Foreclosure Prevention Act of 2008
By Tim Holland
It seemed fairly evident that something was amiss when the
bill’s sponsor, Sen. Christopher Dodd of
When looking at the text of the proposed legislation (there are six major titles), it would certainly seem to be on the right track especially since its intended purpose is to:
1. Expand and enhance the Fair Housing Administration
2. Increase mortgage foreclosure protections for servicemembers
3. Help communities impacted by foreclosures
4. Help families keep their homes
5. Help families avoid foreclosure in the future
6. Provide tax relief for homeowners, homebuyers and homebuilders
So what happened? The
old adage of “the devil is in the details” has raised it ugly head once again
and the details are a window into why Congress has a lower approval rating than
the current President of the
Title I - Expand and
Enhance the Fair Housing Administration
This title has six separate provisions one of which specifically addresses the issue of Foreclosure Prevention since it offers provisions to “Support homeownership preservation by improving the FHA loss mitigation process so the more troubled homeowners can retain their homes.” The rest of the provisions, except, possibly, the provision to enhance counseling requirements for homeowners that are having trouble making their mortgage payments, all focus on new home buyers and support for “reverse” mortgages for seniors, a banking product already being heavily criticized by financial counselors.
There are recommendations for FHA Insurance and consumer protections being made available for purchasers of “manufactured” homes and for creating a new automated credit rating system to help potential borrowers with “thin” credit histories (the idea that a banker might be expected to actually construct a cash flow statement for a potential borrower and evaluate a personal financial statement being out of the question for someone involved in the consumer financial industry). Enhancing fraud protection was also mentioned but, in an environment where regulators are given a mandate to protect the industries they are asked to regulate and the entire consumer protection system is grossly underfunded, the likelihood of anything meaningful being implemented is surely suspect.
Title II – Mortgage
Foreclosure Protections for Servicemembers
This one I will have to applaud. Finally someone is thinking of the members of the armed forces. The idea of having a reservist or national guardsman honoring the call to duty, which results in a major reduction in pay from a civilian job and then being hit with a foreclosure notice upon return from service because he has not been able to keep his payment current is one of the great tragedies of the United States.
Title III – Emergency
Assistance for the Redevelopment and Abandoned and Foreclosed Homes
This, obviously, has nothing to do with the prevention of foreclosures but for the “…purchase and redevelopment of abandoned and foreclosed-upon properties.” The amount mentioned here is $4 billion that is to be available for acquiring these properties – from whom? The financial institution holding the mortgage which purchased it for “investment” and earned fees and interest and is now not keeping the property up to community standards is supposed to be “bailed out?”
I’d love to see some rationalization for this one.
Title IV – Housing Counseling Resources
Here we are proposing the $100 million be made available to “housing counselors” to outreach
to families at risk of foreclosure so that they can connect with their mortgage servicer to find out what the options would be to enable them to stay in their homes. Sounds a bit like a wind fall for “housing counselors.” How about just requiring that a mortgage servicer be required to sit down with the family and lay out their options for staying in the home as a pre-condition to initiating a foreclosure proceeding?
Title V – Mortgage Disclosure Improvement Act
No help to someone facing foreclosure. This would amend the “Truth in Lending Act” as it relates to mortgages. This is fine but the “Truth in Lending Act” is in need of MAJOR SURGERY and not a band-aid. The entire system needs to be reworked with regard to auto loans, credit cards, overdraft fees on bank accounts and just about everything that relates to the consumer. A piecemeal approach is not the answer as they are all tied together.
Title VI – Tax-Related Provisions
Somehow it is not surprising that this section is at the end of the bill, as it has the mark of industry lobbying all over it. There are four sections to it with the first being the bone thrown at the homeowner who files the short form tax return (probably because they do not have the money to hire someone to wade through the long form) in that they would now be able to claim a deduction of up to $1,000. But don’t be blinded by this tactic.
Next up is the expansion of the ability to create tax exempt mortgage revenue bonds that would also exempt the interest earned on the bonds from the “alternative minimum tax.” Gee, I wonder who gets the real benefit from a provision like that?
Now we get to the really good ones: “Extension of net operating loss carryback that would allow companies losing money in the economic downturn – such as America’s homebuilders (could these be the same companies that made billions of billions of dollars in the five years previous by setting up their own unregulated mortgage affiliates to sell sub-prime, interest only and variable rate mortgages to their customers?) – to write off more of their current loses. I’m sure someone out there is now noticing a rather vile odor in the air.
Last but not least is the “Tax Credit for Purchase of Homes in Foreclosure.” Doesn’t sound like foreclosure prevention to me. This sounds like the consultants dreaded win-WIN proposal. Gee, if I can foreclose on this property it will go to the head of real estate agents sales list, since the buyer will get a $7,000 tax credit, and I’ll be off the hook for the property. The guy who’s losing his house – that’s his problem.