Washington, DC - The U.S. House of Representatives acted today to help communities hit hardest by the housing foreclosure crisis, passing legislation introduced by Congresswoman Maxine Waters (CA-35), the Chairwoman of the Housing and Community Opportunity Subcommittee.
 
By a vote of 239-188, the House passed The Neighborhood Stabilization Act (H.R. 5818), which authorizes a $15 billion federal grant and loan program to help state and local governments purchase, rehabilitate, and resell or rent foreclosed homes.
 
“To understand the urgent need to enact this legislation, you just need to visit — as I have —communities like Cleveland, Detroit, or the San Bernardino and Stockton metropolitan areas in California, where block after block is dotted by foreclosed properties, many of them suffering from neglect or actual vandalism.  These abandoned and foreclosed properties drag down the value of the homes still occupied by working families, contribute to a cascade effect whereby plummeting home prices erode the tax base of state and local governments and harm real estate related industries such as the construction trades,” Congresswoman Waters said.

Using well-accepted construction activity multipliers, the National Foreclosure Prevention and Neighborhood Stabilization Task Force calculates that the bill’s proposed $15 billion investment will generate at least $38 billion in direct and “ripple effect” economic activity nationwide, employ 120,000 people, and restore nearly $225 million per year in local government real estate tax collections.

The foreclosure crisis, fueled by subprime mortgages, has resulted in significant property revenue losses for states, counties and local governments.  Because many state and local governments must balance their budgets each year, 20 states have already had to make or are proposing budget cuts due largely to revenue losses.  These budget cuts further harm the economy and deepen the recession. 
 
Despite severe fiscal constraints, many states and cities are already dedicating their own shrinking tax revenues to purchase foreclosed properties and stabilize neighborhoods as Mayor Menino of Boston, Governor O’Malley of Maryland, and others testified before the House Financial Services Committee on April 10th.  However, states and cities are overwhelmed by the scale of the housing foreclosure problem and unable to adequately respond without federal assistance.
 
For this reason, the National Governors Association (NGA) has stated that a “one-time federal funding commitment to support the acquisition and rehabilitation for foreclosed properties is vital to stabilize home values and protect neighborhoods in trouble now.” 
 
In developing legislation, Congresswoman Waters focused on finding a solution that reflects a sound approach to providing this critical fiscal relief to states and localities.  “This bill provides effective and meaningful help that is targeted, timely and temporary,” she emphasized. “First, this bill targets assistance where it is most needed.  The $7.5 billion in grants and $7.5 billion in loans would be allocated to states based on the number of foreclosures and the number of subprime loans 90 days delinquent and then adjusted to account for median home price. Second, the bill put funds “on the street” quickly enough to stimulate the economy.”

Instead of expecting the U.S. Department of Housing and Urban Development (HUD) to process plans from 1200 jurisdictions, the legislation allocates funding to the states and the nation’s largest 100 cities, largest 50 counties, and cities over 50,000 with especially high foreclosure rates.  (The areas of states outside of those cities and counties would be addressed in the states’ plans.)  “These governments have enough jurisdiction and capacity to address the crisis comprehensively, and we are allowing them flexibility so they can best use resources to meet their local needs,” Congresswoman Waters said.

The bill would get funds out to communities quickly but not result in permanent expenditures, by requiring fund obligation to begin within six months of enactment, be fully obligated within a year and fully spent within 2 years of enactment. 

The NGA is joined in its support for the stimulus contained in H.R 5818 by the U.S. Conference of Mayors, National Association of Counties, National Association of Local Housing Finance Agencies, and the National Council of State Housing Agencies. 
 
H.R. 5818 is also endorsed by a wide range of civil rights, community development, labor, and low income housing groups, including the AFL-CIO, AFSCME, Catholic Charities, Habitat for Humanity, the NAACP, the National Urban League, the National Low Income Housing Coalition, and  17 national organizations comprising the National Foreclosure Prevention and Neighborhood Stabilization Task Force.

From the House

 Mark up of both measures set for April 23rd and 24th

Washington, DC - In response to the nationwide economic downturn caused by the housing and credit crisis, members of the House Financial Services Committee today introduced legislation to combat the unprecedented rise in foreclosures, and the associated impact on cities and states.  The legislation first announced by Chairman Barney Frank in March, will be divided into two measures: H.R. 5830, the FHA Housing and Homeowner Retention Act, to expand the FHA program to help refinance at-risk borrowers into viable mortgages and also requires the Federal Reserve Board to conduct a study on the need for an auction or bulk refinancing mechanism. 

The second measure, H.R. 5818, the Neighborhood Stabilization Act of 2008, introduced by Subcommittee on Housing and Community Opportunity Chairwoman Maxine Waters, will provide loans and grants to states and cities to deal with problems associated with large numbers of foreclosures in neighborhoods across the country. 

A committee mark up session and vote on the two measures are scheduled for 10:00 a.m. on Wednesday, April 23rd and Thursday, April 24th.

