TITLE I - Authorizing the Treasury Department to Buy Mortgage-Related Assets
Sec. 9. Assistance to homeowners and localities. (19 Comments)
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DEFINITIONS.As used in this section
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the term "Federal property manager" means
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the Federal Housing Finance Agency, in its capacity as conservator of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation;
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the Corporation, in its capacity as conservator or receiver of an insured depository institution; and
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the Board of Governors of the Federal Reserve System, with respect to any mortgage or mortgage-backed securities or pool of securities held, owned, or controlled by or on behalf of a Federal reserve bank;
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the term "consumer" has the same meaning as in section 103 of the Truth in Lending Act (15 U.S.C. 1602);
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the term "insured depository institution" has the same meaning as in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); and
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the term "servicer" has the same meaning as in section 6(i)(2) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2605(i)(2)).
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SYSTEMATIC HOMEOWNER ASSISTANCE BY AGENCIES.
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IN GENERAL.Each Federal property manager shall, with respect to any residential mortgage loans and any mortgage-backed securities that it holds, owns, or controls on or after the date of enactment of this Act, develop a program that is designated to provide a systematic approach for preventing foreclosure on the properties securing such loans and securities, and ensuring long-term, sustainable homeownership through loan modifications and use of the HOPE for Homeowners Program established under section 257 of the National Housing Act and any other programs that may be available for such purposes.
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MODIFICATIONS.In the case of a residential mortgage loan, modifications made under paragraph (1) may include
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reduction in interest rates;
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reduction of loan principal; and
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other similar modifications.
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TIMING.Each Federal property manager shall develop and begin implementation of the program required by this subsection not later than 60 days after the date of enactment of this Act.
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REPORTS TO CONGRESS.Each Federal property manager shall, 60 days after the date of enactment of this Act and every 30 days thereafter, report to Congress specific information on the number and types of loan modifications made and the number of actual foreclosures occurring during the reporting period in accordance with this section.
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CONSULTATION.In developing the program required by this subsection, the Federal property managers shall consult with one another and, to the extent possible, utilize consistent approaches to implement the requirements of this subsection.
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AVAILABILITY OF FORECLOSED PROPERTIES TO STATES AND LOCALITIES.
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IN GENERAL.Each Federal property manager shall make available to any State or local government that is receiving emergency assistance under section 2301 of the Foreclosure Prevention Act of 2008 (Public Law 110-289) for purchase at a discount, any properties that it owns through foreclosure in that State or locality, in order to facilitate the sale of such properties and to stabilize neighborhoods affected by foreclosures.
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INFORMATION CLEARINGHOUSE.
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PROVISION OF INFORMATION TO THE SECRETARY.Each Federal property manager shall make available to the Secretary of Housing and Urban Development (in this section referred to as the "Secretary") information on properties available for purchase under this subsection.
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CLEARINGHOUSE.The Secretary and the Federal property managers shall develop a clearinghouse for the information compiled under this paragraph, and make such clearinghouse easily accessible by States and local governments described in paragraph (1).
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ACTIONS WITH RESPECT TO SERVICERS.In any case in which an Federal property manager is not the owner of a residential mortgage loan, but holds an interest in obligations or pools of obligations secured by residential mortgage loans, the Federal property manager shall23
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encourage implementation by the loan servicers of loan modifications developed under subsection (b);
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encourage the loan servicers to make foreclosed properties available for sale to State and local governments at a discount, as described in subsection (c); and
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assist in facilitating any such modifications or sales, to the extent possible.
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LIMITATION.The requirements of this section shall not supersede any other duty or requirement imposed on the Federal property managers under otherwise applicable law.
19 comments on Sec. 9. Assistance to homeowners and localities.
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9.b.2 - I understand wanting to avoid foreclosure, a foreclosed property is effectively a loss to the mortgage holder, especially in the current market. However, being able to lower the principal or "Other similar modifications" opens a can of worms.
posted by James R. Newman, http://james.bemusedart.com at September 22, 2008
If you lower the principal (rather than re-financing through a lower interest rate or a longer time-frame), you're giving away the money.
Will there be any contact between property owners and those able to lower the principal? This also opens the door for a possible temptation for "encouragement" (humans are involved, after all).
