Sens. Reid and Dodd Talk About the Housing Crisis
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This week the Senate will move to reconsider the Foreclosure Prevention Act, which is a bill that would allow families who are facing foreclosure, due to increases in their adjustable rate mortgages, to stay in their homes. Today Senate Majority Leader Harry Reid (D-NV) and Sen. Chris Dodd (D-CT) held a press conference to discuss the bill.
“For the last several months, the President and Bush Republicans have adopted a ‘wait-and-see’ approach to fixing our economy,” Reid said. “But while they sit on their hands, middle-class Americans continue losing their jobs and oil prices have climbed to record levels. We cannot afford this strategy any longer, which is why Democrats are working to pass a bill to help those threatened by the root of our weakening economy – the mortgage meltdown.”
The Act would provide $200 million for pre-foreclosure counseling so that homeowners could connect with their lenders and explore options to keep people in their homes. The Act would also provide $10 billion in private bond authority so that housing agencies could issue bonds for mortgage refinancing.
It would change the bankruptcy laws to allow judges to modify the mortgage of a debtor. An estimated 600,000 homeowners could be helped by this change. The Act would also provide $4 billion for communities to purchase and redevelop foreclosed properties, and it would amend the Truth in Lending Act to require lenders to provide better disclosure about the terms of their mortgage to potential borrowers.
Sen. Dodd stressed that now is the time to act to help troubled homeowners. “This is a pivotal week. By moving in a bipartisan fashion to consider the Foreclosure Prevention Act, we have a real opportunity to take strong and effective steps that can address the economic crisis by reducing foreclosures and unlocking the credit markets. “The Administration stepped in a couple of weeks ago to help Wall Street. Now it’s time to turn our attention to Main Street. Inaction is not an option. And frankly, failure is not an option, either. I hope that our Republican as well as Democratic colleagues will agree to move forward on the bill for the good of American homeowners.”
Even if Congress does pass this act, President Bush will veto it strictly on the ideological grounds that the government should not get involved, and that people with bad credit don’t deserve any help.
The problem is that this mortgage crisis has the potential to cause a great deal of economic damage at the state and local level. Something proactive needs to be done because this is the kind of economic collapse that can turn a short term recession into a long one. The market will naturally recover, but it is much more difficult for homeowners and the communities they live in to do the same. This isn’t a perfect bill, but it is a good first step, that deserves bi-partisan support.
Foreclosure Prevention Act:
http://democrats.senate.gov/dpc/dpc-new.cfm?doc_name=lb-110-2-35
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Eligibility of Foreclosure Prevention Act of 2008
The program is voluntary, so Lenders have to agree to workout any currently held loan before things can get started. It is not likely that Lenders will sign off on a workout unless they think they'll lose less money by using this program than by letting the property go into Foreclosure. Following are the guidelines to keep in mind for the eligibility of Foreclosure Prevention Act:
# Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007.
# Borrower's must have a debt-to-income ratio "above 31 percent" on the original loan to be eligible for the program.
# Borrowers can be up to date on their existing mortgage or in default, but they must prove that they can no longer keep paying their existing mortgage and attest they are not deliberately defaulting simply to obtain lower payments.
# Before borrowers can get the new FHA-backed mortgage, they must first payoff any other debts currently on their home - like a home equity loan or line of credit.
# To get a new home equity loan in the future, borrowers will need approval from the FHA first. Borrowers will not be permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home. The total debt will not be allowed to exceed 95% of the home's appraised value.
# Borrowers can contact their current mortgage services or go directly to any FHA-approved lender for help.
But I still agree that it is more important to avoid foreclosure.
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