Affordable Housing

The current economic crisis has impacted homeowners across our district and our nation. Though the causes of this crisis are complex and global, it is clear that any solution must address the precipitous decline in housing prices that is hindering liquidity in our economy. We are in a downward spiral where foreclosures are decreasing the value of other homes in many areas, preventing borrowers in good standing from refinancing their mortgages. As a consequence, borrowers who have acted responsibly now find themselves stuck with debts that do not match the value of their homes.

On March 4, 2009, the Obama Administration announced detailed plans to help responsible borrowers and to encourage lenders to work with at-risk homeowners to stem the tide of foreclosures. For homeowners in good standing on their loans from Fannie Mae or Freddie Mac, the plan will provide a new opportunity to refinance even if they owe more than 80% of the current value of their house. This will allow borrowers to adjust their payments to reflect a reasonable valuation of their property and encourage families to remain in their homes.

For homeowners who are struggling with their debt because of a sudden loss of income or increased payments, the Treasury Department will work with lenders to reduce payments. Lenders will be encouraged to voluntarily reduce monthly payments to no more than 38% of income, and the Treasury will then match, dollar for dollar, further reductions down to 31% through decreased interest rates and extended loan periods. Funding for this provision is being provided by funds released from the Troubled Asset Relief Program (TARP). In order to encourage participation, lenders will receive incentive payments for every modification they make, as well as for sustaining successful borrower participation.

In order to enact this plan, Congress considered the Helping Families Save Their Homes Act (H.R. 1106). This legislation provides assistance for those homeowners seeking to refinance their mortgages, as well as critical changes to the Hope for Homeowners loan modification program. On March 5th the House passed H.R. 1106 by a vote of 231-191. Congressman Thompson supported the bill because it includes several important provisions that will:

• Amend the HOPE for Homeowners Program created by Congress last year to further encourage participation by lending institutions through lowered fees and payment for successful modifications;
• Immunize lenders from threat of lawsuit that might otherwise discourage participation in loan modification programs; and,
• Permit bankruptcy judges to modify mortgages under certain circumstances in order to keep families in their homes if the homeowners can show they made a good faith effort to obtain a loan modification from their lender.

There has been some concern that this legislation will bailout borrowers who made unrealistic decisions about what they could afford to purchase. However, these mortgage problems need to be resolved, and the provisions requiring that borrowers work first with lenders and a systematic modification system with new lender incentives will discourage abuse of bankruptcy proceedings. Under current law, mortgages for vacation homes and investment properties can be modified in bankruptcy proceedings, but a family’s primary residence cannot, even when modification will prevent foreclosure. By removing this restriction, H.R. 1106 will keep families in their homes.

Throughout the First District, many families are struggling to meet their mortgage payments while providing for basic necessities. If you know someone who is behind on payments or in danger of losing their home, my office may be able to connect them with resources that can get them back on their feet. For more information, please contact any of any of my district offices or visit my website, www.mikethompson.house.gov.