Foreclosure Bill Likely to be Passed

The Foreclosure Prevention Act of 2008, passed by both the House and the Senate, is currently in committee, where a number of Senate amendments to the bill have been accepted already, but will it be enough to actually accomplish what its title suggests? The bill, if passed, would provide some relief to lenders, businesses and, most recently, to stressed borrowers. A controversial provision that would have allowed bankruptcy judges to reduce the principal on troubled borrowers’ mortgages was axed early in the legislative process. The Senate Banking Committee is currently reviewing provisions in the bill and has announced a recent amendment that would benefit homeowners by allowing them to refinance into a government-guaranteed mortgage. Rather than allowing judges to force insurers to lower mortgages, the Senate provision is a voluntary measure. The FHA would insure mortgages if lenders agree to refinance the mortgage at 85 percent of the home’s current appraised value. The White House, despite an earlier threat to veto the bill, according to Rep. Barney Frank (D-Mass.), is expected to pass the new bill once it leaves committee.

Included in the House bill sent to committee is a tax provision to extend the net operating loss (NOL) carryback period in 2008 and 2009 to four years (from two) which would allow companies to amend previous income tax filings to absorb business losses from 2008 and 2009. Additional provisions include establishment of a new regulatory body to oversee Fannie Mae and Freddie Mac, a permanent increase in the FHA loan guarantee limit to $550,000 and funding for community redevelopment funds and pre-foreclosure counseling. The bill also includes a nine-month moratorium on foreclosures for service persons and veterans, but stops short from extending the benefit to other homeowners facing foreclosure.

With one in 33 homes projected to go into foreclosure in the next two years, according to a recent report from The Pew Charitable Trusts, the bill has received a significant amount of bipartisan support, though not enough to override a veto suggested as late as May 19 by the White House. Congress members remain optimistic, as news from the White House seems to indicate greater willingness to review the bill once it leaves the committee.