Brown Urges Congress To Pass Substantial Housing Reforms To Help Families Facing Foreclosure, Calls President’s Plan Inadequate

Washington, DC – December 6, 2007 – U.S. Senator Sherrod Brown (D-OH), a member of the Senate Banking, Housing, and Urban Affairs Committee, today urged Congress to pass substantial housing reforms to help middle class families facing foreclosure. Brown called President George W. Bush’s proposal today inadequate. Presently, a weakening U.S. housing market threatens the overall economy.

“Families across Ohio have known for a long time that we are in a housing crisis, but this administration told us that it was ‘largely contained,’” Brown said. “So long as it was largely contained to the Midwest, it didn’t require any response. But once Wall Street started to feel the pain, this administration jumped into action.”

“Mortgage lenders and loan servicers should establish a systematic approach to working out loans because trying to do so one-by-one has proven woefully inadequate. But we need to do much more. Instead of filibusters and veto threats, we need to work together to help homeowners and the communities they live in,” Brown said.

Brown has been working hard in the Senate to pass real reforms to stem the tide of the housing crisis:

$200 Million in Federal Foreclosure Prevention Funds:

Over the next two years, nearly 2 million homeowners with adjustable-rate mortgages will experience payment shocks as their loans reset in a weakening housing market, a harbinger of more foreclosures to come. Even with the proposed changes by mortgage servicers, many homeowners will require one-on-one counseling to navigate the system. To enable organizations to successfully accommodate increasing caseloads, Brown secured $200 million in the Transportation, Housing and Urban Development Appropriations conference report for HUD-certified nonprofit organizations to conduct foreclosure prevention counseling. Additional funding will allow non-profits to increase training and capacity to focus on default and foreclosure prevention counseling, to outreach to homeowners for early intervention, to improve the communications between homeowners and servicers/lenders, and to negotiate modified loan agreements or refinances. The fund would be administered by the Department of Housing and Urban Development (HUD). Brown first requested this funding in May. The conference report has passed the House of Representatives and is awaiting final approval in the Senate. Efforts to take up the conference report are being blocked by the Republicans in the Senate and the president has issued a veto threat against this bill.

Legislation to Hold Mortgage Brokers and Originators Accountable:

In May, Brown and Senators Charles E. Schumer (D-NY) and Robert Casey (D-PA) introduced the first major legislation addressing the current subprime foreclosure crisis. The Borrower’s Protection Act of 2007 would upgrade standards that mortgage brokers and originators must abide by when making new loans to borrowers. The bill seeks to regulate mortgage brokers and originators under the Truth in Lending Act (TILA) by establishing on behalf of consumers a fiduciary duty and other standards of care. In addition, the legislation outlines standards for brokers and originators to assess a borrower’s ability to repay a mortgage and holds lenders accountable for brokers and appraisers. The enforcement mechanism applied to this new section is those that currently apply under TILA. In June, the Senate Banking Committee held a hearing on Brown’s legislation.

Specifically, The Borrower’s Protection Act of 2007:

• Establishes a fiduciary duty for mortgage brokers and other non-bank mortgage originators;
• Requires originators underwrite loans at the fully indexed rate;
• Requires originators to create escrow accounts to pay taxes and hazard insurance;
• Prohibits steering (i.e. brokers may not direct or counsel a consumer to rates, charges and principal amount or prepayment terms that are not appropriate or suitable for them); and
• Assigns liability to lenders for actions of their associated appraisers and brokers.

Legislation to Reform Federal Housing Administration Loans:

As a member of the Senate Banking Committee, Brown supported the Federal Housing Administration (FHA) Modernization Act of 2007 which would revitalize the FHA loan program and provide a fair and affordable financing option for many borrowers. Among other things, this legislation would increase FHA single-family loan limits, lower and streamline downpayment requirements and set the maximum loan amount at 100 percent of the appraised value of the home, and enhance counseling by creating a pre-purchase counseling demonstration to test the usefulness of a variety of counseling options. Majority Leader Reid’s efforts to consider this legislation prior to the Thanksgiving recess were blocked by a Republican objection.

Urge the Federal Reserve to Curb Predatory Lending Practices:

In April, Brown joined with Democrats on the Senate Banking Committee in urging Federal Reserve Chairman Ben Bernanke to curb predatory lending practices in subprime markets. Under the Home Ownership and Equity Protection Act (HOEPA) of 1994, the Fed Chairman is required to take action against unfair or deceptive practices in the mortgage market. Brown recommended the Fed require mortgage originators evaluate borrower’s ability to repay prior to making a loan, designate the failure to escrow taxes and insurance as an unfair and deceptive practice, and restrict the use of low- and no-documentation loans. Brown met with Bernanke in October to underscore his support for strong regulatory action to help middle class families facing the housing crisis.

Legislation to Permit Primary Home Loans to be Written Down to the Fair Market Value in Bankruptcy:

Brown is a sponsor of The Helping Families Save Their Homes in Bankruptcy Act, introduced by Senator Dick Durbin (D-IL), which would help prevent foreclosures and prevent surrounding homes and neighborhoods from being negatively impacted. Virtually every type of personal debt, including vacation homes and family farms, can be restructured in bankruptcy with the exception of mortgages on a primary residence. This exception dates to the 1970’s, when most mortgages were fixed rate, long term agreements. The mortgage market has changed considerably since then. This legislation would:

Eliminate a provision of the bankruptcy law that prohibits modifications to mortgage loans on the debtor’s primary residence.

Extend the time frame debtors are allowed for repayment, to support long-term mortgage restructuring.

Combat excessive fees that are sometimes charged to debtors in bankruptcy.

Enact a higher homestead floor for homeowners over the age of 55, to help older homeowners who are fighting to keep their homes as they go through bankruptcy but live in states with low homestead floors.

Legislation to Prevent the IRS From Colleting Taxes On Foreclosed Loans:

Brown is a sponsor of the The Mortgage Relief Act, introduced by Senator Debbie Stabenow (D-MI), which would change current law that forces individuals to pay income tax when they have had a part of their mortgage loan forgiven due to their inability to pay their mortgage. Declining home prices have left some families having to sell their homes for less than the debt they owe on them, a so-called short sale. The Internal Revenue Service (IRS) currently taxes any loan forgiveness as ‘income.’ The Mortgage Relief Act would relieve families of a tax burden when their lender forgives part of the mortgage on a principal residence.