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Fattah Bill to Protect FHA Homeowners Facing Foreclosure
- Representative Chaka Fattah (D-PA) has introduced the Homeowners
Emergency Mortgage Assistance Act (HR 1357).
- The Act will protect FHA homeowners facing loss of their homes,
reduce the numbers vacant FHA properties in neighborhoods and save
money by cutting FHA losses incurred due to foreclosures.
- The Act would offer loans to homeowners facing foreclosure
due to circumstances beyond their control, if the loan would make
it possible for them to maintain their home for the long term.
- It goes beyond all current HUD plans in that it guarantees
assistance to families facing ongoing economic hardships, such as
layoffs, illnesses, divorce, etc.
- HUD's foreclosure prevention program- the Loss Mitigation program
leaves homeowners at the mercy of their mortgage company. Loss Mitigation
is a program where lenders decide whether to offer assistance to
defaulting homeowners. Homeowners not already back on their feet
are rarely offered help under the program.
- Loss mitigation is a tool developed in the conventional mortgage
market, where lenders must absorb the cost of foreclosure. In order
to avoid foreclosure costs, lenders will let defaulting homeowners
make reduced payments for short periods of time. It has led to reduced
foreclosures during the current recession.
- However, since the FHA assumes all costs for FHA foreclosures
lenders have limited financial incentives to use loss mitigation.
So while conventional foreclosures fell during the early part of
the current economic slump FHA foreclosures went up significantly.
- The Homeowners Emergency Mortgage Assistance Act is based on
a highly successful Pennsylvania program which has saved the homes
of over 28,000 families since 1984.
- 90% have kept their homes long term and the repayment from
earlier loans has funded the program entirely for the past five
years.
- An FHA foreclosure costs HUD an average of $31,000 per foreclosure.
- A cost analysis of the estimated effects of HEMAA on the FHA
insurance fund found that it would save the fund over $173 million
yearly due to the reduction in cost associated with foreclosure.
- HEMAA would offer protection to families whose worst nightmare
can be the loss of their home due to such issues as unemployment,
illness or marital breakup.
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