Will The American Housing Rescue and Foreclosure Prevention Act and Senate Bill 2636, The Foreclosure Prevention Act help homeowners to avoid foreclosure? Lately, the popular press has been cranking out articles about proposed legislation that would allow the federal government to help homeowners who are behind on payments.This week, I had a client send me a snippet from his local U.S. Representative, trumpeting the fact that he’d voted in favor of the latest attempt by the U.S. House to address the foreclosure crisis: The American Housing Rescue and Foreclosure Prevention Act.
I know what he was thinking: “Maybe this will help?”
Unfortunately, there are a number of problems with this proposed foreclosure legislation.
Here are a few of the issues:
1- The bill is voluntary, not mandatory. Just because you think it’s a good idea for your lender to take a 15-20% loss (or more) on the loan so you can avoid foreclosure, doesn’t mean that they’ll agree.
2- Our fearless leaders in Congress have a pretty lousy track record in the problem-solving business. I won’t elaborate on this one.
3- The President has said he will veto the legislation.
4- E
ven if this “anti-foreclosure” legislation passed, most government programs don’t live up to their expectations.
Last year, they were claiming that the FHA Secure program would help refinance 80,000 borrowers who had ARM’s that they couldn’t afford.
According to FHA, that program has only helped 2,000 borrowers to avoid foreclosure. The overwhelming majority of the homeowners who took advantage of the program were not behind on payments, and were not in foreclosure.
5- Not only will the original lender have to take just 85% of the current appraised value, they’ll have to pay additional costs as well. Even today, they often whine, complain, and refuse to pay closing costs for buyers of REO properties, so I don’t see how they’d be any less resistant to doing the same for homeowners who are in foreclosure.
6- Nobody’s going to be helped by this legislation any time soon. The Senate version of the bill has a start date of October 1. That sounds overly optimistic to me.
I can remember when they unveiled FHA Secure, 60-90 days after the program was in effect, it was VERY difficult to get straight answers on how it worked, let alone a mortgage company who had any clue at all as to how to originate one. A lot of work is going to have to be done to set this up, not to mention work out the kinks of this program.
7- Loss mitigation staff will have to learn yet another task.
They’re already swamped. Who’s going to pay for additional staff to handle the new divisions? Oh that’s right, nobody… there’s no funding provision in the bill for it, so you don’t expect the lenders to add to their foreclosure staffs again, do you?
8- The lenders will be overwhelmed with inquiries on this new option to avoid foreclosure. The time they take to field these calls and answer questions will prevent them from completing the work they already have.
When the government announced Project Lifeline earlier this year, I remember a lot of the foreclosure department staffers complaining about how many more calls they were getting with questions on the program. What none of these homeowners realized, and what added to the call center employees’ frustration is that the announcement did not change a single thing for borrowers trying to avoid foreclosure. Since most of the people who inquire will not qualify for this latest program, once again a lot of this time will be wasted. This will slow progress on EVERYBODY’S file, so I imagine it’s going to take even longer for most loan workout programs to be improved.
9- The proposed process is pretty complex.
Congress has criticized the mortgage industry for making the borrowing process too complicated, and they blame this complexity for helping to create the foreclosure crisis. I can’t wait to see how they plan to explain this program to borrowers in a way that’s easy to understand. Will they use the IRS tax forms as a model?
10-
This program will turn upside-down homeowners into renters. If they decide to sell the home within the first few years after signing up for this program, the homeowner will have to forfeit most of the equity to the federal government.
It’s been said repeatedly that foreclosure rates are closely tied to the lack of home equity. This is one of the major criticisms of the 100% programs that have been phased out.
If prices remain stagnant going forward, most homeowners who actually get a chance to take advantage of the “child” of American Housing Rescue and Foreclosure Prevention Act and Senate Bill 2636, The Foreclosure Prevention Act, will be REALLY hot when they find out they’re not getting much of a check at closing time. If they realize this in advance, I wonder if they’ll hesitate?
I could go on, but here’s the bottom line: even IF this legislation is signed into law, I don’t see how it helps a single homeowner until the end of this year. And that would require a “fast-track approval process,” which is highly unlikely.
If you’re severely upside-down on your mortgage, behind on payments and facing foreclosure right now, this program is not going to help you anytime soon.
If you’re trying to avoid foreclosure, don’t wait for Uncle Sam, get help now.
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