Additional provisions would include;

• $10 billion to allow housing finance agencies to issue bonds for refinancing subprime mortgages.

• $200 million in additional funds for third-party credit counseling.

• $4 billion in Community Block Development Grant funding for managing vacant properties.

Bankruptcy Provision Is Back in New Stimulus Bill 

As the following report in American Banker discusses, the legislation appears on the fast-track for review.

Senate Democrats unveiled a second stimulus package Thursday devoted to housing reforms, including a measure that would let judges rework mortgages in bankruptcy.

The Foreclosure Prevention Act of 2008 also would allow housing finance agencies to issue bonds for refinancings, simplify mortgage disclosure documents, and call for additional funds for financial counseling.

Democrats said the package would bypass the normal committee process, taking a fast track instead for full Senate consideration after Feb. 25, when Congress returns from recess.

That was bad news for the banking industry, which has fought tooth and nail against the bankruptcy provision, arguing it would wreak havoc on the value of their mortgage portfolios. Analysts said the provision's inclusion in a broader, and possibly politically popular, bill could raise its chances of enactment.

"If you're a financial services company that wants to derail this bill, you need to be very nervous," said Jaret Seiberg, an analyst with Stanford Group Co. "This has a lot of provisions that play very well to voters, and you have a lot of members up for re-election, and in such a situation, bills that should be dead on arrival find themselves enacted into law."

But it was unclear whether the bill would win the needed bipartisan support to make it through the Senate. Some argued the bankruptcy provision would hamper its chances.

"The industry is violently opposed to legislation that bankruptcy judges can rewrite the contracts," said Erick Gustafson, a lobbyist for the Mortgage Bankers Association. Democrats are "going to have a difficult time reaching 60 votes in the Senate."

Others said there would be no slowing the bill down.

"We anticipate that it will have a great deal of support in Congress," said Josh Nassar, a lobbyist for the Center for Responsible Lending.

During a press conference Thursday, Senate Majority Leader Harry Reid said he hoped the bill could move in a bipartisan manner, and he brushed off concerns that the bankruptcy provision could stall it. "This is so narrow and so fixed … it shouldn't be a stumbling block to anyone," the Nevada Democrat said.

Senate Democrats said the second stimulus package was necessary because the first one, which President Bush signed Wednesday did not explicitly address the housing crisis.

"The bipartisan stimulus bill was necessary … but it isn't sufficient," said Sen Majority Whip Richard Durbin. "What was the catalyst? What was the cause of this slide into economic recession? Housing, and until we address that this fundamental industry in America, I don't think we're going to set this economy in the right track."

Despite industry complaints that the bankruptcy provision would give judges free rein to rewrite mortgages, Sen. Durbin said it was necessary to stop a wave of foreclosures. "We are trying to slow down this march to foreclosure that will bring down property values across America, including those who are dutifully making their monthly payments," the Illinois Democrat said.

Sen. Charles Schumer, D-N.Y., who chairs the Joint Economic Committee, said the bill also was necessary because steps taken by the Bush administration were not enough. "This administration has refused to address" the housing crisis, he said. "They have ideological agendas that basically say, 'We don't want the government to get involved.' … If we don't deal with the housing problems, things are going to continue to get worse."

That was also the theme of a Senate Banking Committee hearing, where Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Henry Paulson testified on the economy and the housing crisis. Some Democrats criticized Mr. Paulson, arguing that the industry's voluntary efforts to modify loans through the Hope Now alliance, which he has spearheaded, is not providing sufficient results.

"You characterized the administration's efforts as aggressive action," said Sen. Robert Menendez, D-N.J. "I remain unconvinced. I don't know that Hope Now is aggressive action when we are seeing foreclosures outpacing loan modifications 7 to 1."

Senate Banking Committee Chris Dodd, D-Conn., seemed to echo those concerns. "We are worried this isn't going to be enough — it's too timid," he said.

Those comments and others like it left Mr. Paulson on the defensive. He said Hope Now was acting aggressively, but at times he appeared agitated by lawmakers' questions. At one point he said that he spends one-third of his time on subprime problems, and that the housing crisis was not his fault.

"I didn't create this problem," he said. "I'm working to do something about it. … It's a lot easier for people to say, 'Do something' than to say what it is we should do."

He called Hope Now a "last-ditch effort" by the industry to keep people in their homes. "Some people criticize that, and I, frankly, don't understand where the criticism comes from," he said.

But Mr. Bernanke said it is difficult to gauge the success of Hope Now, because there are no good statistics on loan modifications.

"One of the big problems with the foreclosure issue is we haven't had good numbers," he said. "We've had numerous strides that aren't comparable. We don't know exactly what they refer to. It's hard to know how much progress is being made, so I think getting consistent numbers over time will be extremely helpful."

Mr. Paulson also used the hearing to talk up the administration's proposal to allow housing finance agencies to issue bonds for refinancings.

That was one idea Democrats clearly had already embraced. The new stimulus bill includes a provision that would let the bonds be used for refinancing subprime loans, mortgages for first-time homebuyers, and for multifamily rental housing. The bill also would call for $200 million of additional funds for pre-foreclosure counseling, and it would give local governments access to community development block grant funds to purchase foreclosed properties.

Additionally, the bill would amend the Truth-in-Lending Act to improve mortgage disclosures. The amendments would require lenders to give firm disclosures about the mortgage's terms no later than seven business days before closing. Lenders would be subject to statutory damages if disclosures were not made or were inaccurate. Damages for violations of Truth-in-Lending provisions would also be increased 150%, to $5,000 per violation.

Lenders must also provide consumers who apply for adjustable-rate or variable payment loans with a warning that payments will change.

To view the online article, please click here.

To view comments from Kieran P. Quinn, CMB, Chairman of the Mortgage Bankers Association, please click here.

About Safeguard
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, Ohio and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees and a handful of contractors performing services in the Midwest, to a national company with over 450 employees. Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico.