WASHINGTON, DC, September 12, 2007 —The U.S. Senate gave final approval Wednesday to a measure proposed by U.S. Senators Charles E. Schumer (D-NY), Sherrod Brown (D-OH), and Robert P. Casey (D-PA) to grant $100 million in funding to housing non-profits on the front lines of the fight to prevent a national foreclosure crisis from the subprime lending fallout. The measure—which would provide resources to government-approved agencies that help negotiate between borrowers and lenders to keep families in their homes—was contained in the Transportation and Housing and Urban Development (HUD) spending bill that passed the full Senate this morning.
“For the millions of Americans at risk of losing their homes, these nonprofits can provide shelter from the foreclosure storm,” said Schumer, the Chairman of both the Joint Economic Committee and the Senate Banking Subcommittee on Housing. “This investment will pay for itself many times over, through the avoidance of foreclosures and the pain and suffering they cost this country, both in economic and non-economic terms. But government alone cannot solve this problem. It will require a major commitment by others as well, particularly those banks and mortgage servicers which have the ability, through loan modifications and refinancings, to help homeowners avoid foreclosures.”
“These funds will help thousands of families stuck in bad subprime loans, but there is much more work to be done,” Senator Brown said. “It is not just the economy and speculation that are behind today’s crisis, but deceptive marketing by too many unethical mortgage brokers. We need tougher regulation of the industry, and we needed it yesterday.”
“I have heard the heartbreaking stories of Pennsylvanians who have had the American dream turn into a nightmare as they lost their homes in the subprime mortgage crisis,” said Senator Casey. “By helping those who are trying to keep people in their homes, this bill can have a profound effect on millions of families.”
The funding will benefit HUD-certified nonprofit programs that perform one-on-one counseling with homeowners and perform negotiations with a variety of mortgage industry stakeholders. Specifically, the $100 million in funding will allow these non-profits to:
- Increase training and capacity to focus on default and foreclosure prevention counseling;
- Seek out and engage homeowners to ensure early intervention
- Improve the communications between homeowners and servicers/lenders, and;
- Negotiate modified loan agreements or refinances.
The measure is particularly timely given the 2 million homeowners with adjustable-rate mortgages who are expected to experience payment shocks as their loans reset in a weakening housing market. Acting to prevent these foreclosures is not only important from the perspective of protecting entire communities, but it also makes good economic sense. Foreclosures can cost up to $80,000 for all stakeholders—homeowners, neighbors, cities and local governments, lenders, and loan servicers. Meanwhile, estimates suggest that foreclosure prevention counseling can cost as little as $1,000 per household.
The initiative by Sens. Schumer, Brown, and Casey has been welcomed by the nonprofit entities, which have seen demand for their services soar in recent months. Among the groups supportive of the effort are: National NeighborWorks Association, Center for Responsible Lending, Consumer Federation of America (CFA), National Community Reinvestment Coalition (NCRC), and Association of Community Organizations for Reform Now (ACORN).
Schumer, Brown and Casey first proposed the measure last May, at the same time they introduced the Borrower’s Protection Act that would impose first-of-its-kind controls on the largely unregulated broker industry.
“Because there are so many distressed homeowners right now, the non-profits are overwhelmed. They’ve already received more calls for help this year than they did all of last year, and things are likely to get worse before they get better. The non-profits simply do not have the resources to deal with this crisis,” Schumer said. In a letter to federal financial market regulators last month, Schumer sought the regulators’ help in jawboning industry players from mortgage lenders to loan servicers to contribute still greater resources to the nonprofit groups. In addition, in a personal meeting with Countrywide CEO Angelo Mozilo last week, Schumer urged the company to consider committing $250 million in funding to the groups. Both the Bush administration and Federal Reserve Board Chairman Ben Bernanke have both expressed support for the work that these nonprofits are doing to prevent foreclosures.