachusetts) and Maxine Waters (D-California), the bill includes:

  • a National Affordable Housing Trust Fund, long sought by the National Low Income Housing Coalition and other advocates;
  • a back stop plan for Fannie Mae and Freddie Mac, with unprecedented new authority for the Treasury Department to offer credit and buy stock in the GSEs if needed.;
  • a new $3.9 billion emergency neighborhood stabilization fund, through HUD CDBG, for purchase and rehab of foreclosed properties;
  • HUD FHA modernization and new authority for FHA to insure up to $300 billion in refinancings of troubled mortgages;
  • an amendment to the USDA Section 515 program to help expedite transfers of rural rental projects for preservation or rehabilitation when Low Income Housing Tax Credits will be used;
  • improvements to housing programs for veterans and protections against foreclosure for returning soldiers;
  • a new refundable tax credit for most first-time home buyers of up to $7,500; and
  • provisions to modernize the Low Income Housing Tax Credit.

A variety of additional information about H.R. 3221 is available online, including:

Update June 26, 2008. The housing bill passed by the Senate Banking Committee, now renamed the Housing and Economic Recovery Act, will not be considered by the full Senate until after Congress’s July 4 recess, according to Congressional Quarterly’s CQ Today.

Update May 20, 2008: Senate Banking Committee Passes Major Housing Bill. On May 20, the Senate Banking Committee passed the Federal Housing Finance Regulatory Reform Act of 2008 by a 19-2 vote. The bill, which does not have a number yet, includes provisions to help homeowners facing foreclosure, create a national housing trust fund, and reform oversight of Fannie Mae and Freddie Mac:

  1. A new Hope for Homeowners Program would expand the Federal Housing Administration’s role, authorizing it to guarantee up to $300 billion in refinanced mortgages (some worth more than their homes’ values) after lenders write down the mortgage amounts.
  2. A National Affordable Housing Trust Fund (NAHTF) would finance development of housing for extremely and very low-income households.
  3. A Capital Magnet Fund would provide to Community Development Financial Institutions (CDFIs) and other nonprofits to leverage private capital for low-income housing and for revitalization of low-income communities. (This was originally proposed in S. 2391, the Government Sponsored Enterprise Mission Improvement Act, and is summarized here by the Opportunity Finance Network.)
  4. A new regulator for Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks would intensify oversight over their capital and investment portfolios, particularly with respect to safety and soundness. Fannie Mae and Freddie Mac would also be able to purchase higher-cost loans.

Funding for foreclosure relief, the trust fund, and the Capital Magnet Fund would be set aside from Fannie Mae’s and Freddie Mac’s profits. The Opportunity Finance Network notes that the allocation formula could produce about $700 million.

In its first year, the Hope program would receive all of the setaside funds. In the second year, Hope would receive 50 percent, and the remaining half would be split with 65 percent going to the NAHTF and 35 percent to the Capital Magnet Fund. In the third year, Hope would receive 25 percent and the remaining 75 percent would again be split 65/35 between the trust fund and the magnet fund. In the fourth year and beyond, the 65/35 split would apply to the total amount available.

The bill will be considered next by the full Senate. If it passes, a conference committee will need to reconcile differences between this bill and H.R. 3221, passed by the House on May 8. President Bush has threatened to veto the House bill, and has not yet reacted to the Senate version.

Update May 15, 2008. The Senate Committee on Banking, Housing, and Urban Affairs was expected to meet in closed session today to consider “The Federal Housing Finance Regulatory Reform Act of 2008.” According to the Committee’s website, the bill “includes major efforts to help prevent the rising number of foreclosures and to reform the regulation of the government-sponsored enterprises (GSEs) in order to improve their role in the housing finance system.”

Update May 9, 2008. The House on May 8 passed a comprehensive housing package of several bills. The White House has threatened a veto. Passed as a series of three complex amendments to a Senate bill, H.R. 3221 draws together several other bills:

  • H.R. 5830, the FHA Housing Stabilization and Homeownership Retention Act, which would provide FHA loans for some owners facing foreclosure and new counseling funds.
  • H.R. 1852, an FHA modernization bill, and H.R. 1427, for regulatory reform of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
  • H.R. 5579, the Emergency Mortgage Loan Modification Act, protecting loan servicers that modify mortgages to avoid foreclosures.
  • H.R. 5720, providing tax credits for first-time homebuyers, a real estate tax deduction for non-itemizers, additional mortgage revenue bonds, and foreclosure protections for returning soldiers.

The legislation now moves back to the Senate, which passed a very different H.R. 3221 on April 10.

