At both the federal and state levels, the introduction of legislation designed to aid borrowers in danger of foreclosure – and often reform certain aspects of the mortgage industry in the process – is nothing new.
But with its stark and definitive title, could the Foreclosure Prevention Act of 2008, (S.2636) which was introduced in the Senate by Sen. Harry Reid, D-Nev., last week, possibly be that elusive mortgage-crisis-era bill to end all mortgage-crisis-era bills?
Reid appears to think so. ‘The Foreclosure Prevention Act of 2008 will keep families facing foreclosure in their homes, help other families avoid foreclosures in the future, and help communities already harmed by foreclosure to recover,’ his office said in the announcement of the bill.
Or is this seemingly decisive new piece of legislation just another call for more of the same tactics?
According to the bill's text, this act would – among other measures – modify Internal Revenue Service code to permit housing finance agencies to use the proceeds from mortgage revenue bonds to refinance existing subprime loans, as well as provide new loans and develop multifamily housing. Reid's office says the increased lending activity that would result supports broader economic growth.
Another initiative discussed in S.2636 does focus more on the tried-and-true anti-foreclosure methods: Counseling programs would receive an injection of an additional $200 million in funding.
Monetary support – to the tune of $4 billion – would also be provided for what the bill terms ’emergency assistance for the redevelopment of abandoned and foreclosed homes.’
‘Productive occupancy of foreclosed homes will help stimulate economic activity and help prevent further loss of home equity in struggling neighborhoods,’ Reid's office explains. Most would see this link as sound reasoning.
One controversial point of the Foreclosure Prevention Act of 2008, however, appears to be a proposal to modify bankruptcy law to give primary mortgages the same treatment as vacation homes and farms when it comes to loan modification. Allowing judges to perform loan modification could help more than 600,000 borrowers, claims Reid's office.
Of course, any measure that threatens to upset the balances and designations of power currently in effect – particularly at a time when the legal system is such a strongly integrated presence in the mortgage world – is bound to cause concern.
Even so, despite this portion of the proposal, simply based on – once again – its name, the bill sounds like something that would command automatic and universal support. After all, who doesn't want to prevent foreclosures?
The Mortgage Bankers Association (MBA), for one, would probably like to prevent foreclosures – and accordingly expressed its support for the portions of S.2636 that it believes are conducive to that goal, as well as appropriate.
‘We have long supported and advocated for expansion of mortgage revenue bonds to help at risk borrowers,’ Kieran Quinn, chairman of the MBA, noted in a statement.
Furthermore, ‘We strongly support more funding for counseling,’ he continued. ‘And we support better disclosures at loan origination – though we do have some concerns about the timing of disclosures contained in the bill.’
Quinn cited the loan-modification proposal as the dealbreaker: ‘[B]y including language to reform bankruptcy and allow judges to modify mortgage contracts, the bill threatens to hurt those it is designed to help,’ he stated. ‘Bankruptcy reform will increase the cost of mortgage credit for all borrowers at a time when we ought to be making it easier, not harder, to get credit.’
And thus ends the organization's approval. ‘As long as this consumer-unfriendly provision is included, we cannot support the package as a whole,’ he concluded.
So much for the foreclosure-prevention bill to end all foreclosure-prevention bills.
– Jessica Lillian, Commercial Mortgage Insight
