Thursday, March 5: H.R. 1106-Helping Families Save Their Homes Act of 2009

This bill is the vehicle to pass bankruptcy “cramdown” which will allow bankruptcy judges to modify the terms of residential mortgages. In turn, this will increase interest rates for all homebuyers as lenders increase rates to price for this risk.

This provides bankruptcy courts with the same options for the treatment of primary residences that are already available to the courts for second homes, vacation homes, and investment property — permitting bankruptcy courts to reduce the principal owed on mortgages for principal residences, as well as interest rates or fees on the mortgage.

The measure allows courts to reduce the principal on such mortgages to the current market value of the home, from the higher amount specified in the original mortgage. Such changes would apply only to those mortgages issued before the enactment of this bill, not future mortgages.

The government would reimburse lenders for the difference between principal and interest as modified by bankruptcy courts and the amount originally owed by the homeowner if the mortgage was insured by a federal agency, such as the FHA or VA.

This bill will also include a combination of several bills that have been marked up in the Financial Services Committee including:

  • HOPE for Homeowners bill – strips away all the taxpayer protections from the H4H program so that more people will possibly participate. This includes eliminating upfront and annual premiums people must pay to participate in the program and refinance their mortgages. I offered an amendment to the TARP Oversight and Accountability Act a few weeks ago that would have kept the taxpayer protection provisions intact. Only 25 loans have been renegotiated nationwide so far under this program.

  • FDIC Protection – permanently raises the limit on government-insured bank accounts to $250,000; the limit is currently scheduled to revert back to $100,000 on December 31.

  • Servicers Safe Harbor – ensures loan servicers who refinance residential home mortgages prior to Jan. 1, 2012.are not sued by investors.

  • FHA “Disbarment” – allows the FHA to impose a civil penalty on lenders that are not FHA-approved but attempt to participate in the agency’s mortgage originations. The bill clarifies that lenders are not eligible for FHA-approval if any officer, partner, director, principal, or employee is suspended or debarred by any federal agency, is under indictment for, or has been convicted of an offense that reflects adversely upon the applicant’s integrity to meet the responsibilities of an approved borrower. Lenders would also be ineligible if they engaged in business practices that do not conform to generally accepted practices of prudent mortgagees, or are convicted of a felony related to participation in the real estate or mortgage-loan industry.

AMENDMENTS TO H.R. 1106:

Lofgren/Conyers (MI): #27, Manager’s Amendment:

Requires that debtors demonstrate that they have made good faith attempts to modify the mortgages through voluntary agreements with lenders unless there is a foreclosure sale scheduled within 30 days of the bankruptcy filing.

Requires bankruptcy courts to, before considering a mortgage reduction, to first consider lowering the debtor’s mortgage interest rate in order to lower monthly mortgage payments to no more than 31 per cent of the debtor’s income.

Requires courts to use Federal Housing Administration appraisal guidelines to determine the fair market value of the home.  Extends to 30 days, from 15, the period during which the debtor must contact the lender regarding loan modification.

Stipulates that the debtor must not have committed fraud within 10 years to be eligible to participate in the HOPE for Homeowners Program.

Establishes a Nationwide Mortgage Fraud Task Force.

Allows bankruptcy courts to grant no interest, 30 year mortgages as an alternative to cramdowns. (PASSED 263-164)

Price (GA) #9 Allows a mortgage holder to recapture the amount lost as a result of a Chapter 13 bankruptcy cram down if the debtor sells the residence at a profit. (FAILED 211-218)

Peters (MI) #5 Allows a debtor whose home is in foreclosure to meet pre-filing credit counseling requirements by receiving counseling either before bankruptcy filing or 30 days thereafter. The underlying legislation eliminates pre-filing credit counseling requirements for debtors who are being foreclosed upon. (PASSED 423-2)

Titus (NV) #35 Requires every mortgage servicer that receives payments of up to $1,000 to  modify an insured loan under the H4H program to notify “at-risk homeowners” they may be eligible for H4H mortgage modifications. (WITHDRAWN)

REPUBLICAN MOTION TO RECOMMIT:

(COURTESY OF FINANCIAL SERVICE REPUBLICANS)

Republicans have offered a Motion to Recommit to ensure that irresponsible borrowers will not be bailed out by the overwhelming majority of working families that have lived responsibly within their means. The MTR would remove mortgage default incentives. This is key to protecting taxpayers from greater exposure, and ensuring fairness to responsible homeowners.

More specifically, the MTR:

Prohibits taxpayer assistance to any borrower that misrepresented or lied about their income on their mortgage application;

  • Prohibits taxpayer assistance to any lender that failed to follow proper underwriting standards;
  • Prohibits taxpayer funds from being used as incentives to lenders to rework loans for irresponsible borrowers; and
  • Prohibits taxpayer funds from being used unless the President submits a plan that provides equitable treatment of all mortgages.

ON PASSAGE OF THE REPUBLICAN MTR: (FAILED 182-242)

ON FINAL PASSAGE OF H.R. 1106: (PASSED 234-191)

For more background on possible concerns with this bill, check out this press release from Rep. Tom Price (GA), and this one from Rep. Mike Pence (IN).


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Published in: on March 5, 2009 at 7:05 pm  Leave a Comment  

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