It sounds like the property managers have a fair bit of power, and only need report summary numbers (with a chance to compare notes). Will there be a separate oversight group? -
James, I agree. I like most of this bill a lot better than the Paulson one, but reducing principal is deeply unfair to those of us who didn't buy a house when speculators were running rampant.
posted by Dan at September 22, 2008
The way it's written would also seem to lead to inevitable fraud and waste. -
You could means test it, since it's a short term program. I understand the concerns raised above, but some people really arent' going to be able to afford to pay back the principal and I don't think its's in anyone's interests for them to be homeless as a result (including the economy's).
posted by Dr Anonymous at September 23, 2008 -
I'm not sure what this means, but it seems that the only homeowners would be eligible for assistance are those with mortgages held by Fannie Mae and Freddie Mac. If your mortgage is held by another lender, you are tough out of luck it seems.
posted by Anonymous at September 23, 2008 -
James Newman and Dan-
posted by Mithras Invicti, blog Fables of the Reconstruction at September 23, 2008
If the value of the underlying real estate has fallen to the point where the mortgage debt is far higher, then that debt is going to be written down one way or another - either in a chapter 11 workout like this proposes, or a chapter 7 liquidation.
Anonymous-
You said, "it seems that the only homeowners would be eligible for assistance are those with mortgages held by Fannie Mae and Freddie Mac"
No, that's not the case. Elsewhere, the Secretary is directed to buy up individual mortgages and pools of mortgage-backed securities so the program can refinance the mortgages itself. Also, elsewhere the bankruptcy code is revised to allow those things as part of a chapter 11 (workout) bankruptcy. -
On principal residences, notes (mortgages in some states) bought by the taxpayer should be offered to the mortgage holder.
posted by Duncan Hare (Myself, and myself alone) at September 23, 2008
Mortgage holder should have a first right of refusal, for 180 days, to purchase the mortgage from the taxpayers at the taxpayers' cost plus fees.
This refinance should be offered through the FHA, and mortgage holder needs to qualify with the FHA for the refinance. The FHA has the responsibility to contact the homeowner and make the offer.
The homeowner must take this offer the a FHA qualified mortgage originator. Mortgage holder pays all fees, which can become part of the new loan face value.
The discount on the mortgage from the face value of the note be capital and income tax exempt.
The Federal Government takes no share of the equity in the home.
This offer to be made to the mortgage holder within 90 days of the taxpayer buying the note. -
If you are concerned about the principal reduction, then you can set it up as an interest-free balloon-payment loan instead. It has to be paid back when the house is sold (unless a short-sale is agreed to) and shows up as debt on credit reports, but doesn't require monthly payments until the primary mortgage is paid off. Also make it so that it is senior to all other loans except the primary government mortgage, so that the homeowner can't refinance without paying off both loans.
posted by James Whiting at September 23, 2008
As much as it might make you feel good to know that people are being punished for overpaying for houses, it isn't actually good for the country. It would be much better to restructure the loans so that people can stay in their homes and neighborhoods.
Another option would be income-contingent repayment plans, similar to what is available for student loans. Leave the principal alone, set a fixed interest rate, and reset the monthly payment each year based on what the borrower can afford (with a minimum equal to rents in the area, or some reasonable percentage above rent). Forgive any interest that is in excess of the payments. -
Nobody is going to be -"homeless" becuase their home is foreclosed. They will simply have to move to a home or apartment that they can afford. The politicians should stay out of it.
posted by Homeowner of a mortgage i could afford at September 23, 2008
This mess was caused by politicians legislating Community Redevelopment Loans (loans to those that cannot afford them) and then guaranteeing the loans (thereby removing any risk associated with making the loan). That was a recipe for disaster. Markets work when the politicians stay out of it. -
The prior comment said, "This mess was caused by politicians legislating Community Redevelopment Loans". There is this right-wing theory floating around that the poor and minorities caused all this to happen. One response is here:
posted by Mithras Invicti, blog Fables of the Reconstruction at September 24, 2008
http://digbysblog.blogspot.com/2008/0...
But, let's just list a few other things:
1. The bad mortgages at issue here are not mainly residential mortgages, but commercial mortgages. Anti-redlining legislation has nothing to do with commercial mortgages.
