CRL: Mortgage and Foreclosure Issues in Financial Reform Conference

by admin in Financial Reform News

June 14, 2010

The Honorable Christopher Dodd
Chairman, Senate Committee on Banking, Housing and Urban Affairs
Washington, DC 20510

The Honorable Barney Frank
Chairman, House Committee on Financial Services
Washington, DC 20515

RE:  Mortgage and Foreclosure Issues in Financial Reform Conference

Dear Chairman Dodd and Chairman Frank:

Once again, we want to thank you for the strong substantive mortgage origination standards that both chambers have passed and that are contained in the Financial Reform Conference base text.  This text reflects the best accomplishments of both the House and Senate bills with respect to mortgage origination reform, and the combination of both is powerful.   In particular, we strongly support the following provisions:

  • Effective Remedies: The base text’s liability structure for violations of minimum mortgage standards, particularly the removal of the “cure” provision that would have allowed lenders to fix mortgages at any time after being notified of a violation without any additional penalties, will help ensure that the substantive mortgage standards make a real difference in the marketplace, while at the same time permitting the re-emergence of a strong private secondary market.
  • Anti-Steering:  The yield spread premiums as well as additional anti-steering regulatory authority will help prevent the abusive steering and upselling that devastated so many low-income and minority communities and helped trigger the mortgage crisis.
  • Ability to Repay Standards: The common-sense requirement that lenders only sell mortgages to consumer who can afford to repay them will help curb the excesses of the past decade.  In addition, the qualified mortgage safe harbor will provide an incentive for lenders to make safer loans without the need for a full ban of any mortgage product.
  • State Remedies: Permitting states to enact stronger provisions as needed for their residents will help states quickly respond to new problems in the mortgage area as they arise.
  • Escrow Requirement: One of the biggest problems in the subprime market was the failure of lenders to escrow for taxes and insurance, which provided false comparisons between monthly payments and left many homeowners in the lurch at tax time.
  • High-Cost Loan Protections:  These protections provide a much-needed update to the special protections for very high cost loans.
  • Office of Housing Counseling which would provide support to community organizations that assist homeowners facing foreclosure as well as future homeowners;
  • Appraisal Reform:  Inflated appraisals were one of the key drivers of the housing bubble and the subsequent market collapse.  It is crucial that appraisals be fair and accurate.
  • HAMP Improvements:  Providing additional transparency to the HAMP program with respect to the “net present value” test and servicer data will help ensure that homeowners receive the help to which they are entitled and will enable analysts and advocates to understand the program better.

However, we were deeply disappointed that the base text did not include three core foreclosure-related provisions:

  • Assistance for Unemployed Homeowners: Unemployment is now the most common trigger of mortgage default.  However, HAMP provides less assistance to unemployed homeowners than to almost any other group.  The new three-month forbearance program will be of little assistance when periods of unemployment are averaging well over six months during this downturn, and in many cases will put homeowners in a worse situation than they were before the forbearance.  At the same time, HAMP no longer counts any unemployment benefits as a source of income for the purposes of a HAMP modification.  Providing low-cost bridge loans to these homeowners will help them weather the economic storm and return to successful homeownership once re-employed.
  • Legal Aid Foreclosure Prevention: It is well known that homeowners who have legal representation have a much better chance of successfully navigating the HAMP foreclosure prevention program, which is the main government foreclosure-prevention effort.  Yet funding for non-profit legal aid attorneys is becoming increasingly scarce even as the demand continues to escalate.  An authorization of $35 million – while admittedly a very small sum compared to the HAMP program funding or other economic recovery efforts – can be leveraged significantly by the legal aid community to make a real difference for homeowners.
  • Neighborhood Stabilization Program: Although we wish it had been otherwise, foreclosures have already devastated many neighborhoods, and significant investment is now required to bring back affordable housing and healthy neighborhoods.

Thank you again for your commitment to crafting strong and effective mortgage origination standards and foreclosure prevention measures within the new legislation.  Please let us know what we can do to assist you in the conference process.

Sincerely,

Center for Responsible Lending