WASHINGTON, DC -In an effort to protect consumers, increase transparency in the foreclosure process, and hold banks and servicers accountable for providing relief to qualified homeowners, U.S. Senator Jack Reed (D-RI) today introduced the Preserving Homes and Communities Act of 2011 based on similar legislation Reed introduced in 2009.
Cosponsored by Majority Whip Dick Durbin (D-IL), along with Senators Patrick Leahy (D-VT), Sheldon Whitehouse (D-RI), Jeff Merkley (D-OR), and Al Franken (D-MN), this legislation improves the loan modification process, increases consumer protection by eliminating "dual track" foreclosures, and ensures a fair playing field for consumers and banks at the negotiating table.
Loan modifications are supposed to help prevent avoidable foreclosures by keeping borrowers in their homes, reducing the number of vacant, blighted properties in neighborhoods, and saving investors money because they cost less than foreclosure. This bill requires lenders and servicers to evaluate homeowners for sustainable modifications prior to initiating foreclosure. Banks must perform a fair financial analysis comparing the costs of foreclosure versus loan modification and offer loan modifications to qualified homeowners. It also prohibits improperly processed foreclosures and places reasonable limits on when foreclosure fees can be charged.
"The foreclosure process is clearly broken. We have all heard from constituents who were misled by servicers or forced to wait months for loan modification decisions that should have taken far less time. Many people were unfairly foreclosed on while their application for loan modifications were pending. The Preserving Homes and Communities Act will ensure that we are taking appropriate steps to address the foreclosure crisis, which has devastated families, crippled local communities, and dragged down the broader economy. This bill will help promote permanent and sustainable loan modifications that consumers can manage," said Reed. "Right now, we have a shoddy foreclosure processing system that has hurt our economy, and we need to establish a clear set of rules and procedures in order to prevent more faulty foreclosures and to protect troubled borrowers who have been misled into expecting loan modifications that never materialized. All fifty states have seen a spike in foreclosure-related complaints, and this bill sets clear guidelines that will level the playing field for everyone."
"When mortgage companies foreclose unnecessarily, families lose their homes, investors lose money, and communities lose property value and tax revenue. Senator Reed's bill would ensure that banks don't jump to foreclose before considering modifications or other preferable alternatives. I commend his leadership on this issue and hope that the Senate will swiftly pass this much-needed bill," said Whitehouse.
According to a recent lawsuit filed on behalf of 3,000 Florida homeowners in foreclosure cases, several major banks hired hair stylists, teenagers, and others who didn't even know what a mortgage was and employed them as "foreclosure experts" without giving them any formal training. These unqualified workers "robo-signed" foreclosure affidavits without ever reviewing or understanding the documents. Another lawsuit brought by the Attorney General of Nevada, noted: "According to the employees, the modification process was chaotic, understaffed, and not oriented to consumers. Bank employees even describe being reprimanded for spending too much time with individual consumers."
Since the beginning of 2009, there have been approximately 5 million foreclosures nationwide, and the Center for Responsible Lending estimates a total of 9 million foreclosures between 2009 and 2012. In Rhode Island, one in every ten mortgaged homeowners is currently in foreclosure or seriously delinquent on their mortgage payment.
Specifically, the Preserving Homes and Communities Act of 2011 will:
• Expand and improve loan modification programs by requiring lenders and servicers to evaluate homeowners for sustainable modifications prior to initiating foreclosure, and to offer approved modifications to qualified homeowners.
• Eliminate the dual track of simultaneously being evaluated for a loan modification and being foreclosed upon. When consumers are being evaluated, foreclosure proceedings stop or not be initiated.
• Respond to the recent robo-signing allegations by requiring servicers, if they deny a modification, to prove that they actually have the legal right to foreclose. The bill also establishes meaningful penalties and prohibits improperly processed foreclosures.
• Place reasonable limits on when foreclosure fees can be charged and prohibits costly mark-ups.
• Create an appeals process for those who are denied a loan modification to ensure that loan modification decisions are fair and accurate. And create a mediation program so that a neutral third party can facilitate the loan modification process.
• Provide $1 billion to the National Housing Trust Fund for building, preservation, and rehabilitation of affordable housing from the proceeds of Senator Reed's warrants provisions in the Emergency Economic Stabilization Act. To date, Reed's warrants law has helped taxpayers recoup over $8.5 billion and counting.