2. The problem was partly created by giving mortgages to people who really didn't qualify. But the most important factor was that the investment banks were pouring money into funds that needed bigger and bigger mortgage generation to meet the need. On the mortgage broker end, that meant (a) approving more mortgages was good, no matter what, and (b) approving a bigger mortgage was good, no matter what. Sellers could charge what they wanted, and a loan to a buy would be approved. That meant that properties - both commercial and residential - were systematically overvalued. Now those real estate values have fallen back to normal levels, which is often below the amount of the mortgage. None of that was caused by legislation banning discrimination against poor people in getting loans. -
I agree with many of the comments above. I would just like to see 2 major priciples supported in this part of the legislation:
posted by Mark Mecum at September 26, 2008
1] Personal Responsibility - I do not agree with keeping homeowners in homes they cannot afford. It should provide for a reasonable period to sell the home with the bank AND the homeowner taking a proportional loss on their investment (loan value outstanding for the bank versus down payment and principal payments) on any reduction in overall value from when it was purchased.
2] Transparency - not just to congress and state officials, but to the American people, who should have open access to all information generated in this program,
250 million eyes looking at what is going on is more likely to see problems than the few regulators and committee members who may be getting job offers or contributions from interested parties. -
Principal reduction should be used to compensate for the inflated housing prices. The government could subsidize some of it, while banks could write down the remaining value. This relieves some of the pressure on banks while still maintaining some measure of punishment.
posted by Andrew Sobotka at September 26, 2008
In particular, principal reduction will be necessary for people who have reverse mortgages. -
2. MODIFICATIONS.
posted by Chuck Beaudette, Tax Payer at September 26, 2008
A. reduction in interest rates; [What are the limits?]
B. reduction of loan principal; [What are the limits?]
C. other similar modifications. [Too broad of a statement]
"encourage the loan servicers to make foreclosed properties available for sale to State and local governments at a discount, as described in subsection (c)"
This paragraph is very troubling. If I read this correctly, local governments get first shot before a public sale to the private sector. That troubles me on principal. -
If they are to reduce the principal and/or interest for those that took these loans on houses the could not afford then they MUST do that for every homeowner. Some of us struggle and work hard to make those payments. We don't buy fancy cars we can't afford or spend much money elsewhere. I have noticed that my neighbors in foreclosure are the same ones with the Mercedes and BMW's and niceties of life the responsible lived without to make payments to mortgage banks. If The Congress fails to make this Bill more FAIR then it is past time for the REST OF US, the responsible, to just hang it up and walk away-mail in the keys folks.....it makes NO sense to continue. Mad as HE**
posted by Susan Taxpayer at September 27, 2008 -
If they reduce the principle, will the homeowner be taxed on the difference as income?
posted by Anonymous at September 27, 2008 -
Report to Congress every 60 days? We want you to show transparency and immediacy in this Act. Reports need to be sent to Congress and the public every two weeks!
posted by Craig Bryant, Citizen at September 28, 2008 -
I was wondering, what impact does this bill have on Mortgage Servicers? Are they still going to be the servicer on the loan or will the government take on that particular task? Furthermore, does this force the servicer to take assistance action that they would not normally take? One last thing...I don't see any sort of credit protection for the actual homeowner in here. Doesn't the little guy get any breaks for being put in their respective situations?
posted by B.W. at September 28, 2008 -
I see nothing about the participation of Wall Street in this bailout. Not even a trace of international participation. Isn't the entire world economy hinging on this? Where does this "Money" come from if the market for Treasuries has dried up from a lack of faith by China, Japan and others. Where is the real re-structuing of this debacle? This is only an extension of business as usual, in the hopes of continuing the real-estate bubble. What terrifies me most is the fact that I don't see any effort at all to force the de-leveraging of the CDO instruments that are turning a trillion dollar problem into a $600 trillion dollar problem which will soon explode. This bailout is nothing more than a morphine shot while our limbs are about to be torn off.
posted by Dan Dixson at September 28, 2008 -
So I was stupid for taking out a fixed rate mortgage. If I had bought above my means to repay and taken a flexable rate mortgage The tax payers would be paying to help me out of my gambeling debt. What a fool I and so many other responsible Americans are. We got to pay higher interest and now get to pay for the people that saved with lower ARM rates.
posted by Anonymous at September 28, 2008 -
Say that this buyout actually turns into a profit gain for the government, will the taxpayers who will be fronting the money see any of it?
posted by Vince McClelland (private citizen) at September 29, 2008