Another Attempt to Ameliorate the Housing Situation Proposed

It took a while to saddle up the horses, but now it seems as though everyone is riding to the rescue.

Senate Democrats Thursday announced The Foreclosure Prevention Act of 2008 which is intended to address the national housing crisis, help homeowners avoid foreclosure and assist communities that have already been harmed by foreclosures to recover.

Senate Majority Leader Harry Reid (D-NV) in announcing the package stated that "Since last year Senate Democrats have been moving quickly to ensure more Americans will be able to stay in their homes and we have made some progress. But in the face of an uncertain economy and with so many Americans struggling, we know that more needs to be done to address the housing crisis." He estimated that the provisions planned for the legislation will help over 1 million people stay in their homes and help families and communities avoid problems in the future.

The proposed legislation will increase available funds for pre-foreclosure counseling by $200 million. This, according to Reid's website, should assist as many as one-half million additional families to connect with appropriate mortgage representatives and explore available options to keep them in their homes.

A second, potentially far-reaching provision would change the bankruptcy code to remove the prohibition on modifying the mortgages of debtors in bankruptcy. While the existing code allows judges to modify mortgages on vacation homes and family farms, they can not do this with a primary residence. Modifications would be done only for those who meet strict income and expense criteria but these changes, if enacted, might assist more than 600,000 families to keep their homes.

The current cap on Housing Finance Agencies (local entities) bonds would be raised by $10 billion. Proceeds from these mortgage revenue bonds can be used to refinance subprime loans, assist first-time home buyers with mortgages, and provide funding for multifamily rental housing. It is hoped that raising this cap will create new jobs, generate federal, state, and local revenues and stimulate home-related consumer spending.

Communities with the highest foreclosure rates will be able to access Community Development Block Grant funds to purchase homes that have been foreclosed and remain unsold, blighting neighborhoods and lowering property values. Funds will also be available to assist communities in rehabbing these homes if required and then to rent or re-sell them.

The proposed legislation also attempts to avoid similar foreclosure problems in the future by changing loan disclosures and timing on mortgage documents.

The changes would amend the Truth-in-Lending Act and improve the disclosures about loans that are given to homebuyers both when they apply for a purchase money mortgage and when they refinance. Firms would be required to disclose the terms of the mortgage loan within three days of application and at least 7 days before closing. The borrower would also be informed of the maximum payment the loan could ever require (also within the 3 and 7 day requirements) and would increase the damages for violating the Truth-in-Lending disclosure provisions from $2,000 to $5,000 per violation.

Senator Reid did not indicate how long he thought it would be before this legislation, provided it is passed by both Houses and signed by the President, takes effect or from where the funding would come.