President Signs Bills to Help Homeowners and Combat Mortgage Fraud

Homeowners may have a new chance for foreclosure assistance from the Department of Housing and Urban Development under legislation President Obama signed into law last week. The Helping Families Save Their Homes Act eases program requirements for families seeking mortgage help under the Hope for Homeowners program and the Fraud Enforcement and Recovery Act authorizes new funds to combat mortgage fraud.

The new laws come as foreclosure rates remain at historic highs across the country. According to the most recent U.S. Foreclosure Market Report from RealtyTrac, April 2009 had the highest monthly foreclosure rate ever recorded by the report, which began in 2005. RealtyTrac estimates that one in every 374 U.S. housing units was part of a foreclosure filing in April.

Helping Families Save Their Homes

The HOPE for Homeowners program helps homeowners having difficulty making their payments refinance their mortgages into conventional loans insured by the Federal Housing Administration (FHA). Although the program was intended to be the primary federal assistance for homeowners seeking to modify their mortgages to avoid foreclosure when it was enacted last year, numerous eligibility restrictions discouraged lender participation and the program has had little impact on the foreclosure rate. 

The Helping Families Save Their Homes Act makes participation in the program less costly both for lenders and homeowners. The law reduces the insurance premiums that homeowners pay to FHA for insuring their mortgage, and permits FHA to provide additional pay to lenders for every loan they refinance under the program. The new law still requires homeowners to certify that they have not intentionally defaulted on a mortgage to participate in the program. 

Interested homeowners should ask their current lender about the Hope for Homeowners program or contact a HUD-certified housing counselor. A list of certified counselors can be found at the HUD website www.hud.gov. Although FHA does not accept loan applications directly, homeowners may contact FHA at 1-8000-CALL-FHA for further assistance.

Renters also have new protections from eviction due to foreclosure. According to the National Low Income Housing Coalition, an estimated 40 percent of the households that lose their homes to foreclosure are renters.  Under the new law, renters whose landlords have lost their properties to foreclosure have the right to stay in their homes for 90 days after the foreclosure, or through the term of their lease unless the property is sold to someone as their primary residence. Renters utilizing Section 8 voucher assistance are also protected. Renter protections will expire at the end of 2012.

The new law also helps cities with significant homeless populations. The law reauthorizes and improves the McKinney-Vento Homeless Assistance Act. Among other things, the law expands flexibility of federal homeless funding for cities by counting families who will lose their homes in 14 days as homeless, and counting families living in precarious housing situations as homeless. 

The reauthorization consolidates three existing programs into one: the Supportive Housing Program, Shelter Plus Care, and the Single Room Occupancy Program. Instead of three separate applications, cities will make a single Continuum of Care application. 

The law also simplifies local match requirements for various federal homeless programs into a single 25 percent match, with the caveat that activities that had a lower match prior to enactment will maintain the lower match. Finally, the bill allows eligible cities to spend up to 10 percent of their homeless funds on families with children that do not meet the technical HUD definition of homeless. Cities with low homeless populations may apply to go above 10 percent.

Lastly, for cities and states awarded funds under the Neighborhood Stabilization Program, the new law eliminates an onerous requirement that grantees purchase properties at a discount from current market values. The requirement made it difficult for cities to use the program in neighborhoods where home values continue to fall.

Fraud Enforcement and Recovery Act

The second housing law signed last week would make funds available to state and local governments for programs that combat mortgage fraud. The Fraud Enforcement and Recovery Act authorizes $547 million for the Justice Department, Housing and Urban Development, Postal Service, Homeland Security Department's Secret Service and the Securities and Exchange Commission to investigate and prosecute mortgage fraud.

The law also instructs the agencies to work with and distribute funds to state and local governments for programs designed to combat mortgage fraud. However, funds must still be appropriated by Congress before agencies decide how the funds will be distributed.

Finally, the law establishes a 10-member Financial Crisis Inquiry Commission, which will investigate failures at financial institutions that precipitated the economic downturn.