House Financial Services Committee Chairman Barney Frank (D-Massachusetts) and Housing and Community Opportunity Subcommittee Chairwoman Maxine Waters (D-California) have called on the mortgage industry to delay or cancel foreclosures until Congress’ foreclosure rescue plan, the Hope for Homeowners Act (part of the larger Economic Recovery Act of 2008) goes into effect on October 1.
The legislation will allow qualified applicants to refinance into Federal Housing Authority (FHA) insured mortgages and avoid foreclosure. Frank argued that forbearing foreclosures until the new law takes effect will stave off further neighborhood deterioration and economical strain. Speaking directly to the industry, Frank said, “I would hope that no one would be foreclosed upon between now and October 1st who would have qualified for this program had the effective date been immediate. And this is within your power to do. You can show some forbearance.”

Waters added, “As one who has focused on mortgage servicing from the outset of this crisis, I strongly support the Chairman’s call for forbearance until October 1st. It would be shameful for a single homeowner in California, or anywhere else hit hard by the foreclosure crisis, to lose their home if they could have been helped by this program but for this deadline.”
In order to qualify for FHA refinancing under the program, homeowners must have more than 31 percent of their monthly income dedicated toward their mortgage payment as of March 1, 2008. In addition, they must meet specific qualifications outlined by the FHA program, and must agree to share future home appreciation with the government. Lenders must also concede to significant reductions in the principals owed to them. The Congressional Budget Office (CBO) estimates that at least 400,000 homeowners will avoid foreclosure at no cost to the taxpayer under the new program.
Chairman Frank also said that if servicers fail to cooperate in aggressively forbearing and preventing foreclosures, or if there are institutional roadblocks that prevent mortgage workouts, he would advocate a restructuring of the mortgage servicing industry to better align loan servicing and loan ownership.