A summary of H.R. 5818, the Neighborhood Stabilization Act of 2008 can be found at: http://www.house.gov/apps/list/press/financialsvcs_dem/press0417083.shtml

A summary of the H.R. 5830, the FHA Housing and Homeowner Retention Act as follows:

FHA Housing Stabilization and Homeownership Retention Act

Summary of H.R. 5830

Summary of the Expanded FHA Refinance Program.  This voluntary program would permit FHA to provide up to $300 billion in new guarantees to help refinance at-risk borrowers into viable mortgages.  This $300 billion is the total amount of outstanding loans that may be insured under the program.  The government would only have liability if a borrower defaults and the amount recovered in foreclosure is below the outstanding principal.  While CBO is still reviewing the proposal and has not released their report, we believe that the program will have an ultimate cost between 1 and 2 percent of this $300 billion authorization.

In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder who chooses to participate would receive a “short payment” (i.e. a payment for less than the outstanding balance as payment in full) from the proceeds of a new FHA-guaranteed loan if the new loan would have terms that the borrower can reasonably be expected to pay and the borrower agrees to share future home appreciation with the government.  In short, the program would provide refinancing assistance to allow families to stay in their homes, protect neighborhoods and help stabilize the housing market.

Under the program, a borrower or existing loan servicer of an eligible loan would contact an FHA-approved lender, who would determine the size of a loan that would be consistent with the requirements of the program and that the borrower could reasonably repay.  If the current lender or mortgage holder agrees to a write-down that is sufficient to meet the requirements of the program and make the new loan affordable, the FHA-lender will pay off the discounted existing mortgage.

In addition to a first lien, the government will retain a share of future home-price appreciation to help defray the government’s costs and prevent unjust enrichment (e.g., borrower flipping).  When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any profits (e.g., from 100 percent in year one to 20 percent in year five and 0 thereafter).  After year five only the 3 percent exit fee will apply from borrower profits.

Eligibility Requirements for Existing Loans (Requires All of the Following):

        Owner-occupied principal residences only (no investors, speculators or second homes);

·        Existing senior loan being refinanced must have been originated on or before December 31, 2007; 

·        To remove any incentive for borrowers to “purposely default,” the borrower must have had a mortgage debt-to-income ratio of no less that 35 percent as of March 1, 2008, and must certify that he/she has not intentionally defaulted on existing mortgage(s);

·        Participating mortgage holders/investors must waive any penalties or fees on the existing mortgage and must accept proceeds of the new loan as payment in full; and

·        Existing mortgage holders/investors must accept their losses – taking substantial write-downs sufficient to: (1) establish a 3 percent loan loss reserve for the FHA; (2) pay the origination and closing costs for the new loan up to 2 percent; and (3) bring the loan-to-value ratio on the new FHA-guaranteed loan down to no greater than 90 percent of property’s current appraised value, resulting in a substantial reduction in debt service to the borrower.  Accordingly, to qualify mortgage holders would need to accept a substantial write-down, accepting as payment in full no more than 85 percent of the property’s current appraised value.

Requirements for New FHA-Insured Loans:

·        New FHA loans must be properly underwritten and must be based on current appraised value of the house and borrower’s documented income (borrowers with higher – but not disqualifying – debt levels would need to make six months of timely payments at the new payment level to qualify for the guarantee);

·        New FHA loan must extinguish all existing liens and substantially reduce the borrower’s mortgage debt service;

·        New FHA loans under this program must be within the FHA loan limits now in effect under the stimulus for the duration of this program;

·        Oversight Board will set reasonable limits on loan fees and interest rates; and

·        To reduce costs to the government – and avoid inappropriate enrichment to the borrower – the government will retain a share of the borrower’s future profits.  When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any profits (e.g., from 100 percent in year one to 20 percent in year five and 0 thereafter).  After year five only the 3 percent exit fee will apply.

Oversight Board.  The program will be overseen by a “Refinance Program Oversight Board” consisting of the Secretary of Treasury, the Secretary of HUD, and Chairman of the Federal Reserve.  

Coordination of Existing Lien-Holders.  The Oversight Board will be authorized to take action to facilitate coordination among different existing lien-holders; and shall be empowered to establish a formula for compensating and a mechanism for obtaining the voluntary waiver of all lien holders.

Separate FHA Fund.  To protect the FHA Mutual Mortgage Insurance Fund, these new loans will exist in a separate fund in FHA – and will be permitted to be resold through GNMA.

Improving FHA Capacity.  The Oversight Board will take actions as necessary to increase FHA’s capacity, including:

·        Treasury, Federal Reserve and HUD may sharing employees to improve FHA capacity;

·        Contracting for the establishment of underwriting criteria, pricing standards, and other factors relating to eligibility;

·        Contracting for independent quality reviews of the underwriting of these mortgages; and

·        Increasing HUD personnel.

Auction or Bulk Refinance Study.  The Federal Reserve Board will be required to conduct a study of the need for, and efficacy of, an auction or bulk refinancing mechanism and submit a report to Congress within 60 days of enactment.

Increased Fraud Prevention/Oversight.

·        Independent quality reviews will be established to determine underwriter compliance, and rates of delinquency, claims and losses;

·        Monthly reports will be submitted to Congress; and

·        Annual audit of the program will be conducted.

Sunset.  The program will run for 2 years (with flexibility for additional 6 month extensions not to exceed 2 more years). 

Authorization for Foreclosure Counseling & Legal Aid.  The bill would authorize $200 million dollars for foreclosure counseling, with at least $30 million targeted to low-income and minority homeowners and $30 million to assist with legal aid.

Source  http://www.house.gov/apps/list/press/financialsvcs_dem/press0417082.shtml