It took a while to saddle up the horses, but now it seems as though everyone is
riding to the rescue.
Senate Democrats Thursday announced The Foreclosure Prevention Act
of 2008 which is intended to address the national housing crisis, help
homeowners avoid foreclosure and assist communities that have already been harmed
by foreclosures to recover.
Senate Majority Leader Harry Reid (D-NV) in announcing the package stated
that "Since last year Senate Democrats have been moving quickly to ensure
more Americans will be able to stay in their homes and we have made some progress.
But in the face of an uncertain economy and with so many Americans struggling,
we know that more needs to be done to address the housing crisis." He
estimated that the provisions planned for the legislation will help over 1 million
people stay in their homes and help families and communities avoid problems
in the future.
The proposed legislation will increase available funds for pre-foreclosure
counseling by $200 million. This, according to Reid's website,
should assist as many as one-half million additional families to connect with
appropriate mortgage representatives and explore available options to keep them
in their homes.
A second, potentially far-reaching provision would change the bankruptcy
code to remove the prohibition on modifying the mortgages of debtors
in bankruptcy. While the existing code allows judges to modify mortgages on
vacation homes and family farms, they can not do this with a primary residence.
Modifications would be done only for those who meet strict income and expense
criteria but these changes, if enacted, might assist more than 600,000 families
to keep their homes.
The current cap on Housing Finance Agencies (local entities) bonds would be
raised by $10 billion. Proceeds from these mortgage revenue bonds can be used
to refinance subprime loans, assist first-time home buyers with mortgages, and
provide funding for multifamily rental housing. It is hoped that raising this
cap will create new jobs, generate federal, state, and local revenues and stimulate
home-related consumer spending.
Communities with the highest foreclosure rates will be able to access Community
Development Block Grant funds to purchase homes that have been foreclosed and
remain unsold, blighting neighborhoods and lowering property values. Funds will
also be available to assist communities in rehabbing these homes if required
and then to rent or re-sell them.
The proposed legislation also attempts to avoid similar foreclosure problems
in the future by changing loan disclosures and timing on mortgage documents.
The changes would amend the Truth-in-Lending Act and improve
the disclosures about loans that are given to homebuyers both when they apply
for a purchase money mortgage and when they refinance. Firms would be required
to disclose the terms of the mortgage loan within three days of application
and at least 7 days before closing. The borrower would also be informed of the
maximum payment the loan could ever require (also within the 3 and 7 day requirements)
and would increase the damages for violating the Truth-in-Lending disclosure
provisions from $2,000 to $5,000 per violation.
Senator Reid did not indicate how long he thought it would be before this legislation,
provided it is passed by both Houses and signed by the President, takes effect
or from where the funding would come.