Summary and Background
On February 13, 2008, Senate Democrats introduced a legislative package intended to address the national housing crisis and help Americans avoid foreclosure. The Foreclosure Prevention Act of 2008 (S.2636) is an important next step that builds on recently-enacted economic stimulus legislation. The bill would address some of the problems spawned by a housing foreclosure crisis that has threatened America’s hard-working families, their communities, and our local and national economies.
If enacted, S.2636 would:
· Help families keep their homes by increasing pre-foreclosure counseling funds, expanding refinancing opportunities, and amending the bankruptcy code to allow the modification of nontraditional and subprime mortgages on primary residences;
· Help communities impacted by foreclosures by allowing localities with high foreclosure rates to access Community Development Block Grants (CDBG) funds to purchase foreclosed properties for rehabilitation, rent or re-sale;
· Help struggling businesses recover by expanding the carryback period from two years to five for them to utilize losses incurred in 2006, 2007 and 2008 to offset prior years’ income; and
· Help families avoid foreclosure in the future by amending the Truth-in-Lending Act to improve loan disclosures during the original loan and refinancing process.
The week of February 25, the Senate is expected to proceed to H.R. 3221, which would be amended to comprise an amended version of S. 2636, described below.
This Legislative Bulletin provides a description of major provisions, anticipated amendments, legislative history, the Statement of Administration Policy, endorsements, and links to related reading resources.
S. 2636 would help to keep struggling families in their homes by:
· Increasing pre-foreclosure counseling funds. Title III ofS. 2636 would provide $200 million in additional funding that would help housing counselors continue their outreach to families at risk of foreclosure. These added funds would help as many as 500,000 additional families connect with their mortgage servicer or lender to explore options that will keep them in their homes.
· Providing an additional $10 billion of tax-exempt private activity bond authority and allowing housing finance agencies to issue bonds for refinancings. Title I of S. 2636 would allow housing finance agencies to use proceeds from mortgage revenue bonds to refinance subprime loans, to provide mortgages for first-time home buyers, and for multifamily rental housing.
This increased lending activity would support economic growth by creating new jobs, generating federal, state, and local revenues, and inspiring home-related consumer spending.
The Administration’s Budget for Fiscal Year 2009 included a similar provision to allow tax-exempt qualified mortgage bonds to be used to refinance home mortgages to provide relief for subprime borrowers.
· Changing the Bankruptcy Code to allow a judge to modify the mortgage of a debtor. Title IV ofS. 2636 would help more than 600,000 financially-troubled families keep their homes by permitting a bankruptcy judge to modify their mortgages. S. 2636 would eliminate a provision of the bankruptcy law that prohibits modifications to mortgages on the debtor’s principal residence for eligible homeowners. Homeowners would be required to pass a means test to verify their inability to pay off the current mortgage and only nontraditional and subprime mortgages already originated as of the date of enactment would be eligible for modification. Judges would be allowed to reduce interest rates to the prime interest plus a reasonable premium for risk and would be prohibited from extending the life of the loan beyond 30 years. Moreover, the bill would provide that if a family sells their home within five years of the mortgage modification, the lender would receive any increase in market value up to the original loan amount.
S. 2636 would help communities harmed by foreclosures recover by:
· Providing $4 billion in funding for communities to purchase and redevelop foreclosed-upon properties. Homes that have been foreclosed-upon and are sitting unoccupied on the market can sap neighboring homes of their value, and lead to a cycle of community distress. Title II ofS. 2636 allows localities with the highest foreclosure numbers and rates access to Community Development Block Grant (CDBG) funds to use toward purchasing these properties, rehabilitate them if necessary and rent, re-sell or otherwise redevelop them. Productive occupancy of foreclosed homes will help stimulate economic activity and help prevent further loss of home equity in struggling neighborhoods.
S. 2636 would help struggling businesses recover by:
· Providing additional relief for the businesses struggling the most – including America’s homebuilders – from the housing crisis. For companies losing money in this economic downturn, Title VI of S. 2636 would extend the period to apply excess net operating losses to income from prior profitable years and receive any applicable tax refunds.
For 2006, 2007, and 2008 losses, the “net operating loss (NOL) carryback” would be extended to five years from the two years currently in law. By extending the NOL carryback provision from two years to five years the bill simply accelerates the tax benefit of current losses from future years and gives struggling companies cash infusions they need to stay afloat.
S. 2636 would help families avoid foreclosures in the future by:
· Simplifying disclosure on mortgages documents. Title V ofS. 2636 would amend the Truth-in-Lending Act (TILA) to improve the loan disclosures given to individuals and families not only when they apply for a home purchase loan, but also when they refinance their home. In particular, S. 2636 would require:
· Firm disclosure of the terms of the mortgage loan, no later than seven days before closing, and, if the terms change, no later than three days before closing; and
· Disclosure of the maximum loan payment under the loan, not only at application, no later than seven days before closing, but also, if it changes, no later than three days before closing
S. 2636 also would clarify that lenders are subject to statutory damages for violations of TILA disclosure provisions and increase the damages for mortgage violations from $2,000 to $5,000 per violation.
On February 13, 2007, Senator Reid introduced S. 2636, whichwas placed on the Senate Legislative Calendar under General Orders (Calendar No. 577). The week of February 25, the Senate is expected to proceed to H.R. 3221, which would be amended to comprise an amended version of S. 2636.
The DPC will distribute additional information on amendments as it becomes available.
Statement of Administration Policy
The Bush Administration released a Statement of Administration Policy (SAP) in opposition to S. 2636 on February 26. The SAP is available here.
To date, the following groups have endorsed S. 2636:
· Black Leadership Forum
· CDFI Coalition
· Center for Responsible Lending
· Consumer Action
· Consumer Federation of America
· Lawyers Committee for Civil Rights Under Law
· Leadership Conference on Civil Rights
· National Association for the Advancement of Colored People (NAACP)
· National Association of Consumer Advocates
· National Association of Consumer Bankruptcy Attorneys
· National Consumer Law Center (on behalf of its low-income clients)
· National Council of LaRaza
· National Neighborworks Association
· Opportunity Finance Network
· Service Employees International Union
· United Auto Workers
· U.S. Conference of Mayors
CRS, Housing Issues in the 110th Congress (February 22, 2008), available here.
CRS, Understanding Mortgage Foreclosure: Recent Events, the Process, and Costs (January 14, 2008), available here.
CRS, Modifying Mortgage Disclosure Requirements to Influence Affordability (October 3, 2007), available here.
Democratic Policy Committee, Democrats Are Committed to Lessening the Squeeze on American Homeowners and Bolstering the American Economy (February 14, 2008), available here.