Yesterday afternoon, the House delayed a vote on H.R. 1106, “Helping Families Save Their Homes Act of 2009” (the “Act”) after a little over an hour of debate, amidst unexpected opposition from some Democrats. Formally introduced earlier this week, after the House Judiciary and Financial Services Committees approved constituent provisions, the Act would:
- Authorize bankruptcy courts to modify the terms of some mortgages on principal residences during Chapter 13 bankruptcy proceedings;
- Allow the Federal Housing Administration (FHA) and the Rural Housing Service (RHS) to pay claims on losses stemming from the judicial modification of mortgage loans that they insure;
- Modify the Hope for Homeowners loan-guarantee program authorized by the Housing and Economic Recovery Act of 2008;
- Protect mortgage servicers from legal liability if they perform loan modifications according to specific criteria established under the legislation; and
- Permanently increase the FDIC deposit insurance limit from $100,000 to $250,000.
Opposition came from certain Democrats who expressed the view that loan modifications should be negotiated between borrowers and their lenders as opposed to bankruptcy courts. This measure has been criticized by Republicans and opposed by many in the financial services industry. Some of the complaints have been that the Act would increase mortgage interest rates and make bankruptcy a more attractive option for homeowners. The vote has been rescheduled to next week.
Also yesterday, the Congressional Budget Office (“CBO”) released its estimated costs associated with enacting the Act. The CBO estimates that the Act would increase direct spending by about $8 billion over the 2009-2014 period, and would reduce direct spending by about $15 billion over the 2009-2019 period. Enacting H.R 1106 would increase revenues by $19 million over the 2009-2014 period and by $23 million over the 2009-2019 period.
On Wednesday, the House Rules Committee adopted a rule governing debate on the Act. The Committee’s report listed 12 amendments that the Committee rejected and four amendments, introduced by Representatives John Conyers (D-MI), Tom Price (R-GA), Gary Peters (R-MI), and Dina Titus (D-NV), that the House will consider when it resumes debate on the Act. Representative Conyers’ amendments would:
- require courts to use the Federal Housing Administration (FHA) appraisal guidelines where the fair market value of a home is in dispute;
- deny relief to individuals who can afford to repay their mortgages without a “cramdown”;
- extend the negotiation period from 15 to 30 days to require the debtor to contact the lender to discuss an agreement on a qualified loan modification;
- require a Government Accountability Office (GAO) study on the effectiveness of mortgage modifications and whether there should be a sunset, the impact of the amendment on bankruptcy courts, and whether relief should be limited to certain types of homeowners;
- prohibit a mortgagor from participating in the Hope for Homeowners program if the individual has been convicted under federal or state law for fraud;
- add a sense of the Congress that the Secretary of the Treasury should use amounts made available in the bill to “purchase mortgage revenue bonds for single-family housing issued through State housing finance agencies and through units of local government and agencies thereof;”
- establish a Nationwide Mortgage Fraud Taskforce in the Department of Justice;
- add a sense of the Congress that mortgage holders, institutions, and mortgage servicers should not initiate a foreclosure proceeding or a foreclosure sale on any homeowner until the foreclosure mitigation provisions (such as the Hope for Homeowners program and the President’s “Homeowner Affordability and Stability Plan) have taken effect.
Rep. Price’s amendments would:
- prevent judges from modifying principal on a primary residence mortgage during a bankruptcy proceeding; and
- provide that if a homeowner who has had a mortgage modified in a bankruptcy proceeding sells the home at a profit, the lender can recapture the amount of principal lost in the modification.
Rep. Peter’s amendment would provide that, in the case of a debtor whose home is in foreclosure, the debtor could meet the pre-filing credit counseling requirement by receiving counseling either before or up to 30 days after filing.
Lastly, Rep. Titus’ amendments would require a servicer that receives an incentive payment under the Hope for Homeowners program to notify all mortgagors under mortgages they service who are “at-risk homeowners” (as such term is defined by the Secretary), in a form and manner as shall be prescribed by the Secretary, that they may be eligible for the HOPE for Homeowners Program and how to obtain information regarding the program.