Also on May 8 the House passed H.R. 5818, the Neighborhood Stabilization Act of 2008, providing $15 billion in grants and loans to states to handle foreclosed properties. The White House also is threatening to veto it.

More information is available at the House Financial Services Committee’s website.

Update April 28, 2008. On April 24 the House Financial Services Committee did not complete its review of H.R. 5830, the FHA Housing Stabilization and Homeownership Retention Act of 2008, which would provide FHA loans for some owners facing foreclosure, and H.R. 5829, the Public Housing Asset Management Improvement Act of 2008. The committee’s markup is scheduled to continue on April 30 and May 1. The committee’s sessions can be viewed live online on its website.

Update April 24, 2008. The House Financial Services Committee is moving forward on legislation based on Rep. Barney Frank’s recent proposals. On April 23 the committee passed H.R. 5818, the Neighborhood Stabilizaton Act of 2008, which would provide grants and loans to states to handle foreclosed properties; and H.R. 5579, the Emergency Mortgage Loan Modification Act of 2008, protecting loan servicers that modify mortgages to avoid foreclosure. On April 24 the committee is considering H.R. 5830, the FHA Housing Stabilization and Homeownership Retention Act of 2008, which would provide FHA loans for some owners facing foreclosure; and H.R. 5829, the Public Housing Asset Management Improvement Act of 2008.

Update April 11, 2008. On April 10 the Senate passed the bill described below, 84-12. It reduced the CDBG amount to $3.92 billion and increased the counseling funding level to $180 million. The Senate Finance Committee’s press release is available at

As of April 8, 2008:

  • The Senate continues work this week on legislation introduced by Sens. Christopher Dodd (D-Connecticut) and Richard Shelby (R-Alabama) to help address the mortgage crisis. Final details may change, but the package as proposed would expand the HUD Federal Housing Administration (FHA) loan limit, provide $4 billion in Community Development Block Grant (CDBG) funds to buy and rehab foreclosed homes, provide $100 million in additional counseling funds through NeighborWorks® America, allow non-itemizing taxpayers to take a deduction if they pay property taxes, provide help to veterans facing foreclosure, expand consumer protections under the Truth in Lending Act, and provide tax breaks to homebuilders and others and tax credits to buyers of foreclosed homes. Despite strong bipartisan support in the Senate, the White House is threatening a veto. (This bill is not numbered because it was introduced as an amendment to another bill. To find its text, go to and search for “FHA Modernization Act of 2008” – include the quotation marks in your search.
  • The House Financial Services Committee holds hearings April 9 and 10 on legislation proposed by Rep. Barney Frank (D-Massachusetts). His bill (not yet introduced) would allow FHA to guarantee up to $300 billion in refinanced mortgages that have been written down by lenders. The bill also would allow FHA to create a facility to refinance loans in bulk. And the bill would provide $10 billion in loans and grants from the Treasury Department to states for the purchase, rehab and prompt occupancy of vacant, foreclosed homes.
  • Rep. Maxine Waters (D-California) on April 2 introduced H.R. 5678. It would provide $10 billion in CDBG funds to redevelop foreclosed, vacant homes.

Numerous bills have been introduced, and not all of them are summarized here. HAC will update this site periodically, but events are moving fast. For text of bills and updates, visit:

  • Responding to a House Financial Services Committee request for comments on Rep. Frank’s proposal, HAC suggested that in rural areas intense marketing efforts would be advisable, and supported a National Rural Housing Coalition recommendation to use Section 502 loans for owners and Section 533 grants for nonprofits as well as FHA loans.
  • The National Rural Housing Coalition recommended adding two provisions to Rep. Frank’s proposal.
  • Add $100 million for the Section 502 direct program with changes in refinancing policy. Section 502 direct home ownership loans are available to low- and moderate-income households. Under current policy, refinancing is limit to repairs, cases in which the borrower owns the land, and unexpected emergencies such as major medical expenses, not a reset in mortgage rate. Recommendation: change the policy to allow refinancing of existing mortgages. Increase income limit to 100% of median and population limit to 25,000 outside urbanizing areas.
  • Add $50 million for Section 533 Housing Preservation Grants to finance a rural REO program. Section 533 grants are made to nonprofit organization that can use the funds to finance the rehabilitation of single- and multifamily housing. The statute will need an amendment to allow a grantee to acquire properties with grant funds and then rehab and sell or rent them to low- and moderate-income households.

Posted: April 9, 2008
Most recent update: May 20, 2009

If you have problems accessing any of the material on this page, or if you would like to suggest additional information to include, contact Leslie Strauss at HAC,, 202-842-8600.