Reps. Frank, Waters, Watt and Miller call for forbearance by the mortgage industryMortgagePress.comHouse Financial Services Committee, Rep. Maxine Waters, Rep. Mel Watt, Rep. Brad Miller, Rep. Barney Frank
House Financial Services Committee members Maxine Waters, Mel
Watt, Brad Miller and the Committee's chairman, Barney Frank, has
strongly urged the mortgage industry to hold off on foreclosures
for potentially qualified homeowners for the next several months
while a new FHA rescue program gets under way. In July, Congress
passed and President Bush signed legislation designed to help at
least 400,000 borrowers who have fallen behind in their payments
due to a combination of unaffordable mortgages and falling home
prices. The rescue provisions, which will refinance qualified
individuals through the FHA program, will take effect on October 1.
In addition, the Chairman also plans a follow-up hearing to gauge
compliance on Wednesday, Sept. 17, 2008 at 10:00 a.m.
Below is the text of the letter:
August 5, 2008
Given the recent enactment of major housing reform
legislationmost importantly, the October 1 start date for the FHA
"Hope for Homeowners" refinance program, we are calling upon
servicers to forbear foreclosures for potentially eligible
homeowners over the next few months, review their loan documents
and prepare to refinance eligible borrowers by October 1. Many
mortgage servicers and others in the servicing industry have told
us about the progress they are making (and expect to make) to
address the foreclosure crisis through, among other things, a
greater willingness to engage in meaningful loan modifications that
materially alter a borrower's ability to repay the loan; and new
hiring of servicing professionals to more quickly address the
backlog. Unfortunately, individuals facing foreclosure, consumer
advocates and others have painted a very different picture: One
that involves long waits and few, if any, meaningful loan
modifications. To clear up the matter, could you please provide
additional information on your mortgage servicing practices, in
particular:
Will you be using the next few months to review loan
documents, contact borrowers and forbear foreclosure for those that
may qualify? Although the program will not be fully up and running
until October 1, several servicers have pledged to use this time to
review their loan files and work with borrowers likely to qualify
come October 1.
Do you anticipate making the principal reductions necessary
to qualify for refinancing at-risk borrowers into the Hope for
Homeowners Program? A number of servicers have informed us
thatalthough they have generally avoided significant principal
write downs to date they expect to substantially increase these
write downs to take advantage of the Hope for Homeowners Program.
The general view has been that principal write downs have been a
"last option" for servicers because they represent an immediate
loss for investors but (even if meaningful) leave investors and
servicers with ongoing credit risk. Given falling housing prices,
servicers and investors have heretofore preferred to take their
losses now foreclosing on the propertyrather than a principal loss
now and potentially greater loss later (if the borrower
redefaults). This, of course, facilitates more foreclosures, puts
more houses on the market, and risks a vicious cycle. The Hope for
Homeowners Program eliminates this collective action problem by
permitting servicers and investors to take a single large loss now
(through a principal reduction)but eliminates the risk of future
loss. This keeps more people in their homesslows the decline in
housing prices and avoids the enormous losses associated with
foreclosure.
Do your servicing practices provide that a previous loan
modification would not disqualify a borrower from the principal
modifications required by the Hope Program? In our conversations
with servicers, they have informed us that a previous loan
modification would not disqualify a borrower from the principal
reductions required to participate in the Hope Program. However, a
number of housing counselors have informed us that some borrowers
are not currently receiving a second modification even if the first
modification was clearly too small to meaningfully affect their
ability to repay the loan. Please confirm that these previous
modifications will not limit willingness to work with qualified
borrowers under the Hope Program?
The Financial Services Committee will be holding a follow-up
hearing on servicing practices in September. To facilitate that
hearing, we would appreciate your response by August 31.
Rep. Barney Frank
Rep. Maxine Waters
Rep. Mel Watt
Rep. Brad Miller
For more information, visit www.house.gov.
