WASHINGTON, D.C., November 15, 2007 — With the subprime crisis and resulting credit crunch continuing to dominate the economy, U.S. Senators Charles E. Schumer (D-NY), Sherrod Brown (D-OH), and Bob Casey (D-PA) today announced that the House of Representatives has passed the Transportation, Housing and Urban Development Appropriations conference report which includes a total of $200 million for foreclosure prevention counseling. The funding was first requested by the three senators this past spring. The conference report will now go to the Senate for final approval.
Federal funds included in the conference report will be used by non-profit foreclosure prevention programs to provide counseling to those at risk of losing their homes because they are trapped in unaffordable subprime loans. With demand for counseling rising, non-profits are in need of more funds and resources to provide counseling to as many people as possible. An estimated two million families are at risk of losing their homes to foreclosure over the next two years as their risky subprime loans reset to higher, unaffordable rates.
Counseling programs have a demonstrated track record in helping homeowners navigate the complicated process of contacting lenders, banks and legal services to modify their mortgage loans and ultimately save their homes from foreclosure. Counseling has proven to be one of the most successful and cost-effective ways of avoiding foreclosure. Foreclosure prevention counseling can cost up to $1,000 to $1,500 per household assisted, according to counseling groups. This appropriation can help approximately 200,000 families avoid foreclosure. The Joint Economic Committee of Congress, chaired by Schumer, has estimated that a typical foreclosure can cost up to $227,000.
“This investment will pay for itself many times over, through the avoidance of foreclosures and the pain and suffering they cost families, both in economic and non-economic terms,” Schumer said. “Empowering more housing groups to help borrowers negotiate for safe and sustainable loan modifications and refinancings will not only save hundreds of thousands of homes, but it will help shore up the struggling housing market and restore confidence in the mortgage market.”
“Struggling homeowners cannot be expected to navigate the mortgage maze by themselves. As an Ohio court just found, it is not even clear who owns these mortgages, let alone who has the authority to modify them,” Brown said. “These additional resources for counseling are critical. They need to be signed into law by the President.”
“The mortgage crisis is threatening the American Dream for too many families and hurting our economy,” Casey said. “This assistance will help keep families in their homes and help to stabilize our neighborhoods and economy.”
The impending avalanche of mortgage foreclosures across the nation can be directly tied to the exploding popularity of costly non-traditional mortgage products over the past decade. These non-traditional mortgage products, which include hybrid adjustable-rate mortgages (ARMs) with intricate interest rate terms and conditions, have been sold to middle and lower-income families in record numbers. While they offer attractive and easy lending terms, they also include excessively high interest rates that can sharply spike when they “readjust”, leaving new homeowners struggling to meet their rising mortgage payments.
In May, Senators Schumer, Brown, and Casey wrote a letter to the Senators Patty Murray and Christopher Bond, the Chairman and Ranking member of the Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies to request funding for this program. The funding was included as part of the THUD appropriations bill as a direct result of this request.